Haravard Endowment

September 2009 Harvard Management Company Endowment Report Message from the CEO

Introduction

The fiscal year that ended June 30, 2009 marked the close of what was very likely the most challenging period in modern times for the financial markets as well as for the Harvard portfolio. During my first year as CEO we saw extreme uncertainty in our economy and a level of volatility and dysfunction in many types of investments that went well beyond all previous experience. At Harvard Management Company (“HMC”), we actively managed the endowment through truly unprecedented market conditions over the past year while maintaining the long-term focus on investment opportunities that has served Harvard so well historically. In previous years, HMC has reported its returns in an annual “John Harvard letter.” This year, we wanted to widen the focus. In this inaugural HMC Endowment Report, we review the events of the period ended June 30, 2009, summarize the longerterm investment results of the endowment, and discuss a number of measures we have taken to realign the portfolio and to strengthen HMC as an organization. We conclude with a few comments about our outlook for the future.

45 40 35

Total Value of the Endowment

$ in Billions

30 25 20 15 10 5 0 1989 1994 1999 2004 2009

Historical Investment Return

Annualized for Periods Greater than One year

Policy Portfolio Benchmark (25.2)% 3.9 4.5 9.5 60/40 Stock/Bond Portfolio * (13.5)% 1.0 1.4 7.8 TUCS Median ** (18.2)% 2.5 3.2 8.0

Harvard 1 year (27.3)% 5 years 6.2 10 years 8.9 20 years 11.7

Overview of the Past Year

As of June 30, 2009, the value of Harvard’s endowment was $26.0 billion. The return on the investments managed by HMC * during FY 2009 was -27.3% and 6.2% annualized for the last five fiscal years. This compares with the return on our Policy Portfolio benchmark of -25.2% during FY 2009, and 3.9% annualized for the last five fiscal years. Clearly, the last year was a difficult one for Harvard as it...