Word: portfolios
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Mendillo emphasized in the endowment report released Thursday that the portfolio is “well positioned” to seize on new investment opportunities and to support University operations. But the report also supplies telling details about the brutal losses sustained by HMC since last July—losses that in many cases exceeded those of standard benchmarks. Possible investment policy missteps that exacerbated the effects of the global financial crisis on HMC, such as the maintenance of an insufficient cash reserve, are mentioned prominently as well...
Absolute return investments, which include some externally managed funds and made up 18 percent of the portfolio at the start of the last fiscal year, fell by 18.6 percent, or 5.4 percent more than the benchmark set by HMC’s board. The value of externally managed private equity holdings, representing 13 percent of the portfolio, dropped by a staggering 31.6 percent—nearly 8 percent more than the benchmark...
...whole, the endowment performed 2.1 percent worse than the Policy Portfolio—a theoretical portfolio set by HMC specifying allocations and setting performance goals among a mix of asset classes. But certain individual assets have performed well. The report noted that the value of Harvard’s real asset holdings fell by 37.7 percent—slightly less than the benchmark—and that internal emerging markets and international fixed income teams outperformed their benchmarks as well...
...result of this year’s broad underperformance, “a substantial number” of portfolio managers have had portions of their bonuses earned in past years “clawed back” by HMC, the report said, although it did not provide more specific figures. HMC, which has been criticized for its multi-million dollar compensation packages in the past, typically rewards managers for adding value and outperforming benchmarks. But it also withholds large portions of the bonuses over subsequent years in order to emphasize long-term growth and protect against excessive risk-taking...
Mendillo partly attributed the endowment’s underperformance to “complications” within the portfolio existing before the financial crisis, including “recent over-sized commitments to illiquid asset classes; within asset classes, a larger proportion of strategies with long holding periods; [and] a lack of ready liquidity in the portfolio to meet our obligations along with the needs of the University.” For years, Harvard has been the subject of scrutiny—and idolatry—as its endowment consistently generated double-digit yearly investment returns, largely...