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Harvard: RE is strongest performer

The asset class returned 13.8% for the $35.7bn endowment, which reported an overall -2% return for its most recently ended fiscal year.

Real estate was one of few bright spots in an otherwise gloomy year for Harvard University’s endowment.

The asset class returned 13.8 percent for the fiscal year ended June 30 against a 9.4 percent benchmark return, according to Harvard Management Company (HMC), which oversees the $35.7 billion endowment.

The overall endowment had a -2 percent return against a 1 percent benchmark, according to the annual investment report released last month. By comparison, during the fiscal year ended June 30, 2015, the endowment’s overall portfolio returned 5.8 percent, while its real estate holdings returned 19.4 percent.
HMC allocated 14.5 percent of its portfolio to real estate during its most recently ended fiscal year.

Harvard’s robust real estate returns were largely driven by its direct investment program in the asset class. The internally-led strategy, which began in 2010, now comprises more than half of the overall real estate portfolio and returned 20.2 percent for fiscal year ended June 30. A spokeswoman said HMC would not disclose its indirect real estate returns.

“This approach also provides the benefits of enhanced transparency, control over entry and exit, better risk control, and lower overall cost structure,” Robert Ettl, HMC’s interim chief executive, wrote in the annual CEO letter last month.

The direct investment program’s acquisitions in the last fiscal year included the acquisition of an undisclosed stake in a multifamily property in the north Manhattan neighborhood of Harlem, PERE reported in January. HMC partnered with New York City real estate investment firm A&E Real Estate Holdings to buy the 1,129-unit Riverton Houses for $201 million.

HMC’s returns were hurt in the last year by underperformance in natural resources and public equities, which both returned -10.2 percent. To combat the lower returns, HMC cut the size of its internal equity team in favor of externally-sourced equity managers, and hired a new head of natural resources.

HMC also saw significant leadership disruption with CEO Stephen Blyth’s resignation in July. At the end of September, Harvard named Nirmal Narvekar, the CEO of Columbia University’s endowment, as Blyth’s replacement starting in December, according to an announcement.