Risk helps Harvard endowment return 7.3% for fiscal year

High-risk assets served Harvard University's endowment well during the fiscal year ended June 30, Harvard Management Co. President and CEO Nirmal P. "Narv" Narvekar said in an annual report Thursday.

The university's $41.9 billion endowment returned 7.3% in "another year in which asset allocation (or risk level) played a major role in returns. Those who took the highest risks ... garnered higher returns," Mr. Narvekar wrote in the annual report for HMC, which oversees the Cambridge, Mass.-based university's endowment.

Broken down by asset class, equities returned 12.2% for the endowment, while private equity returned 11.6%; fixed income and Treasury-inflation protected securities, 8.2%; and hedge funds, 7.9%. Real estate returned -0.5%, natural resources, -6.2%; and other real assets, -17.5%. Benchmark figures were not provided.

While the endowment is looking to increase its risk tolerance, Mr. Narvekar wrote that it is also looking to remove some "illiquid portfolio anchors weighing down the overall portfolio ... over the next two fiscal years."

"These legacy assets do not have a prospect of generating a return commensurate with the risk and illiquidity they entail and, in some cases, may not provide a return at all," he wrote.

Mr. Narvekar, who became CEO in December 2016, reorganized HMC's staff to change its investment strategy from a specialized or "silo" approach to a generalist investment model in which all members of the investment team take ownership of the entire portfolio.

"Having completed three full fiscal years of our transition of HMC's organization and portfolio, I am proud of the progress our team has made," he wrote. "We are beginning to see the benefits of the ongoing transition."

As of June 30, Harvard's endowment has an allocation of 36.4% to hedge funds, 23% private equity, 18.9% equities, 7.1% real estate, 5.6% cash, 5.1% fixed income/TIPS, 2.6% natural resources and 1.3% to other real assets.