Australia’s biggest super funds, most of which have been on an insourcing path for their investments over several years, should take note of what’s happening at Harvard and Yale. The US endowments have been a guiding light for how to manage a long-term investment fund. One still is, the other is no longer.
Rivalry between the US$36 billion Harvard endowment and US$25 billion Yale endowment is as intense as the competition between their universities at recruiting the best under-graduate and post-graduate talent. But Yale’s endowment has been run for the past 30 years by the legendry David Swensen, while Harvard has had eight heads of investment, including interims, in the past 12 years.
Now, a new team at Harvard will be slashing the inhouse investment team of about 230 professionals in half, as it moves to accelerate an outsourcing program which began a couple of years ago, it was announced last week.
Whether Harvard reaches the leanness of Yale’s 31 investment professionals, in a largely outsourced model traditionally followed by Australia’s super funds, remains to be seen.
According to a Bloomberg report, Harvard endowment’s new CEO, Nirmal (Narv) Narvekar, who started in December, announced last week: “We can no longer justify the organisational complexity and resources necessary to support the investing activities of [our] portfolios.”
Narvekar was recruited from Columbia University’s US$9.6 billion fund, where he operated an outsourced investment model. He will be joined in March by a new CIO, Rick Slocum, recruited from the Johnson Co.
Bloomberg reported that Harvard’s endowment, officially called Harvard Management Co, will shut down its internal hedge funds by June 30, the end of the fiscal year, and about half its employees will depart by year-end.
Its direct real estate investments are expected to be spun out and become an external management firm by the end of the year, while the natural resources portfolio, focused on timber and agriculture investing, will continue to be managed internally.
Harvard lost 2 per cent on its investments in the year ended June 30 as most schools struggled with small losses. It has generated an average annual return of 5.9 per cent during the last five years, among the worst in the Ivy League and trailing peers such as Yale, which returned 10.3 per cent, among the best in higher education, Bloomberg said.
The shift back to a predominantly outsource model has been speculated upon for several months since the top management change was foreshadowed.
Last October, for instance, well-known US adviser Barry Ritholtz wrote that rather than emulate Yale, Harvard should follow in the footsteps of the largest pension fund in the US, the US$300 billion CalPERS, which announced in 2015 that it would cut its US$5 billion hedge fund program, because of costs associated with its administration, and increase its passive allocation. Nevertheless, CalPERS still has more than 200 investment staff itself.