Harvard Management Company, which oversees Harvard University’s approximately $35 billion endowment, is shifting its investment strategy under its new chief executive officer, N.P. “Narv” Narvekar.
As first reported by The Wall Street Journal, Harvard – which has the world’s largest university endowment – will restructure its strategy and outsource most of its investments to external investment managers. Harvard Management Company (HMC) will also shed roughly half of its 230 employees by year end.
“Transitioning away from practices that have been ingrained in HMC’s culture for decades will no doubt be challenging at times,” Narvekar wrote Wednesday in a letter to the Harvard community. “But we must evolve to be successful, and we must withstand the associated growing pains to achieve our goals.”
To maximize performance over the long term, Harvard Management Company will transform two of its organizational and investment models:
The Hybrid Model of Investing (which uses a mix of internal and external investment teams); and
Silo Approach To Investing (which uses specialist investment managers that focus on specific asset classes or strategies)
The Hybrid Model of Investing
Harvard uses both internal and external managers to invest its endowment portfolio. By year end, all managers who invest on behalf of Harvard’s remaining internally managed hedge funds – with the exception of the natural resources portfolio (which is focused on timber and agriculture investing) – will depart. Also, HMC expects its direct real estate investment portfolio to spin out by year end.
Silo Approach To Investing
Historically, Harvard organized its investment activities within individual silos, with investment managers focused on specific asset classes or strategies. The benefits of this structure include high specialization and investor expertise. The downside of the silo approach is that investment decisions may be made independent of the entire investment portfolio, which can create disconnect with both other silos and the overall portfolio.