Harvard endowment trails peers with 34% return on lower risk

HARVARD University reported returns that lagged behind its peers in the latest fiscal year, results that the richest US college attributed to taking less risk. The school's endowment returned 34 per cent through the end of June, Harvard said on Thursday. That trails almost all the major universities that have reported results, many of whom credited stock holdings and venture capital investments for their success.

"Given the extraordinarily strong performance of the overall market this past year, a meaningfully higher level of portfolio risk would have increased Harvard Management Company's (HMC) returns dramatically," NP "Narv" Narvekar, HMC's chief executive officer, said in the statement.

Harvard's risk profile "might well be different from that of other university endowments", he said. "We believe that Harvard's financial future is very well served by this process."

Harvard's endowment still added US$11 billion over the 12 months, and the fund's value hit a record US$53 billion. In fiscal year 2020, only about a dozen colleges in the country had assets of US$11 billion or more.

Universities such as Vanderbilt, Duke and Washington University in St Louis all reported returns of more than 55 per cent for the year ended June, while Massachusetts Institute of Technology was up 56 per cent.

Among Harvard's Ivy League rivals, Brown saw a 52 per cent gain and Dartmouth reported a 47 per cent return. The S&P 500 was up 38 per cent over the period.

"While reducing public equities proved to be painful in financial year 2021, we needed to do so in order to remain within our portfolio risk budget," said Narvekar, who joined Harvard in December 2016.

Private equity, which comprises more than one-third of the portfolio, delivered a 77 per cent gain.

Stocks were up 50 per cent, while hedge fund returns were just 16 per cent. HMC has been reducing its stock holdings, which now comprise about one-seventh of its holdings.

Narvekar noted that the success that other investors have had with venture capital, and pointed to moves his fund made that he said will pay off in future. "Our recent venture investments could take about a decade to bear fruit, though up rounds are happening much quicker today than in normal market periods," he said.

The endowment distributed more than US$2 billion towards the university's operating budget, which represents more than one-third of annual revenue. Harvard ended the year with an operating surplus of US$283 million. BLOOMBERG