Harvard Stands Out in Failing to Reach Pre-Crisis Endowment Peak

By Lauren Streib

Photographer: Brent Lewin/Bloomberg

Harvard Management Co., the Cambridge, Massachusetts-based school’s investment arm,... Read More

Harvard University, the world’s wealthiest school, is the only one among its peers whose endowment value hasn’t returned to the peak level reached before the financial crisis.
Harvard Management Co., the Cambridge, Massachusetts-based school’s investment arm, said last week the endowment stood at $36.4 billion as of June 30, about $500 million short of its 2008 apex. Several other Ivy League schools, such as Yale University and Brown University, reached new highs in fiscal 2014. Among the 40 richest U.S. colleges, Harvard is the only one that hasn’t fully rebounded, according to data compiled by Bloomberg.
“The largest endowments were squeezed because they had a very small portion of highly liquid investments,” said Daniel Wallick, an investment strategist at
Vanguard Group Inc. “In particular, their liquid investments were very volatile and that led to an exacerbation.”
Jane Mendillo, Harvard Management’s chief executive officer who is stepping down at year-end, wrote in her annual letter that the endowment had “recovered from the crisis.” She cited improved liquidity even as the fund remains affected by underperforming assets in private equity and natural resources.
“Private equity is one of the areas where large pre-crisis commitments and investment have continued to undercut our recent performance,” Mendillo wrote. Harvard declined to comment beyond a Sept. 23 statement on its 2014 returns.

‘De-worsification’

The median return for large endowments and foundations this year is 16.7 percent, according to Wilshire Trust Universe Comparison Service. The success of public equity bolstered the returns, as the Standard & Poor’s 500 Index (SPX) gained more than 20 percent in the year ended June 30.
“In the last five years, diversification has become de-worsification,” said Christopher Adkerson, a senior consultant at Mercer Investments. He said the success of the U.S. stock market over the past few years has led many smaller endowments with fewer alternative assets in their portfolios to achieve returns similar to those of larger peers.
As of June 30, 2013, all but six of the 40 wealthiest endowments had recouped the billions in losses caused by the financial crisis, according to annual endowment data published by the National Association of College and University Business Officers.

Yale, Brown

Of those six, Yale, Brown and Duke University surpassed pre-crisis levels in the 2014 fiscal year. Cornell University and the California Institute of Technology, which haven’t yet reported for this year, confirmed to Bloomberg News that their endowments have reached new highs, as well.
Compared with its peers, Harvard’s endowment has contributed a bigger percentage of assets annually to the university since the financial crisis. From fiscal 2009 to 2013, the endowment distributed an average of 5.4 percent. The average effective spending rate of endowments with at least $1 billion in the period was about 5 percent, according to Nacubo. Yale’s average rate in those five years was also higher than average at 5.7 percent.
University endowments with at least $1 billion lost an average of 20.5 percent in 2009 according to Nacubo data. Harvard was one of the biggest decliners that year, posting a 27 percent loss on investments and an $11 billion drop in assets.
Mendillo, who has led the endowment for six years, will be replaced on Jan. 1 by Stephen Blyth, HMC’s head of public equity, who joined the firm in 2006.