The Great Unwashed finally can snicker at Harvard University over something other than its football teams, whose last sweep at national greatness arrived when jousting was a sport.
The Crimson’s recent stumbles have come on the financial field of play, where its $35.7 billion university endowment — the planet’s largest — lags nearly every one of its Ivy peers and beyond.
Harvard, ranked sixth on Wednesday by the Wall Street Journal in its list of top U.S. colleges, last week reported a 2 percent loss on its investments for the year ending June 30, which comes after years of sub-par results.
“The conclusion is really simple. Harvard doesn’t work,” said Harvard alumnus Tim Keating, a financial manager in Denver and “consistent and disillusioned donor.”
Endowment performance is a big deal, covering everything from scholarships to building construction to salaries. Harvard’s return on its investments covers one-third of its annual operating budget, according to the endowment’s annual report.
“When you place Harvard’s returns against its peers, Princeton, MIT, Columbia, they don’t look so good,” said Charles Skorina, a head hunter who works with endowments and other institutional investors.
The rivalry is intense. Schools want to beat each other’s brains out in the money game as much as Army and Navy want to defeat each other on the football field. The giant taxpayer-dependent schools across the country would love to share in Harvard’s rarified plight.
“Everybody treats it like a box score,” said attorney Ed Klees, attorney at Hirschler Fleischer and former general counsel at the University of Virginia investment management company. “You look and say, ‘Okay, Yale beat Harvard. Dartmouth beats Stanford.’ It’s particularly unfair for Harvard because Yale is managed by David Swensen, who is the Michael Jordan of institutional investors.”
Harvard reported an average annual return of 5.7 percent over the past decade, according to the Harvard Management Company’s annual report. If you put your money in a traditional, 60/40 stock bond mix, you would have earned 6 to 9 percent, according to the Harvard report.
During the same decade, Massachusetts Institute of Technology earned an 8.3 percent a year return on its $13.2 billion endowment.
To add to the misery, the Harvard Management Company, whose job is to grow the school’s billions through investments, can’t seem to keep its chief executives. Harvard Management has seen — count ’em — four chief executives run through its revolving doors in the past 11 years.
Bloomberg and The Wall Street Journal recently reported that Harvard had narrowed its search for a CEO to N.P. ‘Narv’ Narvekar, who oversees Columbia University’s endowment, and Rockefeller University’s Amy Falls. Falls is on Harvard’s investment committee.
Harvard is known for paying big bucks. Former Harvard CEO Jane Mendillo was paid $13.8 million in 2014, compared with $1.6 million for Seth Alexander, the endowment chief at MIT, according to Bloomberg.
Rival Yale has posted better returns for its endowment under the 31-year reign of chief Swensen, who earns less than Harvard’s stars.
For the 15 years between 1990 and 2005, Harvard’s endowment outperformed just about everyone under the management of Jack Meyer. But Harvard Management’s annual pay reached Wall Street-like proportions, dispensing tens of millions for top performers. That brought criticism from some faculty and alumni, and Meyer left to start his own investment firm.
Keating said Harvard’s unique “hybrid” model includes a 200-plus staff of well-compensated, internal managers and traders who run money like the trading desks at Goldman Sachs or Morgan Stanley. Yale and most other universities work on a more simple model featuring smallish staffs of 30 to 50 who oversee outside funds who run the day-to-day investments.
“They should bag the hybrid model,” Keating said. “The sooner they cut the cord and go external, the better for all parties concerned. It’s practically impossible to have highly compensated people as internal managers of the endowment of a prestigious university. I do not think it can coincide with the other stakeholders in the university.”
Skorina, the recruiting executive, said Harvard should keeps its real estate team, scrap the rest of its investment program and go outside.
“Adopt a more traditional model like MIT, Yale, Princeton,” he said. “Have a small internal group. Invest with outside managers. And isolate what you are good at.”
“Do you need the 300 people you have now? Yale does it with under 30. The (University of) Texas has 70 or 66, and they are the second-biggest endowment,” Skorina said.
“I’m an agnostic. I don’t have an axe to grind. I want everybody to love me and hire me for searches. I’ve got to look at the numbers, and the numbers have been poor year after year after year when compared to their peers,” Skorina added. “So the question is, at what point do you stop beating your head into the wall and say, ‘I guess this isn’t working?'”