In contrast to the success of Yale’s endowment, which is partially attributed to its consistent leadership, Harvard has once again hired a new endowment manager after disappointing results last fiscal year.
In fiscal 2015, Yale’s 3.4 percent gains topped the 2 percent decrease of Harvard, which recently appointed a new investment manager amid characteristically unstable leadership on its financial team. On Sept. 29, Harvard announced the appointment of N.P. Narvekar, previously Chief Executive Officer at Columbia, as the new head of the Harvard Management Company, the body that oversees the university’s endowment. The previous endowment manager, Stephen Blythe, held the position for just over one year.
Endowment experts interviewed attributed Yale’s financial stability over the last decade to the continuous leadership of Chief Investment Officer David Swensen, who has led the Yale Investments Office for over three decades.
“There’s no doubt that Swensen has been a huge factor in Yale endowment’s success,” said Massachusetts Institute of Technology finance professor Andrew Lo ’80. “Yale has a very long horizon of investments. Any kind of investment will be risky, and that’s where the endowment’s long horizon comes into play.”
Lo added that Swensen has been able to build a strong, skillful staff over his 30-year tenure.
Compared to Swensen’s longstanding leadership, Narvekar is the fourth CEO of Harvard’s endowment in the past decade. Since former CEO Jack Meyer’s departure in 2005, Harvard’s endowment has lagged behind those of its peer schools. This underperformance has triggered doubts in the investment community and among Harvard students regarding the school’s “hybrid system” of investment in which portions of the endowment are internally managed and invested.
Yale uses a predominantly external model of investment, which outsources many investment decisions to external managers selected by the Investments Office. The endowments at MIT and Princeton have benefitted from adopting models similar to Yale’s.
The success of Yale’s endowment over Swensen’s tenure is often attributed to his investment strategy along with the length of time he has been Yale’s CIO. The longevity of Mr. Swensen’s leadership may also have helped establish a long-term relationship between Yale and its investment partners.
“Longevity helps [them understand] the competency and character of individuals they have retained to manage their endowment,” said William Jarvis ’77, managing director at the Commonfund Institute, a firm that monitors institutional investment. “There are many superficially attractive partners with good returns. What is needed is to understand the risks and returns, the motivations of the owner and how can their behavior be aligned with the institution’s goals.”
Stability may be even more important during challenging years like fiscal 2015. Lo said that over the past few years, financial markets have faced unique difficulties because of “geopolitical turmoil.”
Investment experts interviewed emphasized the need to view these gains and losses over a longer period of time, instead of fretting over yearly results.
“The instability in Europe because of the Brexit vote and the fact that Asia is also going to change with its bursting real-estate bubble will lead to very volatile investment conditions [in the coming year],” Lo said. “Year-to-year is going to be a lot of noise, but what we need to focus on is the long term. The [investment offices] will need the will and the stomach to survive the short run and reach the long run.”
While Yale has not recently topped its 20 percent returns in 2014, the University regularly bests its peers, beating Harvard in almost every year of the last decade.
In addition to longevity problems with its staff, the Harvard Management Company can potentially fall victim to structural issues, Lo said.
“Being the HMC CEO really involves two different jobs: the investment role, and the management and operational role,” Lo said. “Many other companies have broken up the role as CEO and CIO. [Harvard] should create a specific role dedicated to the investment process to let the burden off the CEO.”
The Yale Investments Office has yet to release the full endowment report for the 2016 fiscal year.