Harvard newspaper calls out endowment performance

Harvard University’s college newspaper, the Harvard Crimson, has taken the university’s endowment managers to task for a -2% annual return and a US$2-billion paper loss.

Harvard Management Company, which manages the US$35.7-billion endowment, reported the decline this month in its 2016 annual report. Now, the managers are taking heat from students.

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The editorial, under the subheading “Sub-par endowment returns are one of the greatest threats to Harvard today,” said a 1% rise in returns equaled about US$350 million.

“[W]e wish to urge the administration to prioritize endowment performance before Harvard falls further behind peer institutions,” a Crimson editorial said on Wednesday. “We don’t know whether the answer lies in increased compensation at HMC, a different asset mix, or a more fundamental strategic rethink. But we hope to underline the importance of this problem in the minds of President Faust and the Corporation.”

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But Harvard “has continued to have the highest-paid endowment management team of any university,” Bloomberg reported, adding that private equity (20%) and hedge funds (14%) were two of the endowment’s biggest allocations, while returning just 2.6% and -1.2%, respectively.

The Crimson wrote that the decline in returns was one of a number of “pressing issues” at Harvard, including issues of diversity and inclusion, competition for talent, and “a suboptimal social scene” at the U.S. college.

While some Internet commenters have mocked the editorial’s earnest tone, the letter highlights the quandary many managers and advisors face: how to simultaneously deliver robust returns while preserving capital and sticking to risk mandates.

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Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.