Friday, September 5, 2008
With members of Congress planning a roundtable on university endowments early next week (see previous blog entry), the Wall Street Journal has a timely report looking at how Harvard University's endowment has been able to generate consistently strong returns, even in the fiscal year that ended on June 30th. According to the report, the key has been diversification that stretches well beyond the traditional investment categories of domestic stocks and bonds. This strategy includes significant investments in foreign equities, commodities, and real estate, as shown on the Harvard Management Company's website. This diversification has allowed Harvard to realize an estimated 9 percent return for the first ten months of the last fiscal year, even though the S&P 500 fell about 15 percent during the same time period. While the author acknowledges that the endowment's size ($38 billion as of April 2008) gives it access to both investment opportunities and investment terms that are not available to the ordinary investor, he argues that any investor can follow its overall diversification strategy, with the possible exception of investing in private equity and hedge funds.