Harvard Endowment Grew By 8.6 Percent In Last Fiscal Year

Harvard University’s $36.9 billion endowment earned 8.6 percent on its investments in its latest fiscal year, the school’s money managers reported Friday, even as stock markets around the world were losing money.

The endowment’s return for the year ending June 30 compares with a loss of 13.1 percent by the Standard & Poor’s 500 stock index during the same period.

Harvard Management Co., the university’s investment arm that runs the endowment, also easily outperformed many other investment funds in its universe. The fund said an index that measures the performance of 165 other large institutional investors had a 4.4 loss percent during that period; the top performers in that group, moreover, earned 3.2 percent.

Some other closely watched university endowments, particularly that of Yale University, have yet to report results for the fiscal year. The Massachusetts Institute of Technology expects to report its endowment’s annual investment performance this month.

Harvard Management said its endowment, which grew $2 billion during the fiscal year, distributed $1.6 billion to the university to support teaching, research, and student aid.

Former Harvard Management president Mohamed El-Erian managed the portfolio for a part of the last fiscal year but left the post in December. Robert Kaplan, a Harvard business professor and former vice chairman at Goldman Sachs Group Inc., then ran it on an interim basis until new president Jane Mendillo took over July 1.

Mendillo said Friday she was cautious about the current volatility in capital markets and how that could affect the endowment’s short-term performance. “It’s a very challenging environment in the financial markets right now,” she said. “We don’t know how the end is going to look, and we’re cautious about the impact on many of the markets we participate in.”

One reason Harvard’s endowment performed so well last year is it invests less money in equities than many other funds. Harvard lost 12.7 percent on its US stock portfolio and 12.1 percent on its foreign equity portfolio in the last fiscal year. But those categories accounted for an estimated 22 percent of the endowment’s total assets at the end of the fiscal year.

Harvard also invests a substantial amount of its endowment in hedge funds, private equity funds, commodities, and real estate. Most of those earned substantial profits in the last fiscal year.

Harvard’s “real assets” portfolio, which includes easily tradeable commodities, timber, agricultural land, and real estate, earned 35.8 percent. Private equity investments returned 9.6 percent and hedge funds roughly broke even.

The endowment’s bond portfolio also posted big gains during the year. Domestic bonds earned 16.1 percent while foreign bonds gained 21.3 percent and inflation-indexed bonds advanced 20.3 percent. The combined bond portfolio accounts for about 11 percent of Harvard’s assets.

Kaplan said the investment volatility created by the way other large investors move in and out of the market was less important to Harvard’s strategy than how economies around the world are performing. “We are long-term investors so we have the ability to take a big step back,” he said. “Market volatility at any point in time will come and go. But the underlying fundamentals are crucial.”