Institutional Investor article "Harvard's Endowment's Rebirth" included comments from NEPC's Cathy Konicki, CFA, CAIA, Partner and Head of the Endowments & Foundations team. Read more below:
Harvard Management Co. is dead. Long live Harvard Management Co.
After a decade of low returns and high turnover, the group responsible for managing Harvard University’s $37 billion endowment is beginning anew. Ushering in this era is chief executive officer Nirmal (Narv) Narvekar, an Ivy League endowment alum who joined in December to tackle what he calls the “deep structural problems” plaguing Harvard’s investment office.
The appointment signaled major changes for Harvard Management Co., which for years had operated under its signature hybrid model of internally and externally managed assets. That was unique among university endowments, which on average invest about 4 percent of assets in-house, according to Cathy Konicki, head of consulting firm NEPC’s endowment and foundation practice.
“Harvard was an anomaly,” she says. But no longer.
Not even a year into his tenure, Narvekar has dismantled asset management teams at the endowment in favor of outsourcing its investments to external managers. By the time the CEO is through with his planned five-year transformation, Harvard Management Co. will more closely resemble peers such as Narvekar’s former employer, Columbia Investment Management Co. — and the hybrid model will be all but dead.
“You’ve seen an acceptance among endowments and not-for-profits more broadly that unless you’re a really sizable investment portfolio, the ability to do a lot of things in-house is really challenging,” says Kevin Quirk, principal at Casey Quirk, a Deloitte-owned consulting firm. “The amount of necessary resources, the compensation, and just the general capital market challenges make it increasingly difficult to be successful,” he says.
Harvard Management Co. had begun reducing its internal investing before Narvekar arrived, including downsizing its in-house equities team in the spring of 2016, but the final nail in the coffin was a dismal fiscal 2016 — a 2 percent loss in a year when the average endowment lost money but rival Yale University’s fund still gained 3.4 percent. The poor performance coincided with the resignation of Stephen Blyth, Harvard Management Co.’s third CEO within ten years, who stepped down after two months of medical leave.
One week after releasing the endowment’s 2016 investment results, the university announced the hire of Narvekar from Columbia University, where he had worked for 14 years.
As CEO of Columbia’s $9 billion endowment, Narvekar took a Yale-like approach, investing heavily in private markets and other alternatives through allocations to external managers. His staff numbered around 20 — less than a tenth of the size of Harvard Management Co.’s then-230-person team.
Within two months of starting his new job, Narvekar announced plans in a January letter addressed to “members of the Harvard community” to slash his workforce in half, give the remaining investment staff broader, more “generalist” roles, and develop new investment and risk frameworks.
Narvekar further laid out plans to eliminate Harvard Management Co.’s internal hedge-fund teams by the end of the fiscal year and spin out the endowment’s direct real-estate team as an external manager before 2018. Only the natural-resources team, focusing on investments in timber and agriculture, was to be kept in-house.