John Harvard's Journal
The Endowment Rises
Harvard’s endowment was valued at $32.7 billion last June 30, the end of fiscal year 2013, up $2.0 billion (6.5 percent) from the prior year, but still 11.4 percent less than the $36.9 billion peak reported in fiscal 2008, just before the financial crisis. The growth, as disclosed on September 24 in Harvard Management Company’s (HMC) annual report, was driven by an 11.3 percent investment return on assets—a turnaround from fiscal 2012, when a modestly negative return (-0.05 percent) and annual and one-time distributions from the endowment reduced its value by some $1.3 billion. (Endowment distributions, the largest source of Harvard’s operating revenues, accounted for 35 percent of income in fiscal 2012.)
The fiscal 2013 appreciation reflects the positive investment return, minus distributions to support University operations and for other purposes, plus gifts received (to be reported in the annual financial report later this fall). In a year of strong stock-market returns, HMC’s public equities (about one-third of assets) gained 16.3 percent, slightly above their benchmark. Absolute-return assets (hedge funds and high-yield bonds, about one-sixth of assets) gained 13.2 percent, nearly double their benchmark. The fixed-income portfolios (now less than 10 percent of assets) produced positive returns and yielded the widest performance margin relative to market results. Real assets (real estate, timber and farmland, and commodities, 25 percent of the investments) were the only category to trail market returns—an anomaly for HMC. The overall return was in line with the results of public pension funds and investors following a more conservative 60/40 allocation strategy, relying on public stock and bond holdings (the former mostly up strongly in fiscal 2013, the latter mostly down).
Among peers, Yale reported a 12.5 percent return and 7.8 percent endowment appreciation, to $20.8 billion. Stanford’s investment return was 12.1 percent; its endowment grew 9.7 percent to $18.7 billion as of August 31, the end of its fiscal year. Dartmouth investments yielded a 12.1 percent return, too. The University of Pennsylvania disclosed a 14.4 percent return, raising its endowment to $7.7 billion. The University of Virginia Investment Management Company realized a 13.4 percent return. And MIT recorded an 11.1 percent return, raising its endowment to $10.9 billion.
HMC president and CEO Jane L. Mendillo, noting that her organization is now fully staffed, expressed cautious optimism about the outlook, given current economic and political conditions:
Questions abound about fiscal and monetary policy here and abroad…about the impact of new market regulations and participants, and about the prospects for economic growth across global markets in sometimes shaky political environments.…However, looking beyond some of the shorter-term issues…we are confident that there is plentiful opportunity for long-term investors like Harvard.