Endowment Balloons in Huge Growth Year

Harvard's coffers swelled to roughly $11 billion this year, as Harvard Management Company (HMC), the keeper of the University's endowment, reported returns of 25.8 percent for the fiscal year ending this June.

Harvard's endowment grew faster than Princeton's, Dartmouth's and Yale's, and Harvard's team of investors beat all the benchmarks set by the company's board of directors-largely Harvard administrators-to gauge their performance.

"It's a stunning performance, truly outstanding," said President Neil L. Rudenstine in an interview last week. "It's certainly true that the markets are doing very well, but if you [compare us with the benchmarks], I think you'll find we've outperformed substantially."

HMC is a wholly-owned subsidiary of Harvard charged with managing the University's endowment. While many colleges and universities use independent managers, Harvard runs its own investment firm.

But with the good news, University officials warned that the pennies won't fall from heaven forever.

"Now we've had three good years and everyone thinks we've landed in Nirvana," Rudenstine said. "We cannot expect our markets to keep going like this...The changes could be quite drastic."

Meyers agreed that the University has had Lady Luck in the pocket.

"We're definitely on a roll. Last year I thought we hit the peak and we would never have a better return, but this year we outperformed our benchmarks by 5.8 percent," Meyers said.

Meyers said his long-range goals are more modest. Over a five-year period he hopes to beat the benchmark by 1 percent and the average fund by about 2 percent per year.

Factoring in this year's numbers brings HMC's five-year returns to 18.9 percent on average, 3.2 percent above the benchmark and 4.9 percent above the average fund.

Harvard's endowment and HMC's returns rose on the wave of the bull market. From June '96 to June '97 (Harvard's fiscal year), the Standard & Poor's 500-a measure of domestic equity performance-rose 34.7 percent.

"Corporate profits have grown and inflation has diminished over the past several years," Meyer said. "That's good for the markets."

For the same period, other large, diversified funds returned 20.3 percent on average, according to the Trust Universe Comparison Service, a compendium of 85 funds that manage more than $1 billion.

Investors at other firms agreed that Harvard's performance was outstanding.

"All that said, 25.8 percent is certainly a handsome return and a return I'm not sure we'll see in the future," said Tom Van Zant, a regional vice president for the Westport, Conn., based Common Fund, a cooperative that manages the pooled endowments of several hundred colleges, universities and independent schools.