Yale Lags in Money Chase

Harvard 8.6% endowment growth outpaces Yale’s 4.5% amid fiscal turmoil

It may not have had a tailgate, but for the first time in four years, Harvard bested Yale in a crucial competition: endowment growth.

Yale’s endowment grew by approximately 4.5 percent in the year ending June 30, the university announced yesterday in a press release.

The fact that the returns were positive at all was impressive in the continuing bear market, but the growth fell well short of Harvard’s 8.6 percent return over the same period.

Harvard’s stellar performance stemmed from an investment mix that stressed commodities—such as oil, metals, and food—over U.S. stocks, which have been in free fall for months.

While Harvard invests only 8 percent of its endowment in commodities, the value of those holdings jumped dramatically over the period. Harvard’s return on “real assets”—approximately half of which is composed of commodities—climbed 35.8 percent during that time.

But after June 30, commodities markets dropped precipitously, by almost 30 percent, from their all-time highs—according to Dow Jones-AIG Commodity Index—potentially reversing some endowment gains. Much of this was due to a substantial fall in the price of oil, which peaked at $147 per barrel but has been trading closer to $100 in recent days.

And in the past couple weeks, a bad investment climate has turned into the worst financial crises in decades, forcing the bankruptcy of a major investment bank, the merger of one more, and a government bailout of Fannie Mae, Freddie Mac, and the American Insurance Group—pillars of American financial markets that have been teetering on the brink of collapse.

Officials at Harvard Management Company, which invests the University’s $36.9 billion endowment, routinely decline to address investment strategy with reporters and have not broken that silence to discuss the impact of these events.

But a Harvard newsletter to donors last spring suggested that company managers plan to cope with a lack of profitable investment opportunities at home by increasing holdings in fixed-income securities, such as bonds.

“We are opting for ample global exposure as well as a higher fixed-income component,” wrote Jennifer Pline, one of the company’s managing directors.

Fixed-income securities—especially those issued by the U.S. government—are a traditional refuge for investors in hard times. Pline specifically pointed to government-backed inflation-protected bonds as an “effective” investment.

The University has also shifted towards investing in emerging markets, according to Harvard’s latest regulatory filings. Such investments provide diversification, which can protect against regional or country-specific shocks.

While recent government intervention—which most recently include massive loans provided by the Federal Reserve and other central banks—has calmed markets somewhat, Harvard’s money managers wrote in their annual letter to investors last week that they are “keenly aware” that the slide in the capital markets may continue.

“In Fiscal Year 2009, we expect to see a continuation of the process of financial market de-leveraging,” the managers wrote, referring to the increased difficulty of borrowing. “This process will likely create periods of disruption and market volatility.”

Still, Harvard’s returns to June 30 have garnered the management company—and its interim chief executive, Robert S. Kaplan—accolades among analysts and investors.

A number of investment media outlets—such as The Wall Street Journal and financial news site—have even published investing guides based on how Harvard allocates its money.

“Trying to mimic a portfolio we can’t actually follow is a bad idea,” wrote portfolio manager Roger Nusbaum on, “but learning from people who are smarter than us is a good idea.”

—Staff writer Clifford M. Marks can be reached at —Staff writer Nathan C. Strauss can be reached at