The Return on the Harvard Endowment

The Harvard endowment grew only 8.1% this past fiscal year.

Of all of the universities in the United States, there is no university with a larger endowment than Harvard University. With an over $37 billion endowment, it’s mighty hard for most schools, even the most elite schools in the land, to boast an endowment anywhere near the size of Harvard’s. In fact, the university with the second largest endowment is Yale — with an over $25 billion endowment. Princeton and Stanford each boast endowments of approximately $22 billion, while MIT’s got over $13 billion in its piggy bank (or should we say war chest). These institutions represent the five largest college endowments in America. But this was not the typical fiscal year for the Harvard endowment, which reported a return of only 8.1%. So let’s find out what’s (marginally) up with the largest college endowment in America.

Why Harvard’s Endowment Underperformed in 2017

We should first point out that 8.1% of over $37 billion is a whole lot of money. One could eat many a meal at Nobu Malibu off the return and never have to worry about going hungry. We kid, we kid. As any money manager, like Ed Taylor (hey, Ivy Coach is a family business), would point out, an 8.1% return is ok but it doesn’t compare to the returns of other colleges in the same fiscal year. In fact, the 8.1% figure seems rather unimpressive when stacked against the 12.7% return for the same fiscal year of more than 400 universities tracked by Cambridge Associates, as Geraldine Fabrikant reports for “The New York Times.”

As Fabrikant writes in a piece entitled “Harvard Endowment Reports ‘Disappointing’ 8.1 Percent Return,” “The endowment has experienced turnover in recent years. After the 2005 departure of Jack Meyer, who had served as chief executive for 15 years, Jane Mendillo took over. She was succeeded by Stephen Blyth. But perhaps no previous chief executive has upended the endowment to the degree that Mr. Narvekar is attempting. Mr. Narvekar, who took office in late 2016, is making broad changes in how Harvard invests and in the management that oversees those investments. Already, a greater share of the endowment’s investments is being handled by outside managers, as is more typical of university endowments. For years, Harvard differentiated itself from other schools with an extensive internal team. But as managers became more successful, they often left to start their own funds where they could make more money and where their pay would not be subject to criticism from the university community.” Narvekar, who ran the Columbia University endowment for 14 years, has specifically sold off many of the school’s holdings in real estate and private equity during his tenure.

Projecting the Growth of Harvard’s Endowment

As our regular readers know well, we have a crystal ball at Ivy Coach. It’s been cited on the pages of newspapers like “The Dartmouth.” In this case, our crystal ball predicts that the return on Harvard’s endowment will normalize in fiscal year 2018, matching — and likely exceeding — the return of the 400 universities tracked by Cambridge Associates. Because it’s Harvard and Harvard’s not going to stand for anything less. And if the endowment underperforms in fiscal year 2018, irrespective of the changes Narvekar is implementing to sustain long-term growth for the university, we expect he’ll no longer be running Harvard’s endowment but will instead be starting his own fund or running the fund of another university. The pressure is on.