Endowment Returns Up

The performance of Harvard's roughly $6 billion endowment improved dramatically in fiscal 1993, following several years of lackluster returns that turned heads in the investment industry and prompted sharp criticism from alumni and faculty.

For the year ended June 30, the rate of return on the University's investments jumped to 16.7 percent, from 11.8 percent a year earlier, according to Harvard Management Company (HMC) President Jack R. Meyer, the endowment's chief administrator.

That number--the highest since 1987--places Harvard in the top quartile of investment performance for universities nationwide, according to Wurts, Johnson and Associates, a Seattle-based investment performance consulting firm.

The endowment vastly outpaced the average university portfolio, which returned just shy of 14 percent in 1993, according to an informed source in the industry.

The improved numbers were not entirely unexpected given the performance of markets worldwide. In a story that first appeared Monday and is reprinted in today's Preview section, The Crimson reported that a boom in foreign equities would likely buoy Harvard's returns significantly.

Still, Meyer and others are reluctant to label the results the start of a trend. In a letter announcing the numbers, sent this week to major Harvard benefactors, the HMC president said he expects returns to drop in coming years.

"We don't believe these numbers aresustainable," Meyer wrote, adding that he expectsreal returns, adjusted for inflation, to averagebetween five and seven percent over the long-term.

Meyer was travelling yesterday and could not bereached for comment. But his caution was echoed byindustry experts.

"A turnaround is only a turnaround when it'srepeated," said John S. Griswold Jr., senior vicepresident of the Westport, Conn.-based CommonFund, a cooperative that manages the pooledendowment funds of several hundred colleges,universities and independent schools.

Griswold called Harvard's performance "a finereturn for a diversified portfolio."

Meanwhile, though, some long-time critics ofthe management company were less generous.

"[The improved returns are] certainly welcome,"said one alumnus who is prominent in theinvestment industry. "But I don't think they oughtto be puffing out their chests quite yet."

"The long-term history of HMC is that there areyears when they achieve high rates of return, butthere are also years when they do an abysmal job,"the alumnus said. "If you look at it over afive-or ten-year time frame, it doesn't look verypretty."

Indeed, despite the higher returns, Harvard isstill not the industry leader it was in yearspast. Yale University, for example, returned 17.3percent in fiscal 1993, marking the fifth straightyear--and the eighth out of the last ten--that ithas out performed Harvard by a significant margin.

Still, the numbers released this week by HMCare particularly impressive given the managementcompany's recent history.

Last year's 11.8 percent figure was matched orexceeded by the endowments of 71 percent of thenation's colleges and universities, according toWurts. And in fiscal 1991, Harvard's dismal 1.1percent return was outperformed by 95 percent ofcomparable institutions.

In his letter, Meyer addressed concerns overpast performance by defending the record he hasbuilt in three years at the University.

The HMC president wrote that returns in the twofull fiscal years he has led the company haveaveraged 14.2 percent, outperforming the company'sbenchmarks by an average 2.7 percent annually, andtranslating into an additional $300 million forthe University.

Meyer noted that this year's returns wererepresentative of strong performance in almost allasset classes.

Harvard's domestic stock portfolio, whichcurrently accounts for about 36 percent of theUniversity's investments, returned just over 20percent for the year.

The University's roughly 20 percent stake inforeign equities returned 16.5 percent.

And, while not all observers greeted theresults with quite the same enthusiasm--onealumnus said the higher returns mean little exceptthat "Meyer has bought himself a little moretime"--most were content.

"You've got to feel better about things," saidlongtime HMC critic Albert F. Gordon '59, adding,however, that he believes Harvard should be moreforthcoming about its specific investments.

University Treasurer D. Ronald Daniel said theresults come at a good time--just as Harvardprepares to embark officially on a $2 billionfundraising drive. "You can't deny that [thetiming is good,]" Daniel said. "I'm delighted."

But the treasurer said even good results have adownside when it comes to fundraising.

"The dilemma is, if any university performsexceedingly well close to a [capital] campaign,you kind of wonder why they need they money," hesaid. "And if they do exceedingly poorly, youwonder why you should give them the money if theycan't manage it. You're sort of damned if you doand damned if you don't.

"We don't believe these numbers aresustainable," Meyer wrote, adding that he expectsreal returns, adjusted for inflation, to averagebetween five and seven percent over the long-term.

Meyer was travelling yesterday and could not bereached for comment. But his caution was echoed byindustry experts.

"A turnaround is only a turnaround when it'srepeated," said John S. Griswold Jr., senior vicepresident of the Westport, Conn.-based CommonFund, a cooperative that manages the pooledendowment funds of several hundred colleges,universities and independent schools.

Griswold called Harvard's performance "a finereturn for a diversified portfolio."

Meanwhile, though, some long-time critics ofthe management company were less generous.

"[The improved returns are] certainly welcome,"said one alumnus who is prominent in theinvestment industry. "But I don't think they oughtto be puffing out their chests quite yet."

"The long-term history of HMC is that there areyears when they achieve high rates of return, butthere are also years when they do an abysmal job,"the alumnus said. "If you look at it over afive-or ten-year time frame, it doesn't look verypretty."

Indeed, despite the higher returns, Harvard isstill not the industry leader it was in yearspast. Yale University, for example, returned 17.3percent in fiscal 1993, marking the fifth straightyear--and the eighth out of the last ten--that ithas out performed Harvard by a significant margin.

Still, the numbers released this week by HMCare particularly impressive given the managementcompany's recent history.

Last year's 11.8 percent figure was matched orexceeded by the endowments of 71 percent of thenation's colleges and universities, according toWurts. And in fiscal 1991, Harvard's dismal 1.1percent return was outperformed by 95 percent ofcomparable institutions.

In his letter, Meyer addressed concerns overpast performance by defending the record he hasbuilt in three years at the University.

The HMC president wrote that returns in the twofull fiscal years he has led the company haveaveraged 14.2 percent, outperforming the company'sbenchmarks by an average 2.7 percent annually, andtranslating into an additional $300 million forthe University.

Meyer noted that this year's returns wererepresentative of strong performance in almost allasset classes.

Harvard's domestic stock portfolio, whichcurrently accounts for about 36 percent of theUniversity's investments, returned just over 20percent for the year.

The University's roughly 20 percent stake inforeign equities returned 16.5 percent.

And, while not all observers greeted theresults with quite the same enthusiasm--onealumnus said the higher returns mean little exceptthat "Meyer has bought himself a little moretime"--most were content.

"You've got to feel better about things," saidlongtime HMC critic Albert F. Gordon '59, adding,however, that he believes Harvard should be moreforthcoming about its specific investments.

University Treasurer D. Ronald Daniel said theresults come at a good time--just as Harvardprepares to embark officially on a $2 billionfundraising drive. "You can't deny that [thetiming is good,]" Daniel said. "I'm delighted."

But the treasurer said even good results have adownside when it comes to fundraising.

"The dilemma is, if any university performsexceedingly well close to a [capital] campaign,you kind of wonder why they need they money," hesaid. "And if they do exceedingly poorly, youwonder why you should give them the money if theycan't manage it. You're sort of damned if you doand damned if you don't.