Harvard Management Co. CEO Narv Narvekar said the firm was “not pleased” with the university’s fiscal 2018 endowment performance, but said it’s an “organization and a portfolio in transition” that needs time to develop and mature.
Harvard’s endowment returned 10.0% in fiscal 2018, to increase its value to $39.2 billion— the second-lowest return this year for Ivy League schools next to Columbia University’s 9.0% return.
“There are certain parts of the portfolio that need work,” wrote Narvekar in a letter to the Harvard community that was included in the endowment’s 2018 annual report. “We understand this shortcoming extends beyond a single year’s performance and are hard at work to improve those asset classes for the future.”
Narvekar took over the reigns of the endowment in November 2016, and initiated an overhaul of the management firm’s structure last year. He said it’s too soon, and the past year’s performance is too small a sample size, to judge the revamp a failure or success.
“There are very limited conclusions that we can draw from a single year of either manager performance or asset allocation,” Narvekar said. “Indeed, such superficial focus can lead to unwise or even dangerous conclusions.”
He stressed that “short-term returns should never drive long-term strategy,” and that even if the past year’s return significantly outperformed expectations, it still would not have been reflective of the changes being made at the firm, and won’t be for a few more years.
“The significant changes we are undertaking require a five-year timeframe to reposition the organization and portfolio for subsequent strong performance,” said Narvekar. “At the close of this past fiscal year, we were 19 months into the execution of the plan and we remain focused on implementing that strategy.”
Narvekar also provided an update on the progress of the reorganization. He noted that the firm spun off its internal real estate platform to Bain Capital, where the former HMC real estate team now works while continuing to manage a “sizable pool” of capital on behalf of Harvard’s endowment.
The firm also spun off its two relative value platforms, leaving the natural resources investment team as the lone internal platform at HMC. Meanwhile, the generalist team Narvekar created as part of the overhaul has now been in place for more than a year.
“While it will naturally take a few years for talented specialists to develop fully as generalists, our early progress has exceeded my expectations,” said Narvekar. “Furthermore, HMC’s investment and organizational cultures are evolving to foster the kind of internal discussion and debate needed to support thoughtful investment decisions.”
He also said the firm will soon engage its board of directors to determine Harvard’s risk appetite, a process that he expects to take at least two years.