Harvard Gains 11.3% on Its Investments as Endowment Rebounds

Harvard University, which last week introduced the largest capital campaign in the history of higher education, gained 11.3 percent on its investments in the year through June as the size of the endowment grew to $32.7 billion.

Harvard, the world’s wealthiest school, said it beat its benchmark and generated an additional $600 million on U.S. and foreign public equities as well as hedge funds. The Cambridge, Massachusetts-based university, which posted a record 27 percent loss in the year through June 30, 2009, said that over 10 years it has gained on average 9.4 percent annually.

“I am very proud of the internal and external managers we have in place and the results they have achieved,” Jane Mendillo, chief executive officer of Harvard Management Co., the university entity that oversees investments, said in a report. “We have made a strong recovery since the global economic downturn of 2008-2009.”

Harvard is among the universities still fighting to recoup all of the investment losses from the global credit crisis. While it is still the wealthiest, the endowment peaked in value at $36.9 billion before the losses posted in 2009. Last year it lost 0.05 percent.

While Harvard and other elite schools for years generated superior returns by aggressively expanding investments in alternative assets such as private equity and hedge funds, the gain this year is largely in line with others.

Foundations and endowments as a group had a one-year median return of 11.28 percent for the 12 months ended June 30, Wilshire Associates said in an Aug. 6 report. That’s up from an annual increase of 0.38 percent through June 30, 2012.

Yale’s Gains

Yale University, which under the tutelage of Chief Investment Officer David Swensen is also credited with remaking endowment management to favor less liquid assets, said today it gained 12.5 percent through June 30. The university in New Haven, Connecticut, said it has a target allocation of 31 percent for private equity, 20 percent for hedge funds and 6 percent for domestic equity markets.

The Philadelphia-based University of Pennsylvania on Sept. 19 reported a 14.4 percent return on its investments in fiscal 2012, up from a 1.6 percent gain a year earlier. The Massachusetts Institute of Technology, which is also in Cambridge, recently said its endowment grew to a record $10.9 billion after an 11.1 percent increase on investments.

Equity Markets

“This was a year in which it paid to be in public equity and developed markets,” said Max Senter, a managing director at Cambridge Associates LLC, a Boston-based research and consulting firm. “It was a big up year for U.S. equity and for big European countries and Japan.”

Mendillo said in the report released today that domestic equities gained 26.6 percent for the year while foreign equities were up 20.5 percent. The university’s hedge fund portfolio was up 13.2 percent, compared with a benchmark of 6.8 percent. Private equity returned 11 percent and over the last decade has failed to outperform publicly traded stocks, she said.

The university remains optimistic about emerging markets despite gaining only 2.3 percent for the year, Mendillo said. Harvard also liquidated $600 million of its timberland portfolio even as it expanded its holdings of so-called real assets.

Harvard on Sept. 21 announced a $6.5 billion capital campaign to raise additional funds for research, teaching, renovating dormitories and resuming construction stalled by losses from the credit crisis. The University of Southern California had set the previous record target for a $6 billion campaign that began in 2011.

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net

To contact the editor responsible for this story: Lisa Wolfson at o lwolfson@bloomberg.net

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