September 12, 2008 / 8:28 PM / 11 years ago

Harvard endowment up 8.6 pct, grows to $36.9 billion

BOSTON (Reuters) - Harvard University, already America’s richest, said on Friday that its endowment grew 8.6 percent to a new high of $36.9 billion in the last fiscal year when the broader stock market suffered double-digit losses.

Harvard, whose investments are closely watched in the asset management industry, beat the median large institutional fund which lost 4.4 percent, as measured by the Wilshire Trust Universe Comparison Service, and the Standard & Poor’s 500 index which dropped 13.1 percent during fiscal 2008.

But the university’s money managers warned that future returns may be lower, falling short of the 10-year annualized return of 13.8 percent when the median fund return was 6.1 percent.

“Our expectations for the endowment’s returns in fiscal year 2009 and over the next several years are very cautious,” Jane Mendillo, who became the school’s chief investment officer on July 1, wrote in a letter.

Mendillo, the former chief investment officer at Wellesley College, said she and her staff are closely monitoring the deterioration in equity and debt markets while they expect the process of financial de-leveraging that began last summer to continue.

In fiscal 2007, the endowment grew 23 percent, topping its 2006 return of 16.7 percent.

In fiscal 2008, which ended on June 30, Harvard’s bets on real estate, timber and agricultural lands returned 35.8 percent while foreign bonds were up 21.3 percent. That helped offset a 12.7 percent drop in U.S. stocks. Emerging markets, which had been an engine for growth over the years, returned 7.6 percent.

The endowment is not a single fund but roughly 11,000 individual funds, many restricted to specific uses like scientific research or the creation of a professorship.

Unlike many other universities, including its rival Yale, Harvard still manages a chunk of its endowment in-house at its Harvard Management Company unit.

It also relies on outsiders, including HMC alumni like Jack Meyer, who have launched their own hedge funds, to invest much of the money. In the last year, Harvard said a bulk of its strong results were delivered by a number of long-standing and recently-added external managers.

Harvard, located across the Charles River from Boston in Cambridge, relies heavily on its endowment to cover annual expenses and said it tries to spend about 5 percent of the endowment every year on university programs.

Mendillo replaced Mohamed El-Erian as president and chief executive officer at Harvard Management Company after he returned to work at Pacific Investment Management Co. in California after a short tenure at Harvard.

Reporting by Svea Herbst-Bayliss, editing by Dave Zimmerman, Bernard Orr

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