World and Nation

New Harvard investment chief; Yale sees high returns

As Harvard named a new management chief in its bid to improve the returns on its huge portfolio, Yale University reported Wednesday that its fund had earned a 20.2 percent return for the fiscal year, a big payoff for a strategy that was criticized in the wake of the financial crisis. The developments intensified the spotlight on the investment practices of the Ivy League colleges and the high stakes for their endowments.

The new manager at Harvard, Stephen Blyth, succeeds Jane L. Mendillo as chief executive of the Harvard Management Company, the university’s investment arm. Harvard, which on Tuesday reported a gain of 15.4 percent for the fiscal year, still has the largest endowment, at $36.4 billion. But it suffered significantly during the financial crisis and was forced to sell some assets, like private equity holdings, at distressed prices. Mendillo largely inherited those problems when she took over as chief of the endowment in 2008. But as its returns lagged those of many top universities, Mendillo announced recently that she would step down.

Yale, too, came under pressure during the financial crisis, leading to second-guessing of its strategy — a heavy allocation to nonliquid assets, including private equity and real estate — while smaller institutions were reaping bigger returns by largely investing in public stocks and bonds. Nonetheless, Yale remains committed to the strategy, pioneered by its chief investment officer, David F. Swensen. And over the longer term, its results have been strong.

Its result for the fiscal year that ended June 30, which brings the fund’s value to $23.9 billion, outpaced the mean return of 16.2 percent for colleges and universities that have reported so far, according to preliminary estimates from Cambridge Associates, an institutional-investment adviser with a large number of endowment clients.

Yale’s statement also noted that over 10 years, its average return was 11 percent, while domestic stocks had returned an average of 8.4 percent and bonds returned 4.9 percent. For that same period, the average annual performance for 138 schools was 7.6 percent, according to Cambridge Associates.

If Yale and some of the larger endowments have done well, noted Daniel W. Wallick, an institutional investment strategist at Vanguard, they have had several advantages over smaller funds: larger staffs and more expertise, pricing power and better access to funds.

Of the larger endowments that have reported to date, Yale’s has outperformed MIT’s and Dartmouth’s in the one-year returns; each posted a return of 19.2 percent. Harvard, once a leading endowment fund manager, lagged those rivals in the most recent year. The university has a unique hybrid approach to running the endowment funds: Some are managed internally and some are managed externally. There had been some speculation among endowment managers that Harvard might switch to a strategy that relied entirely on external managers. But the appointment of Blyth indicated that Harvard intended to continue on its existing course.