Eton loses £4m in risky trading

Eton, Britain's most famous public school, has lost millions of pounds on the City's high-risk currency and futures markets.

The school's disastrous investment cost it nearly £4.2 million in 2002, equivalent to more than £3,000 for each of its 1,300 feepaying pupils, according to accounts seen by The Evening Standard.

The losses will be a deep embarrassment for the school, which charges annual fees of about £21,000, and counts the offspring of some of the City's biggest dealmakers among its roll-call.

The school, attended by both Prince William and Prince Harry, insists that the losses - made on roller-coaster markets normally regarded as the territory of bank traders - were a one-off.

Andrew Wynn, the bursar of Eton, who is responsible for the school's finances, described the losses as "a pity".

He added: "Eton does not normally invest in futures, currency or derivatives. The losses on futures and currency were made during the restructuring of the investment portfolio."

They occurred during the handover of Eton's £140 million investment portfolio from one City firm to another during a period of volatile markets.

The futures contracts were supposed to guarantee that the school did not lose out if markets rose sharply while the portfolio was between fund managers. In fact, they had the opposite effect when markets slumped.

Eton is not the only top public school to have suffered investment losses in recent years.

Winchester College's accounts for the year to the end of August 2002, show that it lost £2.5 million on the stock market during the period. It has sacked its investment advisers, the Queen's stockbrokers Cazenove, and replaced them with Laing & Cruickshank.

Winchester admits: "Investment income available barely covers the cost of the scholarships, bursaries and other awards they are intended to fund".

One City fund manager, who specialises in charities, said of Eton's losses: "It is a remarkable amount of money to lose and is really inexcusable over such a short period of time."

An analysis of Eton's accounts, which cover the 12 months to 31 December, 2002, also reveal more deep-rooted problems facing its formidable but increasingly stretched finances.

These have forced cutbacks in spending on a school that has rarely encountered funding difficulties in its 500-year history.

During 2002, Eton's investment portfolio - easily the biggest of any British school - lost £16.3 million, including the currencyand futures losses, the accounts disclose.

The school, where Sir Michael Peat, Prince Charles's Private Secretary, is a trustee, concedes in the accounts that "poor investment performance since January 2000 has led to decisions to reduce planned spending from 2003, in order to regain a sustainable level of commitment, and to review the spending policy".

As part of the review, Eton has sacked its investment advisers, the US bank Merrill Lynch, and replaced them with Barclays Global International.

In 2002, expenditure exceeded income from fees and grants by £1.2 million. Longer term, the school, which counts 19 British prime ministers among its old boys, is more concerned about the threat to its centuries-old charitable status, which gives it exemption from income and corporation tax.

The Office of Fair Trading is also conducting an investigation into whether public schools are in breach of competition laws. The schools were accused of operating a cartel to push up fees.