The Harvard Management Company: Size Really Does Matter

08 / 29 / 2016
by Charles Skorina | Comments are closed

The Harvard Management Company: Size Really Does Matter

In asset management, as in other endeavors, size really does matter.

Bigger is better.  But growth in AUM drives growth in headcount and complexity; and that can overwhelm existing structures and challenge management.

A few weeks ago in "Crunch Time for the Harvard Endowment" we referred to HMC's hunt for a new "CIO" although, technically, the top job at HMC is "CEO."

See: http://www.charlesskorina.com/crunch-time-harvard-endowment/

In this niche that's often a distinction without much difference, and we tend to use "CIO" generically; but for Harvard there's a real challenge behind that equivocation.

A CEO, in proper corporate-speak, manages people, structure, and processes.  A CIO, of course, develops and executes investment strategy to maximize returns.

The HMC board hopes to find a candidate who is both an outstanding investment strategist and a proven, effective manager - a CIO and a CEO.



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Crunch Time for the Harvard Endowment:

08 / 04 / 2016
by Charles Skorina | Comments are closed

Crunch time for the Harvard endowment:

The hunt is underway for a new CEO at the Harvard Management Company.  And chairman Paul Finnegan and his board intend to get it right this time.

Counting interims, they've now had six CEOs at their shop since Jack Meyer departed in 2005, and mostly mediocre returns to show for it.

After Mr. Meyer's departure it took a one-year search to land Mohamed El-Erian, who then lasted less than two years before he moved to PIMCO.  Now, Stephen Blyth has departed after just 18 months on the job.

It looks like this search will be briefer.  Some sources say they may have someone aboard by September.  But in any case the board needs to set a new course with a new leader.

Last month, before Mr. Blyth's resignation was announced, we looked at Harvard's performance (especially versus Yale), and suggested that it might be time for HMC to undertake a major re-think of its business.  Maybe their vaunted "hybrid model" is no longer viable.

See: http://www.charlesskorina.com/harvard-endowment-hmc-time-reassess/

We did not expect to be revisiting the subject so soon, but events have overtaken us.  So here we are again.

What's on the board's mind?

Mr. Finnegan, who became HMC chairman late last year, is a private equity investor and we note that Harvard also announced -- in an unusual year-ahead notice in May -- that David Rubenstein of PE giant Carlyle Group would be joining the Harvard Corporation board in 2017.

See: http://harvardmagazine.com/2016/05/harvard-appoints-david-m-rubenstein-senior-governing-board

Add to this a statement from Mr. Finnegan on July 27 that HMC going forward would lean more on outside money managers "who have the resources, skill and experience."

See: http://www.bloomberg.com/news/articles/2016-07-28/behind-harvard-shakeup-a-star-trading-desk-that-unraveled-fast

Taken all together, this portends a shift -- or at least a tilt -- from HMC's "hybrid" structure to something closer to the Yale "purebred" model.  And Yale, incidentally, has been cleaning Harvard's clock in private equity for years.

See: http://www.charlesskorina.com/wrangling-unicorns-yale-celebrates-vc-heroes/

If internal management of public-market assets, which was Mr. Blyth's forte, is to be de-emphasized, then it would make sense to look at successful big-endowment CIOs who are already executing such a mostly-outsourced and alternatives-heavy model.



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The Harvard Endowment: Time for some Creative Destruction?

07 / 13 / 2016
by Charles Skorina | Comments are closed

It's been ten years now since Jack Meyer stepped down as head of the Harvard Management Company, while David Swensen - now in his 31st year - has carried on at the Yale Investment Office.

Each endowment has pursued its own distinctive management model: HMC with its "hybrid" internal/external approach, versus YIO's exclusive reliance on cherry-picked external managers.

We can now call the winner: It's Yale.

And it's time for HMC to undertake a major re-think of its business.

Six out of 13 members of the Harvard Corporation board are Harvard MBAs, and they understand what the stakes are.

President Drew Gilpin Faust has ex-officio seats on both the HMC board and the Harvard Corporation board (where the real power lies).  But the chair of the HMC board is Paul J. Finnegan, who also happens to serve on the Corporation board as Treasurer and chair of the finance committee.  

Mr. Finnegan is co-CEO of Chicago-based private-equity firm Madison Dearborn Partners.  He has been deeply enmeshed in Harvard's affairs for many years and is highly respected.

See: http://news.harvard.edu/gazette/story/2014/05/finnegan-new-harvard-treasurer/

Currently, Harvard harvests about 4.3 percent of endowment AUM annually.  In 2015 that amounted to $1.6 billion.  And that powered thirty-five percent of the school's budget.  (Off the record, the endowment's contribution is greater.)

Harvard has earned an annualized 7.6 percent over ten years, versus Yale's 10.0 percent.

It's clear that an additional 2.4 percent annualized over ten years would have left Harvard with much more than a mere $37.6 billion endowment.  And that difference would have added hundreds of millions per year to their operating budget.



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Asset-Manager Flows and Profits

05 / 25 / 2016
by Charles Skorina | Comments are closed

Asset-Manager Flows and Profits

As recruiters we work both sides of the investment-management street: serving for-profit money managers and not-for-profits like foundations and endowments.

Fee-based publicly listed asset managers, especially the big ones, are newsworthy because they invest a lot of money for a lot of customers, including non-profits investors.  There's plenty in the media about these firms, but it's often piecemeal commentary on quarterly results.  It's newsworthy because it drives markets.  But our perspective is different.

Ultimately we want to make judgments about the success or failure of leadership: who is outperforming or underperforming their peers?  Who is earning his or her pay?  Who isn't?



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Wrangling the Unicorns: Yale celebrates their VC heroes

05 / 01 / 2016
by Charles Skorina | Comments are closed

Wrangling the Unicorns: Yale celebrates their VC heroes

Yale, in their 2015 annual report issued this month has broken out their private equity allocation into two distinct segments: Leveraged Buyouts and Venture Capital.  See: 

http://investments.yale.edu/images/documents/Yale_Endowment_15.pdf 

This is the first time in many years they've offered that level of detail.  And they've given the whole report a VC-and-entrepreneurial theme, supplementing the numbers with profiles of some Yale-linked VC heroes and heroines.



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