Harvard Endowment Underperformance, part MMXXIV

I used to spill a lot of ink about how terrible the Harvard Endowment was, especially their heavy overweight in Hedge Funds. I stopped not because they got any better, but simply because the annual performance disaster was boring to keep writing about.

Worse still, this was a self-inflicted wound, caused by irate alumni upset at how much the Harvard Management Company (aka The Endowment) was paying their outperforming staff:

“Let’s start with Dr. Terry M. Bennett and alums like him. He is Harvard Medical School, class of 1964, and at one time a regular and generous donor to the medical school. He also was one of the alums quoted by the New York Times in 2004 who was threatening to withhold future gifts if Harvard didn’t cut the compensation for money managers who at the time were delivering above-benchmark returns. “The managers of the endowment took home enough money last year to send more than 4,000 students to Harvard for a year,” Bennett told the Times.

At the time, the high-earning Harvard endowment-management team was delivering 12.5% beating lower-paying arch-rival Yale’s 8.8%.
–Harvard Endowment’s “Gentleman C” (September 23, 2016)

Penny-wise and pound-foolish, these alum eventually got their way. Jack Meyer’s team of outperformers was soon after disbanded:

Eventually, Harvard bent to the wishes of its alums and faculty, which also objected to management-company pay levels. Harvard then went ahead and replaced the outperforming team of active money managers with another team of active managers. Investment performance has never recovered. After years of reliable returns and management stability, both are lacking; the in-house management arm is now looking for its fourth chief executive officer in a decade. That sort of turmoil is never good for performance.

The endowment saved a few million dollars in annual salaries but ultimately gave up billions of dollars in additional returns.

This isn’t hyperbole or exaggeration: The endowment in 2004 was nearly $20 billion; after the changes were forced, returns were 100s of basis points less annually.

Compound an additional 4 or 5% annually for 20 years on $20 billion and it adds up to an amazing amount of money…

Previously:
The Day Harvard Stopped Being a Hedge Fund (January 26, 2017)

Harvard Endowment’s “Gentleman C” (September 23, 2016)

Harvard Should Copy Calpers, Not Yale (September 17, 2014)

Underinvested in US Equities, Overinvested in Hedge Funds (June 24, 2014)

Harvard ignored warnings about investments. (November 29, 2009)

Harvard: Not So Smart After All (December 4, 2008)

Archive: University Endowments

Sources:
Harvard ignored warnings about investments (Mirror)
Advisers told Summers, others not to put so much cash in market; losses hit $1.8b
By Beth Healy
Boston Globe, November 29, 2009