| BOSTON, April 3
BOSTON, April 3 Even as many investors move into
index funds, Harvard University is confident that it can keep
posting above-average returns with actively managed investments,
the head of the school's investment arm said on Wednesday.
"Outperformance will continue to be possible," Jane
Mendillo, chief executive of Harvard Management Co, said at the
Partner Connect 2013 industry conference sponsored by Thomson
But it will be tougher, she acknowledged. "It will be more
Over the last two decades, Harvard's $31 billion endowment,
the nation's largest, has delivered annualized returns of 12.5
percent, earning admiration and envy in global investment
While many have given up on active management and the high
fees of hedge funds and private equity, Harvard is sticking with
its strategy, plowing money into hedge funds, private equity and
Currently, Mendillo and her investment team see potentially
promising private equity investments even in slow-growing
Europe. She said the endowment has looked at making investments
in Turkey and she still likes natural resource investments at a
time of rising global demand for food, energy and
She also sees bright spots in the United States with a
rebound in the housing market, an improving employment picture
and low borrowing costs, she said.
Thanks to its size and investing talent, Harvard has often
seized on lucrative opportunities early, Mendillo said, noting,
however, that now there are ever more competitors crowding into
the same kind of trades.
While Harvard's investment record remains eye-popping, the
school, like other investors, faced tough times in the wake of
the financial crisis.
For the fiscal year that ended June 30, 2012, Harvard
endowment was roughly flat with a 0.05 percent loss. That came
after the endowment lost 27 percent, or $10.1 billion, in the
year the ended June 30, 2009.
After that decline, Mendillo, who took the top job at
Harvard Management just as the financial crisis was hitting in
2008, restructured the portfolio and cut back on real estate
Still she has stuck by the school's hybrid investing model,
where a portion of the endowment is managed in-house while a
good chunk is given to outside managers, many of whom once
worked at Harvard Management.
The university does not disclose its outside managers, but
people familiar with its portfolio said that hedge funds Baupost
Group, Highfields Capital and Convexity Capital, run by people
who used to work at Harvard Management, have all invested money
for the school.
Harvard's hybrid model differs from those of most
universities, including Yale, where virtually all of the money
is managed by outsiders.
Although Harvard has often been criticized for the high
salaries it pays its best performing in-house managers, Mendillo
said on Wednesday that the school is effectively getting a very
good deal by sticking to this model. "This is a very cost
effective way to manage money," she said noting that Harvard
retains transparency and control this way.
While she acknowledged that investment managers working for
the university can earn big paychecks if they outperform their
benchmarks, she said their fees are still significantly lower
than those that successful hedge fund managers earn.
"It is more expensive to use outside managers," she said,
adding, "We pay them more now than when they worked for