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Harvard Grows Revenues, Net Assets, But HMC Chief ‘Not Pleased’ With Endowment Returns

By Eli W. Burnes and Andrew J. Zucker, Crimson Staff Writers

Harvard Management Company CEO N.P. “Narv” Narvekar announced in the latest iteration of the University’s annual financial report Thursday that the he is "not pleased" with the most recent returns seen by Harvard’s endowment.

The University’s $39.2 billion endowment — the largest in the Ivy League — returned 10 percent on its investments. Columbia University, which returned 9 percent on its endowment, was the only Ivy League school to lag behind Harvard this year.

“While we are not pleased with this performance, we are mindful that ours is an organization and a portfolio in transition,” Narvekar wrote in the 42-page report.

Since joining HMC, Narvekar has overhauled Harvard’s investment strategy, shifting HMC from a “hybrid” model comprising both in-house and external money managers to a model — used by most other endowments — that relies primarily on external managers.

In enacting these reforms, Narvekar has focused on the long-term. He wrote in his letter Thursday that he views the endowment results through a “five-year timeframe.”

“As sophisticated investors well know, there are very limited conclusions that we can draw from a single year of either manager performance or asset allocation,” he wrote. “Had this past year’s return been significantly higher or lower, it still would not be reflective of the work we are undertaking, nor change the path we are pursuing.”

The letter, which included detailed breakdowns of asset classes, noted that natural resources lost 2 percent of its value during fiscal year 2018, which ended June 30. Narvekar’s structural changes to HMC included a $1 billion write-down in natural resource assets last year.

Narvekar praised the natural resource group in his letter, however, and noted that the team is “now the sole internal platform at HMC” after it spun out its real estate and credit platforms to outside firms.

“This team has made great progress in their multi-year repositioning of the portfolio, selling certain assets and improving the management of others,” he wrote.

Ivy League endowments returned an average of 11.8 percent during fiscal year 2018, with Princeton University leading the pack at 14.2 percent. Narvekar wrote that Harvard’s substantial endowment size should not restrict its growth.

“I often hear the opinion that HMC’s endowment is too large to generate attractive returns, but as peer endowments with similar assets under management have shown, the size of the endowment is no excuse for muted returns,” he wrote.

The financial report also noted that Harvard’s revenue increased by 4 percent to $5.2 billion. The University’s net assets — which includes the endowment as well as other holdings, such as real estate — grew by $3 billion, bringing its total to $47 billion. The spike in net assets was due in part to current-year gifts, which accounted for 9 percent of the University’s revenue.

The Faculty of Arts and Sciences had an operating surplus of $3.1 million, marking a significant U-turn after years of losses, according to the letter. Overall, the University had an operating surplus of $196 million, an amount that will help the school during economic downturns to come, according to University Vice President for Finance Thomas J. Hollister and Treasurer Paul J. Finnegan ’75. Executive and continuing education saw 12 percent growth in revenue, which helped to lift the University’s overall revenue.

Hollister and Finnegan wrote in the report that the University’s financial performance for 2018 was “solid” but noted that higher education faces new economic pressures. They wrote that plateaued enrollment, tuition costs close to the maximum affordable, and uncertain federal research support could be possible strains to University finances in the future.

The duo also estimated that new taxes from the Tax Cuts and Jobs Act, which Republican lawmakers passed last December, will wind up costing the University $40 to $50 million annually. A 1.4 percent excise tax on Harvard’s endowment will take effect for Harvard’s 2019 fiscal year. Hollister and Finnegan sharply criticized the legislation in Thursday’s report, writing that it will have a deleterious effect on the University.

“This policy will increase the cost of education and damage the University’s teaching and research mission,” they wrote.

Despite an financial landscape increasingly hostile to higher education — and the “inevitable” prospect of an economic downturn — Hollister and Finnigan wrote that Harvard is ready to handle harder times.

“Harvard is well positioned to manage through this period due to a healthy balance sheet, modest recent operating surpluses, established financial discipline, and Harvard’s primary strength — faculty and staff — who create one of the world’s most exciting learning and research environments,” they wrote.

In an introductory letter in his first financial report since taking office, Harvard President Lawrence S. Bacow thanked his predecessor, Drew G. Faust, for her stewardship of the University. Bacow reiterated the values he sees at the heart of the University — “truth, excellence, and opportunity” — and emphasized the University’s obligation to “[keep] the American Dream alive.”

He also noted, though, that many challenges await the University.

“It is impossible for any new president to anticipate the exact challenges he or she will face, but I can say with certainty that challenges are on the horizon. Our ability to respond and adapt to changing circumstances will enable us to continue seizing opportunities, and I very much look forward to undertaking that important work with you.”

—Staff writer Lucas Ward contributed reporting.

—Staff writer Eli W. Burnes can be reached at

—Staff writer Andrew J. Zucker can be reached at Follow him on Twitter @AndrewJZucker.

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