Harvard University's endowment, managed by the Harvard Management Company (HMC), achieved a notable return of 9.6 percent in fiscal year 2024. This success can be attributed to astute manager selection and significant adjustments in asset allocation.
The CEO of HMC, N.P. “Narv” Narvekar, emphasized the importance of strong manager selection, particularly in the public equity and hedge fund portfolios, which outperformed their respective benchmarks. Harvard's strategic focus on manager selection and asset allocation has positioned its $53.2 billion endowment favorably in a competitive landscape.
Over the past seven years, HMC has made substantial changes to its asset allocation. Notably, it has reduced exposure to real estate and natural resources while increasing private equity investments. Private equity now constitutes 39 percent of the portfolio, up from 16 percent in July 2017. Hedge funds also gained prominence, representing 32 percent of the endowment's assets. This shift in asset allocation likely played a crucial role in driving Harvard's strong returns, especially considering the robust performance of the equity market.
The performance of large-cap technology stocks, particularly the "Magnificent Seven," significantly contributed to Harvard's returns. The information technology sector achieved a remarkable 41.8 percent return in fiscal year 2024. Harvard's strategy may have involved an overweighting of technology stocks relative to the broader S&P 500 index, allowing the endowment to capitalize on the sector's growth.
Despite the strong performance in equities, Harvard's hedge fund portfolio managed to outperform during a year of robust equity market performance. This indicates a well-calibrated approach to risk and return. The endowment's current allocation reflects a diversified strategy, with significant investments in private equity, hedge funds, and smaller allocations to other asset classes.
While private equity generally outperforms public markets over the long term, Harvard's private equity portfolio, with a significant tilt towards venture capital, underperformed expectations. The venture capital segment performed poorly, while private equity overall was only "modestly positive." The balance between venture capital and more stable private equity investments will be critical in determining future performance.
In comparison to other Ivy League institutions, Harvard's return of 9.6 percent places it in the middle of the pack. It outperformed some institutions but did not reach the heights achieved by Columbia and Brown. The results from Yale and Princeton for fiscal year 2024 have yet to be published, allowing for further comparison.
Narvekar's efforts to reposition the endowment for long-term success are evident in the risk-adjusted returns achieved thus far. Despite the challenges posed by the endowment's substantial private markets exposure, Harvard has been able to outperform expectations. This highlights the effectiveness of HMC's strategic initiatives and Narvekar's leadership.
As Harvard continues to refine its investment strategies and adapt to changing market conditions, the focus on manager selection and asset allocation will remain crucial. The endowment's ability to navigate both public and private markets will be closely monitored by investors and analysts as it strives to maintain its competitive edge.