Harvard Lags Peers as Endowment Fails to Post 2012 Gain

Harvard Posts Another Endowment Loss as University Lags Rivals
The Harvard Cooperative Society in Cambridge. Photographer: Michael Fein/Bloomberg

Harvard University, the world’s wealthiest college, lost 0.05 percent on its investments in the 12 months through June, the second drop in four years, trailing peers such as Yale University.

The size of Harvard’s endowment fell to $30.7 billion in the period, the Cambridge, Massachusetts-based university said. It also failed to keep pace with Stanford University and the Massachusetts Institute of Technology as it seeks to recover from a record loss of 27 percent in fiscal 2009. Harvard’s fund lagged behind the Standard & Poor’s 500 Index, which gained 5.5 percent in the same period, including reinvested dividends.

Jane Mendillo, the head of Harvard Management Co., which oversees the endowment, said the performance owed largely to the university’s investments in publicly traded non-U.S. and emerging-market shares, which had losses of 11 percent and 17 percent for the year, respectively. She said Harvard “carries relatively more exposure” to these types of assets compared with other universities.

“Over the last few years, markets have become quite turbulent and managing through complexity has become one of our themes since the financial crisis of 2008,” Mendillo, 54, wrote in a report released yesterday. “The 2012 fiscal year provided plenty of evidence that this theme remains relevant.”

The size of the endowment, which peaked in size at about $37 billion before the crisis in 2008, fell by about $1 billion from $31.7 billion over the last year after accounting for the investment loss and transfers to the university to cover academic operating costs.

Fund Performance

Mendillo, who first joined Harvard Management in 1987, has cut leverage and tried selling underperforming private-equity investments since she took over the fund in 2008 amid a meltdown in global financial markets. The endowment gained 11 percent in 2010 and 21 percent last year as markets recovered, and has a 20-year annual average return of 12 percent, putting it among the top performers, according to data compiled by Bloomberg.

While non-U.S. equities and emerging markets tumbled, Harvard’s shares in U.S. companies topped the benchmark with a 9.7 percent gain and its real estate portfolio returned 7.9 percent, according to the report. The university’s natural-resource investments gained 2.4 percent. Mendillo has said she is seeking to expand direct investments in real assets such as tree farms in Brazil to capitalize on the growth of the middle class in emerging markets.

Yale, Stanford

Harvard’s results are the worst to date for the handful of elite institutions that have posted fiscal 2012 results. Yale, based in New Haven, Connecticut, and the second-wealthiest university, said today its endowment gained 4.7 percent on its investments. The size of the fund fell to $19.3 billion from $19.4 billion because of distributions to support academic operations.

Stanford University, near Palo Alto, California, also reported results today, saying its endowment had a 1 percent return on investments. That compares with the 22 percent increase a year earlier. The fund’s value climbed 3.2 percent to $17 billion.

“Fiscal year 2012 was a challenging year for international equity markets, which was a drag on the portfolio,” John Powers, chief executive officer of the Stanford Management Co., said in a statement.

The University of Pennsylvania, which along with Yale and Harvard is part of the eight-member Ivy League, said last week it gained 1.6 percent for the year ended June 30. Last month, Cambridge-based MIT posted a return of 8 percent, while the University of Chicago said yesterday it had a 6.8 percent return.

Princeton University, another Ivy League school, will probably report its endowment earned zero to 5 percent on investments for fiscal 2012, President Shirley Tilghman said earlier this month. That compares with the New Jersey-based school’s 22 percent gain a year earlier.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE