Harvard Management experienced returns for its real estate asset class of about 8 percent in fiscal year 2012, beating its benchmark for the first time in at least two years.
“Our revitalized real estate team and strategy, now about three years since inception, is beginning to bear fruit,” wrote Jane Mendillo, the endowment’s president and chief executive, in the fiscal year 2012 report. Historically, Harvard Management had invested in real estate exclusively through private real estate investment funds. More recently, however, the endowment has been allocating a significant portion of its new capital in real estate through direct deals and joint ventures in specific market niches.
“This provides Harvard Management much more discretion over capital allocation across markets and sectors, leverage and development risk, as well as lower management fees,” Mendillo stated. The assets invested under the endowment’s direct real estate strategy returned about 15 percent during the past fiscal year, she noted.
The endowment’s overall real estate portfolio returned 7.92 percent for the fiscal year ended 30 June, exceeding its benchmark of 6.8 percent. Although the fiscal year 2012 return for real estate was lower than the 11 percent return in fiscal year 2011, it was the first time in at least two years that Harvard Management’s real estate portfolio outperformed its benchmark.
Real estate was the best-performing sub-asset class within the real assets category, which also includes natural resources and commodities and accounts for 25 percent of Harvard Management’s total assets. Meanwhile, real assets – which returned an overall 3.23 percent for the 12-month period – was the second-best performing major asset class for the endowment after fixed income, which reported a 7.95 percent return. The biggest drag on Harvard Management’s overall return was from public equities, which returned -6.66 percent for the fiscal year.
The endowment’s overall return was essentially flat, earning a return of -0.05 percent for the fiscal year, and the value of its total portfolio declined to $30.7 billion from $32 billion during the same period one year ago. Harvard Management, however, outperformed its policy portfolio benchmark of -1.03 percent for the third consecutive year.
For fiscal year 2013, Harvard Management is targeting a 10 percent allocation to real estate, up from 9 percent during the previous two fiscal years.