Harvard enjoys 32 percent rise in endowment

Harvard University's endowment has skyrocketed to $19.2 billion in Fiscal Year 2000. The nearly $5 billion increase in just one year eclipses Penn's entire $3.2 billion endowment. The increases are due largely to the Cambridge, Mass., school's venture capital investments. While venture capital and private equity are riskier than stocks in established companies, they offer the chance to capitalize on growth opportunities in dot-com and biotech start-ups. Penn has been wary of these investments in the past, but officials said they plan to move more aggressively in venture capital over the next few years. From $14.4 billion last year, Harvard's endowment fund jumped 32.2 percent in FY 2000. In FY 1999, Penn's endowment was reported to be $3.19 billion. According to Vice President of Finance Craig Carnaroli, Penn expects to report its own endowment performance at the University Trustees meeting in early November. Harvard's high return came in a year where the S&P; 500 -- an index of 500 blue-chip stocks -- increased only 7.3 percent. Harvard's endowment growth was largely driven by a high return in private equity funds, which constitute 15 percent of the university's portfolio. Carnaroli said he did not think Penn would be reporting growth parallel to Harvard's. "We don't expect to report as robust returns largely because what's fueling the growth of returns is private equity investment that our peers have," he explained. Penn has only 1 percent of its endowment in venture capital funds. However, the University hopes to bring that number to around 10 percent over the next several years. "The real thing separating Harvard's returns versus ours is really the venture capitalist piece," Carnaroli said. "This is the year where taking the risk really paid off." Penn's performance has lagged the S&P; 500 and other college endowments in recent years. Harvard Management Company -- which was created in 1974 to manage Harvard's endowment -- divides the university's 8,600 different investment funds into 11 asset classes and sets benchmarks for each. In the fiscal year ending June 30, nine of the 11 categories had outperformed the benchmarks set for them. "Venture capital drove our return this year, but we performed well in all asset classes," HMC President and Chief Executive Officer Jack Meyer said in a statement. In the past five years, private equity funds have performed exceedingly well, Carnaroli said, partly because of the growth of high technology and accompanying dot-com start-ups. Harvard's portfolio is more diverse compared to Penn's because of the sheer size of Harvard's endowment. "When you get to be the size of Harvard, you've got to look at every diversification tool," Carnaroli said. But the university also benefited greatly from the success of a seven-year capital campaign that ended in December 1999. The capital campaign set a record in higher education by raising $2.6 billion. Endowment income provided around $600 million of Harvard's operating budget of around $2 billion in FY 2000. Penn's endowment provided far less than $100 million of its $1.4 billion academic budget, which excludes the Health System.

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