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Private equity has generated large returns for Harvard Management Company (HMC), despite a major deficit in fiscal year 2009.

by Mitul Patel

  • 22 Sep 2009
  • PE

The total assets of HMC have dropped to $26 billion, having been close to $35 billion during H1 2008. HMC saw the value of Harvard’s endowment drop across all areas, spurred on by a loss of 27.3% on investments. Private equity was hit particularly badly, suffering a loss of 31.6% in the fiscal year.  Even with this large loss, private equity still provides the best annualised return for the HMC portfolio over the last decade, with an average return of 15.5% over the last 10 years. 15.5% represents a much higher annualised return than the 9% average return gained by the endowment as a whole over the same period.

Jane Mendillo , who became CEO of the Harvard Management Company on July 1st 2008, having witnessed  the large losses incurred by alternative asset classes first-hand, has cut the level of commitment to private equity and real estate from a combined $11 billion to $8 billion for the fiscal year 2009.  HMC believes that its current private equity investment portfolio is well placed to realise strong returns in the future and, coupled with prudent and creative investment strategies, that it will continue to create value for the Harvard endowment.

HMC has historically invested a large variety of private equity vehicles, with a wide ranging geographic scope, and it looks set to continue with this philosophy as it looks to build increased returns from its private equity portfolio going forward into 2010.

HMC isn’t the only major US endowment to have lost substantial value over the last year; Yale University Endowment suffered a loss of 25% and MIT Investment Management Company saw the value of the MIT endowment fall by 20.7%. Like HMC, however, Yale University Endowment believes its investment portfolio would have performed worse had it forsaken investments in alternative assets, such as private equity, for lower risk strategies. The endowment, which increased its private equity target allocation in 2008 from 19% to 21% of total assets, plans to retain its asset allocation while continuing to commit to private equity funds.

For more information on investors in private equity please see our Investor Intelligence online module.

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