How much of Harvard's endowment is invested in Private Equity?

First off, only a fool would invest in Private Equity. Don't get me started!

Of Harvard's $62 billion endowment, a full $23 billion is invested in Private Equity. Apparently, they don't teach investment theory over there.

Private Equity Caught in Crosshairs of Elise Stefanik’s Attack on Harvard

Lawmaker’s call for an SEC investigation into the school highlights the industry’s fishy valuation practices

By Jonathan Weil, WSJ

July 1, 2025 8:00 pm ET

Rep. Elise Stefanik (R., N.Y.) recently sought an investigation into Harvard’s financial disclosures to bondholders. She might as well have fired a bazooka at the entire private-equity industry.

In a letter to Securities and Exchange Commission Chairman Paul Atkins, the Republican congresswoman said the university’s finances might be more precarious than publicly acknowledged. Much of its $53 billion endowment is invested in private-equity funds that “are often overvalued due to reliance on internal estimates and outdated transaction data,” she said.

The letter added that “the real, realizable value of these assets is likely far below stated values,” because of higher interest rates and declining private-market valuations.

She might be right. But Harvard doesn’t generate those valuations itself. It gets them from the external managers at the funds where it invests.

So if the SEC investigates Harvard over the valuations, it should also investigate the private-equity firms that provide them, if not the whole private-equity sector. This could be helpful. With a full-court press under way in Washington to get private-market funds, like private equity, into Americans’ 401(k) retirement plans, it’s more urgent than ever that alternative investments reflect market realities, not wishful thinking.

The problem of stale or fishy private-equity valuations is well known. The funds are supposed to mark their investments at fair market value. But the holdings tend to be illiquid and hard to value. This makes the fair-value measurements difficult for outsiders to challenge, and easier for managers to hold still.

The real problem arises when investors unexpectedly need cash and can’t sell the holdings at their stated values. On the secondary market, private-equity stakes usually sell at a discount to their official values. Last year, the average discount was 11%, according to Jefferies. It was 25% for stakes in venture-capital funds, a form of private equity.

The biggest scandal here is what’s legal, and the problem is much larger than Harvard. When it comes to the valuations used by investors in private-equity funds, the accounting rules practically encourage willful blindness.

Usually, equity investments must be marked at fair value on the balance sheet, meaning the price someone could sell them for. But the rules make an exception for investors holding stakes in private-equity funds.

They are allowed to rely on what the funds’ managers say they are worth—known as the net asset value, or NAV. The idea was to give investors a practical shortcut, because they often lack information to do the fair-value measurements themselves.

The problem is investors are often allowed to keep using the reported NAV figures even if they know they are out of date or weren’t measured properly. In those scenarios, the accounting rules say an investor “shall consider whether an adjustment” is necessary. But the rules don’t require an investor to do anything more than consider it. There’s no outright prohibition on using the reported NAV even if the investor knows it’s completely unreasonable.

Some investment funds have exploited this loophole by buying stakes in private-equity funds at big discounts on the secondary market and marking them up immediately to their stated NAV. Sometimes the technique has resulted in gains of 1,000% or more in a single day.

If Stefanik is right that Harvard’s assets are overvalued, the NAV loophole is a likely culprit. Harvard’s latest annual report showed about $62 billion of investments. Only $9 billion of those were at fair value, where Harvard did the measurements itself. For the other $53 billion, including $23 billion in private-equity funds, Harvard said it used the NAVs reported by outside fund managers “as a practical expedient for fair value.”

Harvard itself has flagged instances when the valuations used in its annual reports lagged behind market realities. In its 2022 annual report, it said venture-capital and other private-equity funds were its strongest performers but cautioned that “private managers have not yet marked their portfolios to reflect general market conditions.” The following year, Harvard said that those asset classes underperformed public equities and that “it will likely take more time for private valuations to fully reflect current market conditions.”

Should there be more oversight of the private-equity sector? Join the conversation below.

This is as much a policy issue for the SEC as a problem for its enforcement division to tackle. There’s a straightforward fix, too, if the accounting rule-makers won’t act.

Using its own rule-making authority, the SEC could prohibit issuers of securities, including Harvard, from relying on the NAV exception when they know the stated NAVs being fed to them are wrong. That would mean having to do their own fair-value estimates, just like they do with other illiquid, hard-to-value investments.

This would be a bigger problem for the private-equity industry than for its clients. That’s because some of the clients wouldn’t want to own such funds anymore if they couldn’t legally rely on pretend, volatility-free numbers to show their own investors. Some university endowments are souring on the sector already.

Stefanik is hardly an impartial observer. In addition to being a Harvard alum, her grilling of Claudine Gay at a 2023 hearing about on-campus antisemitism helped force Gay’s resignation as Harvard’s president.

Yet in her zeal to keep attacking Harvard, Stefanik might have done a service for investors, wittingly or not, by spotlighting potentially widespread market abuses. If nothing else, this ought to make the SEC sit up and take note.