Harvard’s Endowment Grew 10% Last Year, but Some Rivals Did Better

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Harvard University’s endowment, the world’s largest, grew 10 percent in the most recent fiscal year to $39.2 billion, officials said on Friday. That was slightly better than the previous year, when Harvard began to revamp the endowment under a new investment chief, but fell short of returns reported recently by several other large universities.

The Harvard Management Company, which oversees the endowment, did not provide details about how specific investments performed, saying it expects to include the information in the university’s financial report next month. The results were for the university’s 2018 fiscal year, which ended June 30.

N. P. Narvekar, the management company’s chief executive, said in a news release that the endowment was still in the “early stages” of the overhaul he started upon joining Harvard in 2016, and that he was confident the organization was on the proper path.

Harvard’s returns topped the 8.4 percent gain that a typical 60-40 portfolio of Standard & Poor’s 500-stock and aggregate bond index equities would have delivered over the same period, said Jeff Schwartz, president of Markov Processes International, a quantitative research and technology firm.

But the endowment at the Massachusetts Institute of Technology, for example, posted a 13.5 percent gain, bringing it to $16.4 billion; Notre Dame’s increased 12.2 percent, to $13.1 billion; and the University of Pennsylvania’s rose 12.9 percent, to $13.8 billion.

Mr. Narvekar arrived at Harvard after running Columbia University’s endowment for 14 years. During his tenure there, the university achieved annualized gains of 10 percent for an endowment that stood at $9 billion when he left. Harvard, whose endowment had been roiled by management turnover and declined 5.1 percent in the 2016 fiscal year, was betting he could lead a turnaround.

On Mr. Narvekar’s watch, Harvard has sold assets and taken write-downs that have had the effect of depressing the endowment’s returns. Such moves are not unusual when a new investment chief takes over because they allow for rejiggering investments and revaluing assets. They can also make subsequent gains appear even greater because the increases start from a lower base.

Harvard reported an 8.1 percent return for the 2017 fiscal year, Mr. Narvekar’s first in charge. That year, in a move extensively debated by the board because of its size, he wrote down the endowment’s natural resources portfolio by about $1 billion from $4 billion.

The university also sold about $740 million in private equity investments to Lexington Partners at a 29 percent discount as of Sept. 30, 2017, according to data from Lexington obtained by The New York Times. Spokesmen for both Harvard and Lexington declined to comment on those numbers.

Mr. Narvekar has taken a number of other steps to shift many of Harvard’s investments from in-house to external managers. The university, for example, spun its $3.4 billion real estate portfolio off to Bain Capital this fiscal year; its 22 staff members will work at Bain managing the Harvard investments.

Harvard’s tradition of managing a sizable share of its portfolio under Jack Meyer, the former chief investment officer, had made it unique among large universities. By having more of its money managed externally, it is adopting a strategy similar to one employed by universities like M.I.T., Yale and Stanford.

Spinning off and selling assets also allowed Mr. Narvekar to shrink Harvard’s endowment team by half, to about 115 people. Among other things, having a smaller staff allows the endowment to disclose fewer employee salaries. The generous paychecks given to the university’s money managers have made alumni and other Harvard employees angry in the past.

The shift toward external money managers will also probably help the endowment avoid the criticism for how its proprietary assets are being handled. This month, two nonprofits, Genetic Resources Action International and the Network for Social Justice and Human Rights, published a detailed report citing conflicts between Harvard’s investments in natural resources and local landowners and tenants, particularly in Brazil. The report raised questions about the value of that asset.

Harvard has said it has already sold some natural resources assets and is considering selling others. Mr. Narvekar has also said that the staff will no longer specialize in specific asset classes but will be responsible for the overall portfolio, and that its compensation will be determined by overall performance.

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