Tuesday, August 16, 2016

Crunch Time for the Harvard Endowment

From All About Alpha:
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.

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.

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.”

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.

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.

Harvard can afford to pay much more than the big public universities, and could make an attractive offer to other major private-school CIOs.  Even a well-entrenched, mid-career CIO might be tempted by that kind of paycheck, plus a historic chance to rebuild the world’s biggest endowment with the full backing of its board.

A few obvious (and not so obvious) possibilities:
Our first call would be to Seth Alexander at MIT, a short cab ride from HMC’s digs in Boston.
If you want to go Yale-ish, why not go full-tilt Yale, with a Swensen-trained endowment investor?  That’s what Stanford recently did with their hire of Robert Wallace last Spring, and they made no bones about it.

Mr. Alexander has a stellar resume, outstanding track record, and miles of career-highway ahead.
MIT has the 6th-largest U.S. endowment, with $13.5 billion AUM and boasts an amazing 10.5 percent annualized return over 10 years.  And we dubbed him endowment CIO of the decade last year, which should clinch it.....MORE
Let's Get Ready to Rumble: Harvard Management Co. vs. Yale Investments Office