- Repositioning after the financial crisis
- PE, hedge funds may be losing favor
- Swinging portfolio toward public markets
Harvard University may increase its natural resource investments as a lucrative way to expand its multibillion-dollar endowment, the head of its investment arm said. “Natural resources are our favorite area,” Jane Mendillo, who oversees the university’s $32 billion endowment as chief executive of Harvard Management Co., told the CNBC Delivering Alpha Conference, sister news service Reuters reported.
More demand for food, energy, roads and other infrastructure from the world’s growing population is a prime reason why natural resource investments are highly likely to pay off in the coming years, Mendillo explained on a panel about global opportunities. Not only is Harvard the world’s wealthiest university, but its investment managers, based a few miles from the school’s Cambridge, Mass., campus in Boston, have long been considered among the industry’s most savvy. As a result, its hints on future investments are often closely monitored.
Natural resources like timberland have long been popular at Harvard. The university has also been a big investor in private equity and hedge funds, Mendillo said, but its appetite for those investments might be falling off in favor of other areas like farmland and natural resources.
Harvard’s enormous endowment, which grew 21.4 percent in the fiscal year that ended on June 30, 2011, has allowed the school to be an early investor in natural resources. The school also has the expert staff, including people with advanced degrees in forestry, for example, to make these types of bets, said Mendillo, who rarely speaks in public at large conferences. Harvard, unlike many other big universities, manages a chunk of its portfolio in-house. It also uses outside managers, some of whom previously worked for the university’s investment arm.
After Mendillo took the top job at Harvard Management Co. in 2008, she was forced to reposition the school’s portfolio dramatically as the financial crisis took a huge bite out of the endowment. When she arrived, much of Harvard’s endowment was invested in less liquid securities. Speaking about the way the portfolio was positioned then, Mendillo said “All of that can work beautifully when markets are going up, but we have had to reassess in the financial crisis.”
In reaction, “We’ve swung back a little to public markets from alternatives,” she said. Now she said the university is watching closely for future opportunities. One interesting area worth monitoring is distressed debt in Europe, Mendillo said.
However, she cautioned that it is currently a hot investment area and too much money may be pouring in. “We are not piling in here,” she said, “but we would like to participate along the way.”