Harvard Endowment’s 1.8% Loss Deemed ‘Very Good Result’

Despite an investment loss of 1.8% for the fiscal year ending June 30, Harvard’s 2022 performance is actually a marked improvement from last year, relative to its peers, when it returned more than 30% but lagged all but one other Ivy League endowment.

Although this year’s loss lowered the asset value of Harvard’s endowment to $50.9 billion from $53.2 billion in 2021, so far only Yale and Penn have had a better year in fiscal 2022 among its Ivy League rivals (Princeton has not yet reported as of publication). And the 1.8% loss outperformed Cambridge Associates’ preliminary mean and median loss of 6.0% for colleges and universities by 420 basis points.

This is a sharp turnaround from last year when every endowment in the Ivies except Columbia outperformed Harvard, which earned only two basis points above the median return for U.S. college and university endowments with an average 33.6% in 2021.

“This is a very good result given the significant declines in both the equity and bond markets in the past year,” Harvard Vice President for Finance Thomas Hollister and Treasurer Paul Finnegan wrote in the university’s annual report for fiscal year 2022.

In his annual letter included in the report, Harvard Management Company CEO N.P. “Narv” Narvekar said the poor performance of global equity markets during the fiscal year had “by far” the most negative impact on the portfolio. However, he also said that the highest risk asset classes, such as the private portfolios of venture capital, buyout, and real estate, were the strongest performers.

“In fact, the more private assets an investor had in its portfolio in FY22, the stronger their performance,” Narvekar wrote. “This is somewhat counterintuitive and may indicate that private managers have not yet marked their portfolios to reflect general market conditions. This phenomenon does make us cautious about forward-looking returns in private portfolios.”

For example, Narvekar said, the venture capital portion of Harvard’s private equity portfolio returned high single digits despite the poor performance of relevant public equity indices. “On the other hand,” he added, “some venture managers have meaningful exposure to public companies, which declined with public markets. Accordingly, the performance of venture portfolios during FY22 was largely a function of the proportion of public companies held in those portfolios.”

He also said that he expects that there might be “meaningful adjustments to these valuations” when investment managers audit their portfolios at the end of the calendar year. Narvekar said that under existing accounting conventions for venture portfolios, investment managers generally use the most recent round of financing to mark investments and that this may slow the process of moving existing valuations to fair value.

“Given this environment, we are particularly pleased that we were able to sell close to $1 billion of private equity funds in the secondary market during the summer of 2021 — a time of significant ebullience — avoiding the discounts these funds would likely face today,” Narvekar said.