Eton loses £4m on the markets

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

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

The losses will be a huge 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, formerly attended by 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 £140m 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 if markets rose sharply while the portfolio was between fund managers. 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 £2.5m on the stock market during the period. It has sacked its investment adviser, the Queen's stockbrokers Cazenove, and replaced it with Laing & Cruickshank.

Winchester saod: '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.'

An analysis of the school'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 £16.3m, including the currency and 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 adviser, the US bank Merrill Lynch, and replaced it with Barclays Global International.

In 2002, expenditure exceeded income from fees and grants by £1.2m. 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.