Harvard Investing Chief Is Disappointed With Fund’s Performance
Harvard Investing Chief Is Disappointed With Fund’s Performance
(Bloomberg) -- N.P. “Narv” Narvekar is “not pleased” with the performance of Harvard’s endowment as he overhauls it to catch his Ivy League rivals.
The head of Harvard Management Co. said in an annual report that the $41 billion endowment was weighed down by losses from illiquid stakes in natural resources in fiscal 2019. The school also paid a price for its relatively low allocation to private equity -- the best-performing asset class in the endowment.
“While we are not pleased with this performance, we are mindful that HMC is an organization in the midst of significant restructuring,” Narvekar wrote in the report released Thursday. “We are keenly aware that we are in a marathon and not a sprint.”
Narvekar, who has run the endowment since 2016, is reaching the midpoint of a five-year turnaround plan after years of the lackluster performance. He has slashed staff and altered the strategy, shifting more assets to outside managers such as hedge funds while cutting bets on agriculture and real estate.
Harvard, the world’s richest school, counts on the endowment to subsidize more than a third of its operating budget, transferring more than $1.9 billion out of the fund in fiscal 2019, according to the report. The university ran a budget surplus of $298 million last year, and expects a new federal tax on investment gains to cost the endowment about $38 million.
While Harvard’s 6.5% return for the year through June 30 topped rivals like Yale University, its three- and 10-year annualized gains are still last in the Ivy League, according to data compiled by Bloomberg. Many endowments saw returns decline this year, hurt by exposure to poor-performing foreign equity markets.
The school’s private equity investments, which account for a fifth of the endowment, gained 16%, the report shows. Narvekar said he hasn’t increased the allocation because valuations are high, but he plans to devote more capital to private equity over time.
The endowment’s biggest allocation -- about a third -- is to hedge funds, which gained 5.5% for the year. Narvekar said he was “particularly pleased” with the performance, given how little of it came from exposure to equity markets.
Stocks make up only about a quarter of fund. The S&P 500 returned almost twice the amount of Harvard’s hedge fund wagers.
Harvard’s natural-resources bets lost 12.4% as the university wrote down the value of the assets by an additional $100 million, following a $1 billion devaluation two years ago, Narvekar said. The university has sold $1.1 billion of assets as part of the restructuring of the portfolio and expects to unload another $200 million this fiscal year.
While real estate generated a 9.3% gain, the university has cut its exposure to the asset class in half.
“While we still have much work to do, we are well on our way and generally comfortable with the progress,” Narvekar wrote.
To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net
To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Vincent Bielski, Daniel Taub
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