Harvard's Endowment Rebounds With Non-U.S. ETFs

(February 17, 2010) – While Harvard’s $26 billion endowment, along with others at universities across the country, suffered major losses in 2009, the value of Harvard’s US securities jumped 26% in Q4 of last year, according to recent data from the Securities and Exchange Commission.

The return came from investments made in ETFs that track international markets. Harvard’s biggest security purchases in the fourth quarter were ETFs tracking markets including China, Brazil and Russia, while emerging markets gained 8.3% in the three months ended December 31, Bloomberg reported.

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The Boston-based Harvard Management Company, which oversees the school’s fund, has increased its holdings in US-traded shares to $2.26 billion from $1.79 billion.

To reduce its exposure to property investments, the university is looking to sell a portion of its $5 billion real estate portfolio, which includes $2 billion in property holdings and $3 billion in future capital commitments, the Wall Street Journal reported. While the university’s endowment suffered a 27% loss last year, dropping 30% to $26 billion, its real estate portfolio lost about 50% of its value for the fiscal year ended in June 2009.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Companies are increasingly outsourcing risk by offloading defined benefit pension scheme liabilities, research from consultants Hymans Robertson shows.

(February 17, 2010) – With retirees living longer, insurance companies have been increasingly looking for ways to transfer pension liability.

A popular solution: Longevity swaps, in which pension schemes are protected against the risk of paying for longer-living pensioners in exchange for an agreed stream of payments. Recent analysis from Hymans Robertson’s Managing Pension Scheme Risk report shows that 2009 saw about £7.8 billion of pension scheme risk transfer deals, and even more are expected this year. The research reveals 2009’s third quarter was the “highest ever” quarter for those transfers with £3.9 billion, due to longevity swap deals completed by RSA Insurance, Babcock International, and the Merchant Navy Officers Pension Fund’s £500 million buy-in.

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“Pension schemes need to understand the risks inherent in their schemes and manage them appropriately,” said James Mullins, Hymans Robertson senior liability management specialist, to Professional Pensions. “Longevity is widely viewed as one of the biggest unmanaged risks they face.”

Mullins added that as pension funds are growing more desperate to mitigate risk, he expects to see £10 billion worth of deals this year alone. Signs that the popularity of longevity swaps will continue are reflected in Legal & General’s announcement today, saying it will enter the longevity insurance market immediately. Reports have suggested BMW is looking to cover £2.5 billion of liabilities in a longevity swap with Abbey Life, Deutsche Bank and Paternoster. Towers Watson reported last week that the volume for all its pension liability risk hedging broke the £40 billion mark in 2009. Its previous high was £35 billion in 2007.

“The popularity of longevity swaps is that companies can demonstrate to shareholders that they have cut their pension risks significantly, but not have to make any big upfront cash payments,” said Mullins to the Financial Times.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742