Harvard endowment returns 9.6% for fiscal year

Harvard University’s endowment posted a return of 9.6% for its fiscal year ended June 30, and the value of the portfolio increased to $53.2 billion from $50.7 billion the year before.

The latest positive investment return followed a 2.9% gain for the prior fiscal year and a 1.8% loss for the fiscal year ended June 30, 2022.

For the most recent fiscal year, the return was strong enough for assets to increase even after the $2.4 billion the endowment contributed to the university’s operating budget for the period.

N.P. “Narv” Narvekar, CEO of Harvard Management Co., which oversees the Cambridge, Mass.-based university’s investments, said in his annual letter to the Harvard community that the university now relies on endowment distributions to pay for nearly 40% of its annual operations, up from just over 33% when Narvekar came aboard in December 2016 and 20% two decades ago.

“The endowment’s orientation toward strong investment returns has been tempered by the imperative for budgetary stability. We believe that has resulted in a lower tolerance for risk than many of our largest private university peers, which can cause lags in ebullient environments, but also provide protection during downturns,” he said in his letter.

As of June 30, the endowment’s actual allocation was 39% private equity, 32% hedge funds, 14% public equities, 5% each bonds/Treasury inflation-protected securities and real estate, and 3% each cash and other real assets. Narvekar said in his letter that "rounding results in a total percentage greater than 100%."

Harvard’s return fell short of the median return of 10.7% among the 25 college and university endowments whose most recent fiscal-year returns have been tracked by Pensions & Investments as of Oct. 17.

Narvekar said private equity returns lagged behind public equities for the second year in a row and reminded readers in his letter that “in FY22, private managers did not reduce the value of their investments in a manner consistent with declining public equity markets at the time.”

Narvekar said as a result, “those private asset managers did not subsequently increase the value of their investments in the context of rising public equity markets in fiscal years 2023 and 2024.”

He also noted that the endowment increased the size of its hedge fund exposure in this most recent fiscal year in order to limit exposure to both public and private equities and limit portfolio risk.

Both the hedge fund portfolio and public equities were the strongest performers for the most recent fiscal year, he said.

“This is a particularly positive indicator, since HMC’s hedge fund portfolio has less equity exposure than most hedge fund indices, yet still outperformed during a strong year for equities,” Narvekar said. “Overall, significant alpha production over relevant benchmarks — a reflection of HMC’s strength in its process of selecting managers — has reduced the drawbacks of a comparatively under-equitized and lower-risk portfolio.”