Tags: Harvard | Endowment | Frothy Markets | Invest

Harvard Warns: Markets Look Frothy

Harvard Warns: Markets Look Frothy

Friday, 25 September 2015 05:34 AM

The head of Harvard University's endowment, worth nearly $38 billion, warned that current market conditions "present various challenges to investors."

"This environment is likely to result in lower future returns than in the recent past," wrote Stephen Blyth, who took over as Harvard's chief investment officer in January, in a letter this week.

In his note, Blyth said he's looking for managers with expertise in short selling to cope with a market that's "potentially frothy," CNN Money reported.

He is also worried about liquidity, pointing to the dramatic drop in U.S. Treasuryss on October 15, 2014 as "a stark manifestation of the evaporation of liquidity." He said that liquidity can vanish from the market even "when no material economic event has occurred."

Meanwhile, Harvard University's endowment posted a 5.8 percent return in fiscal year 2015 to hit a record $37.6 billion, the elite school's in-house fund management company said.

The returns for the 12 months ended June 30 were driven by outsized profits in stocks, venture capital investments in technology and biotech, and real estate holdings, Harvard Management Company said in a letter to alumni published on its website on Tuesday.

"We have challenges ahead and much hard work to be done, but I believe we have gained significant traction in 2015," Stephen Blythe, who took over the job of HMC's president from Jane Mendillo in January, said in the letter.

The Ivy League school's endowment has long been the largest in the world, and is now roughly the equivalent of an average country's annual gross domestic product.

The university depends on the endowment for roughly one-third of its annual operating budget, including funding faculty salaries, facilities maintenance and student financial aid.

Harvard Management Company's investments in U.S. stocks returned 12.4 percent, besting the market's 7.2 percent during that period, while private equity investments yielded 11.8 percent, beating the 10.8 percent benchmark.

The fund's best performing asset class, however, was real estate, which returned 19.4 percent, versus the benchmark's 11.5 percent, Harvard Management Company said.

"The return of 19.4 percent was driven primarily by the exceptional, continued success of our direct investment strategy," Blythe wrote.

The fund, meanwhile, lost money on emerging market equities and foreign equities, and saw its absolute return portfolio stand still with a return of 0.1 percent.

Blythe said the fund had dodged the worst of a slump in natural resources markets by deciding in June 2014 to "eliminate completely our exposure to commodity indices," which fell more than 20 percent during the year.

The natural resources portfolio gained 3.5 percent, beating the benchmark performance of 3.1 percent.

"High performance from certain agriculture and timber assets was largely offset by lower soft commodity prices and weakness in land prices in areas of Latin America," Blythe wrote.

Harvard Management Company has spent much of the last several years rebuilding from a 30 percent decline posted in the wake of the financial crisis in 2009. Last year, the fund grew 15.4 percent, nearly matching the pre-crisis level.


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The head of Harvard University's endowment, worth nearly $38 billion, warned that current market conditions present various challenges to investors.
Harvard, Endowment, Frothy Markets, Invest
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2015-34-25
Friday, 25 September 2015 05:34 AM
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