BOSTON - The Harvard University endowment garnered a total return of 25.8% for the fiscal year ended June 30, net all expenses. The endowment's overall benchmark was 20%.
Specifically, the $11 billion endowment outperformed its benchmark in nine asset classes, in some cases by significant margins.
"This is our largest outperformance relative to the policy portfolio since it was formulated in fiscal 1992,"said Jack R. Meyer, president and chief executive officer of Harvard Management Co., which manages the endowment.
The policy portfolio is the longer-term asset mix that serves as a benchmark against which the actual portfolio is measured. The benchmarks are 36% domestic equities, 15% foreign equities, 9% emerging markets, 2% high-yield securities, 3% commodities, 7% real estate, 15% private equities, 13% domestic bonds, 5% foreign bonds, minus 5% cash. Mr. Meyer said the actual allocations stay pretty close to that target.
HMC also manages about $57 million in Harvard pension assets, about $81 million in annuities and $1.2 billion in general operating account funds. The endowment also outperformed the median pension fund in the Trust Universe Comparison Service by 5.5 percentage points.
For five years, the endowment returned an annualized 18.9%, vs. 15.7% for its policy portfolio and 14% for TUCS.
"While we are pleased with the 3.2 (percentage point) margin, we don't believe it is sustainable over time," Mr. Meyer warned in an annual letter. "A more realistic long-term aspiration relative to the policy portfolio would be an increment of about 1% per year."
His letter also said: "There may be years ahead when absolute returns are negative and there certainly will be years when we underperform the policy portfolio and the TUCS median. We are fortunate that the strong results of recent years have provided a cushion against the inevitable rainy days, weeks, years that may lie ahead.
"It is important we do not delude ourselves into thinking that double-digit returns will persist indefinitely. We are confident that if we maintain realistic expectations and continue our approach of managing a diversified portfolio while attempting to add value around the edges, we shall meet our long-term goals."