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Harvard Endowment Corrects Course With Return to the Past


One of the first rules of PR damage control is get control of your message. After being battered by months of bad, really BAD press, Harvard University seems to have had enough of anonymously-sourced, semi-accurate attacks on its investing strategies. Jane Mendillo, who’s run Harvard’s slightly-less-massive endowment fund since July 2008, is on-the-record today in The Wall Street Journal, Bloomberg and probably a few other places I haven’t seen yet (feel free to call them out in the comments, please).

The popular critique of Harvard begins with accusing the endowment of taking too much risk by investing too much with illiquid hedge and private equity funds and usually winds up with sordid tales of egomaniacal leadership gone astray. And it’s not completely off-base. The fund, after decades of amazing returns, fell to earth with a loss of about 30% for the university’s fiscal year which ended in June.

But strangely blameless in these critiques are the members of the Harvard community who spent years complaining that the fund’s managers were paid too much and that the fund wasn’t contributing enough to the university’s annual budget. As a nearly direct result of those criticisms, many of the top managers (and their fearless leader, Jack Meyer) packed up and left the building. And the amount of cash poured into the university’s annual budget quadrupled to $1.6 billion from 1998 to 2008, far outstripping growth of the endowment fund itself which more than doubled from just under $15 billion to over $36 billion (See this recent letter for the data points). The wave of departures also prompted Harvard to rely more on outside managers, giving the university far less say over risk management, far less access to cash and substantially fatter fees for services.

Now Medillo is reversing course. She tells the Journal she’ll be keeping more money in-house. The fund recently made some big-splash hires, bringing in investment managers from Fortress Investment Group and Caxton Associates. And she’s re-setting expectations for the Harvard community as well, telling Bloomberg that future returns likely won’t be anywhere near the 14% annual gains for the 10 years before the crash and referencing a target of about 8%.

Interestingly, I didn’t see a real “money” quote from Mendillo about the fund’s woes in either story. Bloomberg’s Gillian Wee cast the story as about Harvard increasing its cash position by an unknown amount. The Journal’s Craig Karmin emphasizes the fund’s efforts to sell some of its illiquid investments and bring more money in-house. “That will allow us to be more nimble,” says Mendillo. But neither piece has much of a mea culpa-type statement (you know, “mistakes were made”). Perhaps that’s a subject Mendillo would best like left in the past.


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