Harvard’s $51 Billion Fund Beats Yale in Hard Year for Endowments

Harvard University’s endowment earned an investment return of 2.9% during the latest fiscal year, beating rival Yale University and most other Ivy League peers but lagging far behind plain old US stocks.

(Bloomberg) — Harvard University’s endowment earned an investment return of 2.9% during the latest fiscal year, beating rival Yale University and most other Ivy League peers but lagging far behind plain old US stocks. 

Returns were “mildly negative” in venture capital/growth investments and only slightly positive in private equity, Harvard said in a financial report. The value of the endowment, the largest in US higher education, edged down to $50.7 billion after accounting for outflows to pay for university expenses and inflows from gifts. 

Harvard’s performance underscores the lackluster results at big college funds during the 12 months ending in June as returns fizzled in alternative assets such as venture capital even as the S&P 500 jumped 18%. Endowments with less than $500 million, which typically invest more heavily in US stocks, earned a 10% median return compared with 6.2% for larger funds, according to Wilshire Trust Universe Comparison Service, which doesn’t name individual schools.

At Harvard, public equities account for just 11% of the endowment’s holdings compared with a 31% share for hedge funds and 39% for private equity, which includes venture capital. Private-asset managers were slow to increase valuations during the most recent fiscal year’s stock rally, just as they lagged in reducing valuations as public markets slumped the year before, Harvard said. Any rebound will probably be gradual despite the gains in US stocks. 

“Given the continued slowdown in exits and financing rounds over the last year, it will likely take more time for private valuations to fully reflect current market conditions,” said N.P. “Narv” Narvekar, chief executive officer of Harvard Management Co., which manages the fund. 

Harvard rejected the comparison of the endowment’s returns to the S&P 500, according to a Q&A accompanying the financial report. The fund is designed to support the university in perpetuity, and its investments in a mix of asset classes reflect the institution’s risk tolerance. During the 12 months ending in June 2022, Harvard’s endowment lost just 1.8% while the S&P 500 tumbled 12%.  

Of the five other Ivy League schools that have reported returns for the latest fiscal year so far, only Columbia University bested Harvard, with a 4.7% investment return. Yale returned 1.8%. Elite colleges such as Duke University and the Massachusetts Institute of Technology reported losses.

Yale beat Harvard in the long game, however. The New Haven, Connecticut, school returned an annualized 10.9% over the last decade, compared with 8.2% at Cambridge, Massachusetts-based Harvard.

Inflation’s Toll

At Harvard, the endowment accounted for 37% of operating revenue, making it the largest source of income for the school. The endowment distributed $2.2 billion toward Harvard’s operating budget including financial aid, faculty and research, and the university ended the year with an operating surplus of about $186 million.

Increased spending was spurred in part by rising inflation and higher interest rates, said Chief Financial Officer Ritu Kalra.

“Inflation has been persistent in every arena – wages, supplies, construction costs – and inflation is not yet behind us,” she said.  “Going forward we will need to watch the pace of operating expense growth, which was nearly double this year’s revenue growth. That was purposeful this year, but that level of growth is not sustainable over the long run.”

Cash gifts to the university fell 3% to $1.38 billion in the latest year. The share of donations as a percentage of revenue has increased over the long term, amounting to 45% in the most recent year compared with 28% in 1995. The percentage includes current-use gifts and endowment distributions.

Harvard, along with other US universities, has been criticized for its response to the terrorist attacks in Israel, potentially affecting the outlook for gifts. Two billionaire donors, Idan Ofer and Leslie Wexner, have severed ties with the school during the last week.

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