Harvard's Investment Gain Trails Rivals

Harvard's Investment Gain Trails Rivals


Harvard College’s endowment gained 10% within the newest fiscal yr, a lukewarm exhibiting because it performs catchup with Ivy League faculties and different high endowments.

Harvard lagged behind Ivy League rivals Dartmouth School and the College of Pennsylvania, in addition to the Massachusetts Institute of Know-how. They respectively gained 12.2%, 12.9% and 13.5% for the yr ending June 30. These faculties had been among the many first giant endowments to report outcomes.

Harvard’s efficiency beat the median 9.2% return posted for the interval by college endowments bigger than $1 billion, in response to preliminary Cambridge Associates knowledge. However its outcomes for the last decade have trailed these friends.

The newest Harvard consequence reveals the lengthy highway forward for the world’s largest college endowment because it engages in a high-stakes experiment to remake itself underneath a brand new chief govt. N.P. Narvekar, the endowment’s fourth chief govt in a decade, was employed in late 2016 to show round an establishment that had slumped from a pacesetter to a laggard.

The most recent figures mirror the primary full yr Mr. Narvekar has helmed Harvard Administration Co. Mr. Narvekar in a short letter launched Friday stated the $39.2 billion endowment was “nonetheless within the early levels of a multi-year transition, with a lot work forward.”

Mr. Narvekar final yr moved shortly to alter the endowment’s funding strategy, and drew consideration for shedding staffers and writing down the worth of Harvard’s natural-resources portfolio by roughly $1 billion.

For this yr, continued losses in a few of Harvard’s natural-resources investments and weak outcomes for a few of its investments in exterior hedge funds had been a drag on efficiency, stated individuals aware of the matter. The endowment funds greater than a 3rd of Harvard’s working finances and contributes to scholar assist and professor salaries.

Its efficiency has been a supply of concern in latest months amongst some potential donors who apprehensive poor returns would scale back the impression of a present. Among the college’s fundraising workers have informed donors they will earmark donations for “present use,” which means the present wouldn’t be put within the endowment, stated individuals aware of the matter.

Harvard raised $9.6 billion in a five-year capital marketing campaign that resulted in mid-2018; a lot of the cash raised shall be managed by the endowment, stated an individual near the college.

Harvard for years was the envy of the endowment world.

Underneath endowment chief Jack Meyer, Harvard was an early embracer of hedge funds and private-equity funds. It additionally constructed up a formidable warfare chest by buying and selling most of its property in-house, an inside funding scheme uncommon amongst endowments. Most endowments contract with exterior companies to handle their cash.

Harvard returned a mean of greater than 14% a yr from 1990 to 2005 underneath Mr. Meyer. However his departure in 2005, together with a group of merchants, to begin his personal hedge fund presaged a revolving door on the endowment’s highest ranges and a protracted interval of weak returns.

Folks near the endowment cite its management churn, diminishing returns from in-house investing, a very fierce drubbing throughout the monetary disaster, and its giant greenback dimension among the many components which have hobbled its efficiency. Harvard’s annualized returns had been four.5% for the last decade ended June 30, 2018.

Mr. Narvekar has dramatically reshaped the endowment in his lower than two years on the job.

He has, as an illustration, stated he has largely ended the endowment’s custom of investing property internally. This transfer drove layoffs of roughly half the endowment’s workers and the departure of a number of inside investing groups throughout hedge funds and actual property.

Mr. Narvekar additionally has tied funding staffers’ pay to how all the endowment performs and tasked staffers with proudly owning the entire portfolio, versus a particular asset class. Most funding staffers beforehand had been compensated solely on the slender a part of the portfolio they oversaw.

Staffers have been giving each other casual tutorials on investments they haven’t labored on, individuals aware of the endowment stated.

And Mr. Narvekar has continued to shrink Harvard’s sprawling portfolio of farms, forests and different natural-resources property. Predecessors as soon as noticed these investments as a significant driver of returns; Mr. Narvekar believes they expose the endowment to giant worth swings whereas locking it into hard-to-exit property. Harvard has shopped some property previously yr, stated individuals aware of the matter, together with forestland in Brazil and Uruguay.

That is the second yr Mr. Narvekar has damaged with custom by not offering an in depth breakdown of the endowment’s investments. He wrote in his letter, “We’re assured within the route of the group and the long-term prospects for the endowment.”

Mr. Narvekar, who beforehand ran Columbia College’s endowment, has pushed for staffers to make use of a extra commonplace set of standards when evaluating exterior managers, in response to individuals aware of the matter. The strategy contrasts with how groups working totally different elements of the endowment’s portfolio operated previously.

Write to Juliet Chung at juliet.chung@wsj.com and Daybreak Lim at daybreak.lim@wsj.com

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