Harvard Endowment Underperformance, part MMXXIV

I used to spill a lot of ink about how terrible the Harvard Endowment was, especially their overweight in hedge funds. I stopped not because they improved, but simply because the annual performance disaster was boring to keep writing.

Even worse, this was a self-inflicted wound caused by angry alumni upset about how much the Harvard Management Company (aka The Endowment) was paying their better performing staff:

“Let’s start with Dr. Terry M. Bennett and alumni like him. He is Harvard Medical School, Class of 1964, and at one time a regular and generous donor to the medical school. He was also one of the alumni cited by the New York Times in 2004 who was threatening to withhold future gifts if Harvard does not reduce compensation for money managers who at the time were producing returns above the benchmark. “The trustees of the fund 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, Harvard’s top-earning endowment management team offered 12.5 percent, beating lowest-paid rival Yale’s 8.8 percent.
– “Gentleman C” from the Harvard Endowment (September 23, 2016)

Wise and foolish, these alums have finally found their way. Jack Meyer’s team of performers was soon disbanded:

In the end, Harvard bowed to the wishes of its alumni and faculty, who also objected to the management company’s pay levels. Harvard then went ahead and replaced the top performing team of active money managers with another team of active money managers. The performance of the investment never recovered. After years of reliable returns and management stability, both are lacking; the domestic management arm is now looking for its fourth chief executive in a decade. This kind of disorder is never good for performance.

The endowment saved several million dollars in annual wages, but ultimately gave up billions of dollars in additional revenue.

This is not hyperbole or exaggeration: the endowment in 2004 was nearly $20 billion; after the changes were forced, yields were 100 basis points lower annually.

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

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

“Gentleman C” by Harvard Endowment (23 Sep 2016)

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

Underinvested in US Stocks, 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

source:
Harvard ignored investment warnings (Mirror)
Advisors told Summers, others not to put so much money into the market; losses reached $1.8 billion
By Beth Healy
Boston Globe, 29 November 2009