Harvard Endowment Returns 2.9%, Outperforming Many Peers

Venture capital investments dragged down returns in a muted year for alternatives. 



Harvard University’s nearly four-centuries-old endowment returned 2.9% in fiscal 2023, which ran through June 30, according to the
university’sannual financial report. The value of the endowment stood at $50.7 billion, the largest of any U.S. university.

But muted returns in alternative investments, which make up a majority of the endowment portfolios of Harvard and many peers, resulted in the endowment underperforming its benchmark, while still outperforming some of its peers.

Harvard Management Co., which manages the endowment, allocates 39% of its endowment portfolio to private equity and another 31% to hedge funds. Public equity accounted for 11% of the asset allocation. Real estate had an allocation of 5%, bonds made up 6% of the portfolio and cash was 5%. Natural resources and other real assets had allocations of 1% and 2%, respectively.

Narv Narvekar, the CEO of HMC, wrote in his letter within the annual report that the endowment is in the process of adding more risk to the overall portfolio.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

“Looking back over many years, a main constraint on Harvard’s endowment returns has been that the portfolio was structured to take less risk than what was likely prudent,” Narvekar wrote. “HMC built an analytical risk framework and partnered closely with the University to help determine the University’s risk tolerance. After several years of rigorous conversation and analysis, the University agreed to a measured increase in the portfolio’s risk level, which HMC began implementing over the last two years. … We note that we continue to operate, even after the risk increase, at a somewhat lower risk level than many peer endowments.”

Narvekar also addressed the issues of sustainable investing and gender and racial diversity in the financial industry in his letter. 

“HMC has started investing in innovation related to mitigating greenhouse gas emissions,” he wrote. “While we have been early in investing in this area over the last few years, we believe that a decade from now it will be accretive to endowment performance. … In addition … there were two other specific initiatives that we are proud to have incorporated into our operations: addressing gender and racial diversity in the financial industry and expanding our sustainable investing practices to meet the University’s pledge to have the endowment net zero of greenhouse gas emissions by 2050.”

HMC did not provide a breakdown of returns for each asset class. The university’s annual report noted that private equity returns were “slightly positive,” while venture capital and growth investments were “mildly negative.”

Harvard’s 11% exposure to public equities was not enough to enable the overall portfolio to benefit from the equity-market rally in the second half of the fiscal year. The annual report cited the limited long-only public equity exposure as mitigating the impact of equity-market performance on the portfolio as a whole.

Fiscal 2023 returns trailed the university’s long-term return of 8%.

In fiscal 2022, Harvard’s endowment returned negative 1.8%, well below the double-digit declines in public equities. Narvekar’s letter attributed the FY 2022 performance to private managers not reducing the value of investments consistent with the decline in equity markets. Likewise, the university says private asset managers did not increase the value of their investments against the backdrop of rising equity markets.

“While we are deeply appreciative of the capable navigation of complicated markets by CEO Narv Narvekar and his colleagues at Harvard Management Company, the 2.9% return on the endowment this year is below our long-term target return of 8%,” wrote Ritu Kalra, Harvard’s chief financial officer, and Timothy Barakett, the university’s treasurer, in their financial overview. “Narv expressed caution about forward-looking returns in private portfolios last year, noting that ‘private managers have not yet marked their portfolios to reflect general market conditions.”

The endowment optimized its asset allocation during the fiscal year by pivoting “in a risk-neutral manner” to private equity from private real estate, agriculture and timber, Narvekar wrote. It also built up a large portfolio of equities separate from its allocation to hedge funds. The endowment also diversified into biotech within public and private markets and significantly increased its allocation to venture capital investments in technology companies.

Harvard’s returns are in line with a study from Markov Process International’s Transparency Lab, which predicted that university endowments would underperform due to poor venture capital returns. MPI estimated Harvard’s endowment would return 2.75%.

For fiscal 2023, the endowment received gifts of $486 million from alumni and foundations.

Related Articles:

4 Ivy League Institutions Release Fiscal 2023 Endowment Results

MPI: Venture Capital, Technology Investments Will Define 2023 University Endowment Returns

Academic Endowments Post Sluggish Returns for Fiscal 2023

Tags: , , , , ,

CalPERS Selects Executive Search Firm to Identify New CIO

The system needs to replace CIO Nicole Musicco and hire a fourth lead investor in five years. 


Dore Partnership, an executive search firm, has been hired by the California Public Employees’ Retirement System to lead the search for a new CIO after Nicole Musicco departed suddenly in September. Deputy CIO Dan Bienvenue is currently serving as interim CIO.  

“CalPERS is looking for a strong investor with broad experience who is committed to our public service mission of ensuring the retirement benefits of 2 million people,” said Marcie Frost, CalPERS’ CEO, in a press release. “Dore Partnership is a proven partner with a successful track record of putting the right people in the right spots all over the world.” 

Musicco announced in mid-September she would leave CalPERS on September 29 to focus on her family. A successor to Musicco would be the system’s fourth CIO in the last five years, joining Musicco, Ben Meng, who was accused of profiting personally from CalPERS investments, and Ted Eliopoulos, who left in 2018.  

Some industry observers have said the fishbowl environment of managing the investments for the largest U.S. state pension fund makes it a hard job to fill. Eliopoulos was the last internal candidate to fill the CIO role. 

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

When CalPERS hired Musicco—who had previously managed private and public equity investments for the Ontario Teachers’ Pension Plan—the fund was increasing its allocation to private markets in an effort to improve returns. Interest rates and other macro trends have made it a tough environment for returns on private-market investments. 

At the time of his departure, Eliopoulos cautioned that the private-equity investments would shrink without a restructuring to allow direct investments in private equity and venture capital. 

CalPERS serves more than 1.5 million current and retired California public employees. The new CIO would be in charge of managing the fund’s $462.8 billion portfolio.  

CalPERS has also posted the job opening on its website. “The ideal candidate is an exceptional investor who is goal-oriented, organized, and can carry out a complicated, highly visible, fast-paced, and multi-faceted role with poise, integrity, and grace.” the posting states. 

“The competition for top talent has never been fiercer, especially when it comes to implementing and delivering on the investment returns needed to support our members,” said Theresa Taylor, president of the CalPERS Board of Administration in a statement.  

Dore Partnership is a New York-based firm that has made more than 900 placements across 20 countries and 60 cities since its founding in 1997.  

Related Articles: 

CalPERS CIO Nicole Musicco Will Step Down 

Controversy Still Follows CalPERS’ CIO Resignation 

CalPERS’ Private Equity Allocation Remains Nearly $7B Under Target in Q3 

Tags: , , , , , ,

«