Tags: Harvard | endowment | investment | college

Harvard Endowment's 15 Percent Gain Trails Peers as Manager Sought

Wednesday, 24 September 2014 07:26 AM

Harvard University’s 15.4 percent investment gain trailed two Ivy League peers as the school searches for new endowment leadership.

While the results beat an internal benchmark, “illiquid investments” in the endowment’s private-equity portfolio hurt returns, Harvard Management Co., the investing arm of the Cambridge, Massachusetts-based school said Tuesday in a report. In the previous two years, Harvard had the worst- performing endowment in the eight-member Ivy League.

“It’s mediocre yet again,” said Charles Skorina, who runs Charles A. Skorina & Co., an executive search firm in San Francisco. “With the good people they have and the money to pay for the best, they should deliver better performance.”

The value of the endowment, the largest in higher education, rose to $36.4 billion as of June 30 from $32.7 billion last year. The fund remains below a high-water mark of $36.9 billion reached in 2008, before the university suffered a 27 percent investment loss in the global credit crisis that began that year.

Dartmouth College, in Hanover, New Hampshire, posted a one- year return of 19.2 percent through June, and its endowment’s value climbed to $4.5 billion. The University of Pennsylvania, in Philadelphia, had a return of 17.5 percent as its fund grew to $9.6 billion. The five other northeastern U.S. schools in the Ivy League haven’t released results yet.

Mendillo Successor

The report comes as Harvard searches for a replacement for Jane Mendillo, the chief executive officer of the management company. Mendillo, hired in 2008 in the midst of the crisis, said in June she is resigning at the end of this year. The annual average return over the past five years was 11.6 percent.

“We have recovered from the crisis,” Mendillo wrote in the report. She said her team has generated double-digit investment returns while repositioning the portfolio with adequate liquidity and enhancing its financial footing.

Even as private equity has crimped returns, Harvard plans to invest more in such funds, increasing its target allocation to 18 percent from 16 percent, according to the report. Mendillo said 73 percent of that portfolio is currently made up of commitments made from 2004 to 2008, and that those funds are “substantially underperforming.”

“One factor that continues to impact our performance is a real and visible overhang from underperforming illiquid investments made during the pre-crisis era,” Mendillo said. “These investments will continue to roll off over the next few years.”

Absolute Return

The return on Harvard’s private-equity investments in fiscal 2014 was 20.3 percent, trailing an internal benchmark, according to the report. Public equities returned 20.4 percent, also lagging an internal benchmark, largely because of holdings of foreign stocks.

Harvard will invest more in hedge funds, also called absolute return, increasing its target to 16 percent from 15 percent, Mendillo said in the report. At the same time, it is cutting public commodities to zero from 2 percent.

“The liquidity profile of the endowment is now improved, allowing us to strategically increase our position in illiquid assets,” Mendillo said.

Harvard’s performance also trailed other selective schools. The Massachusetts Institute of Technology had a 19.2 percent gain, while Duke University reported a return of 20.1 percent.

Many universities have recouped all of their losses from the credit crisis, which may boost the conviction of some to increase stakes in less-liquid assets like private equity and hedge funds, said Heather Myers, a managing director at Russell Investment Management Co. in New York.

“It gives people a different perspective,” Myers said. “For some it might give them a little more confidence to take more risk if they haven’t yet.”

Last year, Harvard President Drew Faust set a goal of raising $6.5 billion by 2018, money that will be used to boost education, research and construction at the university. Two weeks ago, the university said the campaign total had reached $3.8 billion.

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Harvard University's 15.4 percent investment gain trailed two Ivy League peers as the school searches for new endowment leadership.
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2014-26-24
Wednesday, 24 September 2014 07:26 AM
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