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Harvard sees 0.05% slide in investments for fiscal year

Jane Mendillo
Jane L. Mendillo, president and CEO of Harvard Management Co.

Harvard University's endowment suffered a marginal investment loss of 0.05%, or roughly $16 million, in its latest fiscal year, leaving the nation's largest university endowment fund at $30.7 billion as of June 30, according to Jane L. Mendillo, president and CEO of Harvard Management Co.

The endowment's investment decline for the latest year followed a 21.4% gain the year before, when the endowment had $32 billion.

The endowment's fiscal year results exceeded the 1.03% decline for Harvard's customized policy portfolio benchmark, but trailed the 6.71% gain that a U.S.-focused 60% stock/40% bond portfolio would have enjoyed, according to Ms. Mendillo's annual “message from the CEO” to the Harvard community.

In her annual message, Ms. Mendillo on Wednesday reported that the endowment was able to hold “steady” in a turbulent year that saw global equities drop 6.5% and the broad hedge fund industry slip 2.5%.

Over the three years since Ms. Mendillo took the helm at Boston-based Harvard Management, the annualized 10.42% return for the endowment has exceeded the 9.17% gain for its customized policy benchmark, while trailing the 12.82% gain for the U.S.-focused 60/40 benchmark.

In her message, Ms. Mendillo said her team's focus on improved liquidity and risk management has left the endowment well placed to meet the university's needs in coming years.

Harvard's heavy investments in illiquid assets when the global financial crisis struck in 2008 had left the endowment team scrambling at times to meet both fund commitments and immediately liquidity needs.

Despite those recent challenges, for the current year, private equity is the market segment slated to garner the biggest boost in the endowment's policy portfolio targets — a four percentage point increase to 16%.

Target allocations for domestic equities, foreign developed markets equities and emerging markets equities, meanwhile, have been shaved to 11% each for the fiscal year through June 30, 2013, from 12% each for the fiscal year just ended.

On balance, that amounts to a one-percentage-point increase in the endowment's combined equity allocation to 49% from 48% for the just-concluded fiscal year.

In other changes, Harvard:

  • trimmed its target to absolute-return strategies by one percentage point to 15%;
  • boosted its allocation to real assets by two percentage points to 25%, including one-percentage-point increases to real estate, to 10%, and commodities, to 15% — 13 percentage points for natural resources and 2 percentage points for publicly traded commodities; and
  • cut its allocation to fixed income by two percentage points to 11%, including one-point drops in inflation-indexed bonds to 3% and foreign bonds to 2% (holding allocations to domestic bonds and high-yield bonds steady at 4% and 2%, respectively.

Ms. Mendillo couldn't be reached immediately for comment.