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Harvard endowment posts 15.4 percent gain

The Harvard University endowment gained 15.4 percent on its investments for the year ended June 30, a period fueled by strong returns for US stocks, venture capital, and real estate.

The nation’s largest university endowment ended its fiscal year with $36.4 billion in assets. Its return beat Harvard’s internal benchmark but fell below the 16.1 percent median gain for educational endowments tracked by the Wilshire Trust Universe Comparison Service.

Some of Harvard’s closest endowment rivals — Yale University and Stanford University — have yet to report their results for the year. The Massachusetts Institute of Technology recently reported a 19.2 percent gain for its $12.4 billion endowment.


Jane Mendillo, in her last performance letter as chief executive of the Harvard endowment, declared the fund a “completely different story” than the portfolio she inherited in July of 2008, in the run-up to the financial crisis.

“I am very proud of what we have accomplished,’’ Mendillo wrote in the letter, released Tuesday. “We have recovered from the financial crisis.’’ She said she had repositioned the portfolio to make it less risky and helped the university regain its financial footing after steep losses in the 2008 and 2009 calendar years.

Mendillo, 55, in June announced she would leave at the end of 2014. Critics have speculated that she is departing due to the fund’s mediocre investment results. But in her report, Mendillo defended the performance, saying moves made on her watch leave the portfolio “well positioned to continue to deliver substantial returns and cash flow to the university for decades to come.’’

In particular, Mendillo has pushed the fund to invest directly in real estate deals, instead of through funds. The new real estate investments were up 20.4 percent last year, more than double a 7.8 percent gain for the legacy stakes.

She also said in the report that she was bullish again on private equity. Harvard cut those holdings and sold off some underperforming funds during the university’s cash crunch in the financial crisis.


Mendillo said some large, underperforming private equity investments made in the period between 2004 and 2008 have been a drag on the fund’s overall performance.

“Private equity is one of the areas where large pre-crisis commitments and investments have continued to undercut our recent performance,’’ Mendillo wrote.

Now, however, the fund has increased its private equity allocation to 18 percent for next year, up from 16 percent last year and 11 percent in 2008. Because the sector is hot right now, Mendillo said, the fund will proceed slowly in increasing its exposure.

In other moves, Mendillo eliminated the endowment’s public commodities holdings, which had represented 8 percent of the fund in 2008. She said the category once helped diversify Harvard’s portfolio, but its performance now tracks that of emerging market stocks too closely.

And Mendillo already has a big bet on emerging markets stocks — at 11 percent, roughly the same amount invested in US equities.

Mendillo has trimmed the endowment’s bond holdings to 10 percent, down from 16 percent in 2008, as interest rates threaten to rise and hurt fixed-income values. Still, the sector was a strong performer for Harvard last year, earning 7.7 percent versus a 4.2 percent gain for a comparable index.

The bond portfolio is handled entirely by the staff of Harvard Management Co., rather than outside investment firms and hedge funds, which run 58 percent of the endowment’s money overall.


Mendillo argued the fixed income strategy has been a boon for Harvard. She said managing that money internally has helped the institution save $2 billion over the past decade.

When Mendillo first took the top job at the endowment, 70 percent of the university’s money was managed by outsiders. She brought more money management responsibilities inside Harvard Management after a cash crunch during the financial crisis.

“Jane and the HMC team have done an excellent job strengthening the portfolio and investment organization, and we are proud to deliver strong returns to the university,” endowment chairman James Rothenberg said in a statement.

Harvard depends on payments from the endowment to cover 36 percent of its annual budget, a figure that’s been rising steadily. In 2000, the endowment covered 27 percent of the budget.

Over the past five years, the endowment has sent $11.6 billion to the university, according to Mendillo’s letter.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.