Qubit: Harvard Endowment Returns 2022
Harvard's endowment returned -1.8% for FY 2022. It paid out $2.1 billion to the school covering 36% of its operating budget.
Venture capital valuations remained mostly flat this fiscal year but are likely to fall by calendar year-end. The endowment sold a portion of its private equity portfolio, which is not the first time. But, since they committed to divesting from fossil fuel investments last year, they more than likely sold their private equity funds in oil and gas.
“Notably, the highest risk asset classes — i.e., the private portfolios of venture capital, buyout, and real estate — were the strongest performers. In fact, the more private assets an investor had in its portfolio in FY22, the stronger their performance. This is somewhat counterintuitive and may indicate that private managers have not yet marked their portfolios to reflect general market conditions. This phenomenon does make us cautious about forward-looking returns in private portfolios.
For example, the venture capital portion of HMC’s private equity portfolio returned high single digits despite the deeply negative performance of relevant public equity indices. On the other hand, some venture managers have meaningful exposure to public companies, which declined with public markets. Accordingly, the performance of venture portfolios during FY22 was largely a function of the proportion of public companies held in those portfolios.
We expect that the end of the current calendar year might present meaningful adjustments to these valuations, as investment managers audit their portfolios. Under existing accounting conventions for venture portfolios, investment managers generally use the most recent round of financing to mark investments. This convention may slow the process of moving existing valuations to fair value. This circumstance is not unique to Harvard — other institutional investors with large private portfolios will almost certainly face the same dynamic.
Given this environment, we are particularly pleased that we were able to sell close to $1 billion of private equity funds in the secondary market during the summer of 2021 — a time of significant ebullience — avoiding the discounts these funds would likely face today.”
Source:
Harvard Management Company - Endowment 2022
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