Harvard endowment records 2.9% return due to low public equity allocation

Harvard University’s endowment logged a 2.9% investment return for its fiscal year ended June 30, while the value of the portfolio declined to $50.7 billion from $50.9 billion the year before.

The return was not enough, however, to completely cover the more than $2.2 billion the fund contributed to the university’s operating budget for the period.

The latest positive investment return followed a 1.8% decline for the prior fiscal year and a 33.6% surge for the 12 months through June 30, 2021.

N.P. “Narv” Narvekar, CEO of Harvard Management Co., which oversees the Cambridge, Mass.-based university’s investments, in his annual letter to the Harvard community said, “Fiscal year 2023 was a year of generally muted returns for asset classes outside of public equities. While public markets were flat or negative during the first half of FY23, the dramatic equity rally during the second half of FY23 (i.e., the first six months of calendar year 2023) changed the picture meaningfully.”

Narvekar noted the endowment’s limited allocation of only 11% to public equity meant the endowment’s return did not reflect a significant impact from strong public equity returns for the period.

As of June 30, the rest of the endowment’s actual allocation was 39% private equity, 31% hedge funds, 6% bonds/Treasury inflation-protected securities, 5% each cash/other and real estate, 2% other real assets and 1% natural resources.

Harvard’s return also fell short of the median return of 4.4% among the 26 college and university endowments whose most recent fiscal year returns have been tracked by Pensions & Investments as of Oct. 19.

“Strong public equity returns are often outpaced by private equity and venture capital. However, the returns for these asset classes proved to be only slightly positive in private equity and mildly negative in venture capital/growth,” Narvekar said in his letter. “While this outcome may seem counterintuitive, we anticipated a correction in those funds’ performance in last year’s annual letter, noting that their dramatic outperformance over public markets was likely due to a natural lag in how their assets are valued.”

In the university’s 2023 financial report released Oct. 19, Narvekar said his team had moved over the past two years to address “a main constraint on Harvard’s endowment returns” — a portfolio that was structured to take less risk than what was likely prudent.

“After several years of rigorous conversation and analysis, the University agreed to a measured increase in the portfolio’s risk level, which HMC began implementing over the last two years,” he said.

Even so, “we continue to operate … at a somewhat lower risk level than many peer endowments,” said Narvekar. HMC and the university will continue to periodically review the appropriate long-term risk level and tolerance for the endowment, he said.