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Endowment Reaches All-Time High

Harvard's holdings hit $29.2 billion, but rate of returns falls slightly from FY'05

By Cyrus M. Mossavar-rahmani, Crimson Staff Writer

Harvard’s endowment grew $3.3 billion during the fiscal year ending June 30, reaching an all-time high of $29.2 billion, according to figures released today.

The Harvard Management Company (HMC), the internal arm responsible for managing the University’s endowment, returned 16.7 percent on its investments. This year’s performance was “just above the average” for the 25 largest university endowments, HMC President Mohamed A. El-Erian wrote in his first annual “John Harvard” letter. It is down from last year’s 19.2 percent return and the 21.1 percent return achieved in 2004.

While few peer universities have released their endowment figures for fiscal year 2006, Stanford reported a 19.4 percent return for the same period, beating Harvard’s by 2.7 percentage points. Both universities handily outpaced the S&P 500 index, which registered an 8.5 percent return over the same period.

“The most important issue is, did we meet the University’s target, which is to maintain the value of the endowment and take into account distributions and inflation?” El-Erian said in a phone interview. “Yes, we came in at double that amount.”

HMC’s performance was particularly strong in emerging markets—the University earned a 37.8 percent return in this asset class, which includes industrializing economies such as India, China, Russia, and Brazil. “It’s an area that promises returns, but it’s going to be a bumpy ride because what’s happening underneath all that is a realignment in the international economic order,” said El-Erian, who was in charge of California-based bond manager PIMCO’s $28 billion emerging markets portfolio before coming to Harvard.

Fixed income was a weak spot, with U.S. bonds being the only asset class to see a loss—a 2.3 percent decline.

Looking to the future, El-Erian said that increasingly investors are copying Harvard’s endowment strategies. “The minute something becomes attractive in terms of showing that it results in consistent returns, a lot of people want to do it,” he said.

The endowment, which continues to be the largest of any university, grew at only 11.3 percent even though investment returns were more than 5 percentage-points higher. That’s because some endowment funds are siphoned off each year for University expenditures.

Endowment funds covered 31 percent of Harvard’s operating costs in fiscal year 2006.

The endowment growth comes during a transition period for HMC—three different men headed the University’s investment arm during fiscal year 2006. Longtime chief Jack R. Meyer left his post in September 2005, moving with over 30 of his employees to start-up hedge fund Convexity Capital Management and handing the reins at HMC to interim CEO Peter A. Nadosy ’68. El-Erian took over in February.

Since that time, HMC has brought on board five senior executives in international fixed income, domestic fixed income, foreign exchange, external management, and compliance. As HMC rebuilds its ranks, each senior hire is currently filling out a team below them until it reaches full strength.

—Cyrus M. Mossavar-Rahmani can be reached at crahmani@fas.harvard.edu.

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