Comparative Performance
The endowment ended up performing at about the average of comparable funds.
It was just below the Trust Universe Comparison Service (TUCS) median--a measure of 68 large institutional funds with assets between $1 and $10 billion--which was up 16.9 percent.
In relative terms, the University's endowment performed significantly below last year, when it placed in the top five percent of comparable funds.
Stephen J. Remboski, a manager of TUCS for Wilshire Associates, said that the returns mean that the University "did average."
He added, however, that in a climate like last year's relative performance was "determined almost entirely by the amount of domestic stocks in the portfolio."
The domestic equity portion of the endowment did out-preform the Standard and Poor's 500 stock index, which had a 9.7 percent return, versus the index's gain of slightly more than 25 percent.
The performance also fell 0.4 percent short of HMC's internal benchmark, the Policy Portfolio, which it uses to determine the success of its year.
The Good and the Bad
According to a source familiar with HMC, one area that hurt the endowment's return was that it was "underweight in technology"--an area which saw a return of about 90 percent--meaning the company did not have enough of its assets invested in technology.
But the technology investments it undertook did well. A private equity investment of about $20 million in Softkey, a technology firm, was sold for more than $100 million during the year, the source said.
Another industry insider speculated that investments in the Far East and those affected by the Mexican peso devaluation performed poorly and brought down the overall gains.
He also echoed the proposal by some long-time HMC critics that the company should reveal how many of its investments involve derivatives.
Regarding specific aspects of the portfolio: domestic equities returned 29.7 percent, foreign equities gained 4.7 percent, emerging market securities rose 0.7 percent and high-yield securities advanced 15.1 percent.
In addition: real estate gained 12.1 percent, private equities rose 25.7 percent, domestic bonds advanced 9.8 percent, foreign bonds were up 23.4 percent and commodity-based investments were down 5.5 percent.
Long-Term Performance
In the annual letter, HMC also reviewed its performance since Meyer and the current management arrived four years ago.
Over those four years, the endowment's average annual performance was 13.7 percent. This return was two percent above the Policy Portfolio and 2.1 percent higher than the median fund as measured by TUCS.
During this time period, HMC exceeded the consumer price index inflation rate by 10.8 percent--considerably above the company's six percent target. It also bested the Policy Portfolio by two percent, a margin above its goal of between 1.5 and two percent. According to the letter, HMC does not believe such a margin is sustainable