Harvard Alumni Call for New Investment Strategy

Members of the class of 1969 want the $37.1 billion endowment to be more passive.

Harvard’s class of 1969 has gone from pacifists to passive-ists, as a group of 11 members from the class are calling on the Harvard Management Company (HMC) to focus more on passive investing, and less on hedge funds.

The group has sent a letter to incoming Harvard University President Lawrence Bacow criticizing HMC’s investment strategy, claiming it is costing the endowment billions of dollars. Instead of relying on hedge funds, the alumni said the university should move half of its $37.1 billion endowment into lower-cost funds tracking the S&P 500.

“We propose a radical new endowment strategy [that will put] the whole management of the endowment on a new basis that would better reflect the values of a great university,” the alumni wrote in the letter, according to The Harvard Crimson.

Among the alumni who signed the letter are attorneys, journalists, historians, an artist, a clergyman, and two professors. One of professors is Paula Caplan, who is an associate at Harvard’s Dubois Research Institute.

The alumni argues that the endowment would have grown faster if it had been invested in the S&P 500 rather than hedge funds, and said that if the endowment had been 100% invested in the S&P, its asset value would be nearly two and half times bigger at more than $90 billion.

“If half the endowment … had been in the S&P 500 index, where it would have cost literally nothing to manage,” said the letter, “then Harvard would have saved half the payments to Harvard Management, amounting to $68.8 million—enough to pay a $43 million tax bill with a good deal more to spare.”

Under the new Tax Cuts and Jobs Act of 2017, there is a 1.4% excise tax on the net investment income of private colleges and universities with an endowment greater than $500,000 per student. Harvard’s administrators estimated that the tax would have cost the university $43 million if it had applied to fiscal year 2017.

HMC announced in the fall of 2017 that it would revamp its investment strategy after it earned a disappointing 8.1% last year, which lagged behind other universities as well as its benchmarks. New HMC CEO Narv Narvekar said in the university’s 2017 financial report it

had largely exited internal management of public markets assets. He said that while internal management tends to mean lower fees and expenses, “today’s market landscape makes it ever more difficult to attract and retain top portfolio managers.”

This is not the first time the class of 1969 has been critical of HMC. In 2009, members also sent a letter to then-President Drew Faust in which they argued that the endowment managers were being paid too much.


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