Statue of John Harvard on campus of Harvard. (Photo: ThinkStock)

The most prestigious and exclusive American university just reported a $1.9 billion loss in its endowment.

The 2% decline in the Harvard endowment for the fiscal year ended June 30 was its worst performance since 2009, when it lost $11 billion following the financial crisis.

In its annual report, the endowment’s temporary President and CEO Robert Ettl attributed the loss to “the low interest rate environment and market volatility of the past fiscal year” as well as to poor execution.

Ettl, a former executive vice president and chief information chief information officer at Pimco, had been the chief operating officer at the Harvard Management Company, which runs the endowment, before assuming its top leadership position in May, when CEO Stephen Blyth took a leave for medical reasons before eventually resigning in July.

The underperformance of the endowment, which is still the largest university endowment in the U.S. with $35.7 billion in assets, was due primarily to two underperforming sectors: public equity, accounting for 29% of assets, and natural resources, comprising 10% of assets. Both sectors lost about 10% in the latest fiscal year.

In contrast, the S&P 500 was up slightly during the same time period and the endowment’s equity benchmark, which includes foreign equity and emerging markets, stocks was off 6.1%.

“A number of our domestic equity external managers underperformed for the first time in many years amid a difficult period for active management overall, particularly for value-oriented strategies,” Ettl wrote.

The endowment’s losses in natural resources reflected the decline in commodity prices and the limited liquidity in timber and agricultural land markets, according the annual report.

(Related: Top 20 Richest Colleges of 2015: The Biggest Endowments)

Its natural resources portfolio underperformed its benchmark by over 1100 basis points (that’s equivalent to 11%) primarily because of “unfavorable market and business conditions across two assets in South America,” the report noted, presumably referring to the timber plantations it owns in Argentina.

In contrast, the performance of the endowment’s other direct investments—in real estate and private equity—excelled. Direct real estate investments, which comprised over half the endowment’s real estate portfolio, gained just over 20%, and its overall real estate investments appreciated 13.8%, well more than the 9.4% increase in its benchmark. Real estate accounts for 14.5% of endowment assets.

Its private equity portfolio, accounting for 10% of total assets, was also a winner, up 2.6% versus 2.2% for its benchmark, as was its fixed-income portfolio, up 5.5%, boosted by gains in foreign bonds—“the best performing asset class,” according to the report, noting the growing number of foreign government bonds trading with negative yields. But even in bonds, the endowment’s portfolio underperformed its benchmark, which was up 6.2%.

Its absolute return portfolio, comprising 14% of its assets, fell 1.2%, also underperforming its benchmark.

Looking ahead, Harvard’s endowment, which accounts for about one-third of the university’s operating income, is continuing its search for a permanent CEO as well as a new head for absolute return and public markets funds.

It will have a new managing director of natural resources, Colin Butterfield, who is joining in October and it has have repositioned its public equity strategy to rely more heavily on external managers. In addition, the endowment has combined it activity in emerging and foreign equities with fixed income, credit and commodities in a “cross-asset public markets platform.”

Despite these changes the endowment is downgrading expectations. “As we enter fiscal year 2017, the the investment landscape continues to be full of uncertainty…. With a backdrop of slowing growth and rich valuations, endowment returns could be muted for some time to come.”

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