Harvard offers downbeat review of its private equity program

Jane Mendillo, president and chief executive officer of Harvard Management Company, gave a decidedly tepid review of the university’s private equity program, sister publication peHUB reported.

Mendillo released her annual letter in September, as part of the $32.7 billion endowment’s fiscal year report. For the Ivy League university, private equity includes venture capital.

This year, Mendillo characterized performance as “fair”. The program returned 11 percent for the year, which is “well below” the return on public markets, and only slightly above the 10.6% benchmark. What makes the result particularly disappointing is the long lock-up period with private equity.

“In exchange for that lock-up, we expect to earn returns over time that are in excess of the public markets – an “illiquidity premium.” Over the last 10 years, however, our private equity and public equity portfolios have delivered similar results,” Mendillo said in her letter.

Private equity has “gotten more crowded” and there is less of an illiquidity premium.

“As a result, we are actively focused on honing our private equity strategy to maintain the highest concentration in the very best managers with the greatest potential to add value,” Mendillo said.

Harvard has been pursuing its “honing” strategy for several years, periodically exploring the secondary market to cull its portfolio.

Meanwhile, the endowment continues its search for a head of private equity and venture capital, according to a spokesperson. Former head of PE, Peter Dolan, departed earlier this year in what has been described as a surprising move.