Missing from Harvard’s Annual Endowment Report This Year: Underlying Data

In 2016, Harvard had bad news to share in its annual financial report: Its endowment value had dropped nearly $2 billion. The report, released that November, detailed the endowment’s lackluster returns by disclosing how the Harvard Management Company performed in a variety of asset categories against internal and external benchmarks.

This year, the University disclosed similarly low returns, albeit in different market conditions. The endowment’s value dropped $2.3 billion after HMC delivered a 1.8 percent loss on its investments in fiscal year 2022.

But this fall, the financial report’s section on the endowment was missing a key ingredient from years past: underlying data.

Each fall, Harvard releases an annual financial report that provides insights into the University’s budget and investment strategy. The most anticipated figures in the report — annual endowment returns — come in a report from HMC’s CEO, which offers a rare glimpse into the investment approach of the largest university endowment in the country.

For years, the endowment section of the report looked largely the same, with data on HMC’s targets, as well as returns across asset categories such as domestic and foreign equities, private equities, and real estate.

But beginning in 2017, after N.P. “Narv” Narvekar took over as HMC’s CEO, the annual endowment reports began to change.

That year, the company stopped disclosing its internal benchmarks, which can be used to analyze the risk and return of a given investment portfolio. And this fall, it abandoned the longtime practice of disclosing investment performance by asset class.

Narvekar, who does not speak to the press, provided some written insights in a letter included in the financial report, which said fiscal year 2022 “was not a strong benchmark relative year” but the firm’s five-year performance “remains very strong” relative to its targets. The University’s financial report includes details on the asset allocation of all of Harvard’s investments, which encompass the endowment and other investments not managed by HMC.

But the changes have left Harvard stakeholders — including donors and alumni — without any underlying data to interpret the endowment’s performance, providing only topline numbers that can be difficult to evaluate on their own.

“Transparency goes to the heart of accountability for non-profit corporations, which don’t have the same types of governance controls that exist in the for-profit world,” New York University finance professor David L. Yermack ’85 wrote in an email. “It’s pretty rare to see a non-profit discontinue the disclosure of information that it has regularly released in the past, particularly in an area where it has struggled.”

In an interview earlier this month, Harvard University President Lawrence S. Bacow said HMC’s previous practice went beyond that of many peer institutions.

“We were reporting, for example, asset allocation and returns to different asset classes, when most of our peer institutions were not providing that level of detail in the reports,” he said. “So there are competitive reasons not to do it, candidly.”

Five of the eight Ivy League universities did not release their fiscal year 2021 endowment returns by asset class in their respective financial reports. Only Harvard, Brown, and Princeton included the data.

Bacow said decisions about what is disclosed in the financial report are made by HMC with the blessing of its board, which he sits on alongside an array of investors and financial experts.

“We’re not serving the institution well if the demands for transparency occur at the risk to any process,” Bacow said. “So we do disclose, but there’s always a judgment that’s made about whether the disclosure works to our benefit in enhancing our financial position or not.”

HMC has undergone a major overhaul since the arrival of Narvekar, who instituted a restructuring plan that shifted the vast majority of the endowment’s assets to external managers. HMC spokesperson Patrick S. McKiernan wrote that the shift toward external managers has made “simplified allocation reporting increasingly arbitrary.”

“Individual investments can straddle multiple asset classes and HMC wants to avoid reporting with false precision,” he wrote.

Narvekar’s restructuring was designed to revitalize HMC’s performance, which lagged severely in the years before he took over as CEO. Six years into his tenure, Harvard officials now say they are pleased with the company’s performance. In the school’s latest financial report, Harvard Treasurer Paul J. Finnegan ’75 and Vice President for Finance Thomas J. Hollister wrote that HMC “continues to wisely manage the endowment so that it can best provide steady and increasing distributions to the University’s budget into the future.”

Mitchell L. Dong ’75, managing director of the hedge fund Pythagoras Investments, said he does not believe HMC’s decision to release less data is “anything to be alarmed about.”

“I’m a hedge fund manager myself, and I write letters to my investors and also invest in other managers,” he said. “I read everybody’s letters and some people are very detailed, some people are less detailed — it just reflects somebody’s personality.”

Yermack, a former Crimson managing editor, said it is “not clear” how Harvard would be at a competitive disadvantage if HMC continued to disclose its investment performance by asset category.

“Everyone knows the benchmark returns in these asset classes,” he wrote, “and keeping the information secret from Harvard’s own alumni looks an awful lot like an attempt to deflect questions about performance.”

—Staff writers Cara J. Chang and Isabella B. Cho contributed reporting.

—Staff writer Eric Yan can be reached at eric.yan@thecrimson.com. Follow him on Twitter @ericyan0.