Harvard Management Company: Creating Optimal Mix of Portfolio

Formed in 1974, Harvard Management Company (HMC) manages Harvard University’s endowment and related financial assets. Here is the excerpt from HMC website and Annual Endowment Report 2014.

“Over the long term, HMC has produced excellent investment returns for the Harvard University portfolio. The annualized return on the endowment over the last 20 years has been 12.3% per year and the endowment was valued at $36.4 billion at June 30, 2014. In fiscal year 2014, distributions from the endowment contributed almost a third of the University’s operating budget. The following charts show historical investment returns and the total value of the endowment.

Historical Investment Return

Total Value of the Endowment

The underlying framework for our investment activity is the Policy Portfolio, a concept that has been employed by HMC for many years. The Policy Portfolio is a theoretical portfolio allocated among asset classes in a mix that is judged to be most appropriate for Harvard University from both the perspective of potential return and risk over the long term. The Policy Portfolio differs from a traditional stock/bond portfolio, including allocations to less-traditional and less-liquid asset categories, such as private equity, real estate, and absolute return strategies.

chart

This past year marked an important milestone for Harvard Management Company and Harvard University—it was the 40th anniversary of the founding of HMC. Since inception, HMC has been tasked with a singular mission: to generate strong long-term returns to support what is arguably the world’s finest academic institution. In this context, we took a close look at the historical long-term cash distributions and drivers of performance. Over the last four decades, HMC has delivered $23.2 billion in distributions to the University.

The proportion of the University’s annual operating budget that is funded through endowment distributions has grown considerably over the years, now accounting for approximately 35%. This source of funding, which must be both reliable and growing, is increasingly important as the University faces decreasing federal research support and increasing economic pressures. Over the last five years alone, HMC has distributed a total of $11.6 billion to the University, nearly 50% of the total distributions over the last forty years”.

 

Source: http://www.hmc.harvard.edu/docs/Final_Annual_Report_2014.pdf

Disclosure: This website is a collection of public articles, and this communication is for informational purposes only. Nothing herein should be construed as my opinion, solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from publicly available sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional investment, legal, tax, or accounting counsel.

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