Meanwhile, the largest of all the institutions, in terms of endowment asset size, was forced to look up at its smaller contemporaries.
Harvard University, which boasts an endowment with $53.2 billion in assets, an annual gain $11.3 billion, returned a net 33.6% for the year ended June 30, below the recorded endowment returns of most other Ivy League schools.
However, Charles A. Skorina, managing partner of the Tucson, Ariz.-based Charles A. Skorina & Co., executive recruiter for endowments, said that, given the circumstances, the Cambridge, Mass.-based university's endowment returns are "spectacular."
"Given where Narv started from five years ago, it appears as though he's done well," Mr. Skorina said, referring to Harvard Management Co. President Nirmal P. "Narv" Narvekar. "I think it's too easy to dismiss what a task he had.''
HMC oversees management of the endowment.
Mr. Skorina added that, "It's really next year when it would be fair to judge his performance, because now, it's his portfolio."
Since taking over as CEO in December 2016, Mr. Narvekar has reorganized HMC's investment strategy from a specialized approach to a generalist model in which all members of the investment team take ownership of the entire portfolio. Over the past few years, HMC has reduced its exposure to real estate, natural resources and equities, to 5%, 1% and 14%, respectively, while increasing its exposure to private equity to 34% and hedge funds to 33%. By comparison, as of June 30, 2018, the endowment's allocation to equities was 31%; hedge funds, 21%; private equity, 16%; real estate, 13%; and natural resources, 6%.
In a note to Harvard associates on Oct. 14, Mr. Narvekar wrote that finding the right level of risk for the portfolio is among HMC's top concerns. HMC even formed a "risk tolerance group" in 2018 to determine the right risk levels for the endowment.
"The level of portfolio risk is ultimately the most important and fundamental aspect of portfolio construction," Mr. Narvekar wrote, adding that while returns were strong for the latest fiscal year, "Harvard's endowment will not produce 33.6% returns each year."
"Indeed, there will inevitably be negative years, hence the importance of understanding risk tolerance," Mr. Narvekar wrote, adding that it is important that the "team, investment process/analytics, organizational structure, culture and aligned incentives provide HMC with the framework for long-term success."
Mr. Narvekar declined to be interviewed.
Michael Karris, founder, president and CIO of EndowBridge Capital LLC, said that if Harvard's endowment returns were below average, it's because Mr. Narvekar has been repositioning the portfolio, and it takes time to transition out of illiquid assets. EndowBridge is a Princeton, N.J.-based outsourced CIO provider for foundations and endowments.
"Narv has been transitioning the portfolio and endowments are such long-term investors it takes a very long time for these home runs to come to fruition, especially when it comes to venture capital," Mr. Karris said. "Venture capital was the star of the show this fiscal year. Investments made 10 years ago really paid off."
"Some of the decisions that affected Harvard's returns were made by the staff prior to Narv (joining), so hard to discern how much is based on decisions they made vs. the prior staff," Mr. Karris added.
The EndowBridge founder, who had previously worked at Columbia University Investment Management Co. when Mr. Narvekar was CEO, added that he believes that "there are two different styles of investing going on" between Harvard and Yale University. Mr. Narvekar managed Columbia University's endowment from 2002 to 2016.
While Yale appears to be consistently aiming for outsized returns, Harvard, on the other hand, "may be just trying to hedge against what happens in a downturn."
Yale's $42.3 billion endowment returned 40.2% for the fiscal year ended June 30.
"It's not clear if Harvard is aiming to achieve Yale-like returns going forward, especially if they're so mindful of risk tolerance," Mr. Karris said. "It might be safe to assume Narv is protecting the endowment for a future crash or downturn, which is similar to what he did at Columbia."