Harvard’s Mendillo Says She Has No Regrets as Tenure to End

Jul 16, 2014 1:06 pm ET

(Updates with public market holdings in fifth paragraph.)

July 16 (Bloomberg) -- Jane Mendillo, the head of Harvard University’s endowment, says she has no regrets about how she managed the money of the world’s richest school as she approaches the end of her tenure.

Mendillo, 55, who announced last month her plans to resign, said today at the CNBC Institutional Investor Delivering Alpha Conference in New York that she stuck with a diversified portfolio instead of shifting more into public equities even as those markets outperformed over the past five years.

“No regrets,” Mendillo said, responding to a question from the panel’s host. “The diversified equity exposure is more important. We have no way of predicting which market is going to be better.”

Harvard, with an endowment of $32.7 billion, has struggled compared with its peers since Mendillo was hired in the midst of the credit crisis in 2008, as its investments in private equity, real estate and emerging markets underperformed. In the year that ended in June 2013, the endowment posted an 11.3 percent return and a five-year average annual return of 1.7 percent, both the lowest in the Ivy League, according to data compiled by Charles Skorina & Co.

About 11 percent of Harvard’s portfolio is dedicated to U.S. equities, compared with 16 percent to private equity. Harvard’s smaller allocation to domestic stocks has caused it to miss out on gains as the Standard & Poor’s 500 Index has more than doubled over the past five years. Last year, the S&P 500 surged 30 percent, the biggest annual increase since 1997.

‘Illiquidity Premium’

Mendillo said in Harvard’s most recent annual report that private equity and public markets have delivered similar returns for Harvard over the past ten years, meaning the “illiquidity premium” from private strategies has declined.

According to Mendillo, there is little value to Chinese Internet stocks, which she names as one of the current “bubbles to avoid.” Harvard has earmarked 11 percent of its assets to emerging markets, a segment that has missed internal benchmarks for the endowment for the past two years.

“Emerging markets overall, compared to developed markets, are priced at a 40 percent discount,” said Mendillo. “But there are other emerging markets that are priced comparatively.”

Mendillo said in June she will leave Harvard at the end of this year, citing personal reasons. During her tenure, Mendillo sought to reposition Harvard’s portfolio by restructuring private equity holdings and searching for new opportunities to make direct investments in real estate and agriculture in emerging markets such as Brazil.

--With assistance from Michael McDonald in Boston.