LPs

Harvard expects private equity markdowns with year-end audits

LPs have been frustrated by GPs reluctance to take write-downs on assets up through the second quarter.

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Harvard Management Company, the manager of Harvard University’s endowment, expects markdowns in private assets to come at the end of the calendar year.

LPs are anticipating more pain in their private equity portfolios, which they haven’t experienced so far this year, despite significant declines in public markets. GPs have been reluctant to cut too deeply and second quarter valuations, the most recent for PE funds, show slight declines on average.

Private equity’s relatively strong performance has caused many LP portfolios to fall out of balance, with private equity exposure hitting or breaching policy caps. As well, LPs who want to sell fund stakes on the secondaries market are facing pricing at deep discounts to net asset value as secondary buyers anticipate write-downs, despite Q2 marks.

Harvard’s $50.9 billion endowment lost 1.8 percent in value over the last fiscal year, wrote CEO N.P Narvekar in a letter detailing its annual results.

Narvekar said the endowment’s private equity, venture capital and real estate portfolios were its strongest performers but did not reveal specific returns. However, Narvekar warned that private managers may not have marked their portfolios in line with public markets.

“This phenomenon does make us cautious about forward-looking returns in private portfolios,” Narvekar wrote.

Private asset valuations should have “meaningful adjustments” at the end of the calendar year as managers audit their portfolios, according to the letter.

Narvekar said venture capital had returns in the high single digits. But he added that the performance of venture portfolios during the past fiscal year was largely dependent on the proportion of public companies in these portfolios.

Narvekar touted Harvard’s $1 billion sale of private equity assets on the secondaries market in the summer of 2021, which he described as “a time of ebullience” that allowed the endowment to avoid the discounts these funds could face in current market conditions.