Harvard Endowment: Less Bonds, More Foreign Stock

The $27.4 billion Harvard University Endowment has put out its  annual report. The  front page news is that the fund earned an 11% return in the year ended June 30, 2010 — a period during which a simple 60/40 stock/bond split would have earned it 12.6% and the Dow Jones Industrial average rose almost 19%.

The past few years have been challenging for the investment managers who came to fame running large endowments and pension plans. After losing at its low point $100 billion in value, California’s giant public pension plan manager CALPERs is in the midst of a “top-to-bottom”  re-think of the asset allocation of its now $200 billion fund.  (For more on that, there’s an in-depth piece in the current issue of Bloomberg Markets.)

But that hasn’t shaken Jane L. Mendillo’s faith in her asset allocation. The CEO of Harvard Management Co, which invests the endowment,  reaffirmed that the fund will be continuing to move toward a portfolio that is much lighter on fixed income investments and heavier in equities, particularly foreign and emerging markets stocks. This is pretty much the opposite of what many retail mutual fund investors seem to be doing this year. Assets in bond funds blossomed since the start of 2010.

For Harvard, recent years have been rocky (especially 2008-2009), but the endowment’s performance has beaten the 60/40 split handily over the long haul. If you look back 20 years, the Cambridge titan has  earned the kind of grades you’d expect from the Ivy League: an average of 11.9% per year versus 7.8% for that simpler portfolio.

Since 2005, the Endowment has dropped fixed income from 27% of its holdings to just 13%, while equities in total have increased from 43% of Harvard’s billions to 46%.  Absolute Return investments have also climbed significantly from 12% to 16% of its holdings.

Comparing its current asset allocation to its 2005 breakdown, Harvard has:


Emerging Markets Equities from 5% to 11% of its pie

Foreign Equities from 10% to 11%

Absolute Return investments from 12% to 16%

Commodities from 13% to 14%

Cash from -5% to 2%

Kept Private Equity Flat


Domestic Bonds from 11% to 4%

Foreign Bonds from 5% to 2%

High Yield Bonds from 5% to 2%

Inflation Indexed Bonds from 6% to 5%

Domestic Equities from 15% to 11%

Real Estate from 10% to 9%

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