Harvard moving ahead with new set of plays
Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Asset owners and the coronavirus
    • Alternatives
    • Consultants
    • Coronavirus
    • Defined Contribution
    • ESG
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • SECURE Act
    • Special Reports
    • WorldPensionSummit
    • Ron Schmitz
      Pandemic drives faster transition for Virginia to private markets
      Mubadala Investment Co. logo
      Mubadala draws on portfolio in coronavirus fight
      T.J. Carlson
      Texas Muni reduces downside risk during pandemic, finding opportunities now
      Scott Davis
      ‘Triage plan’ at Indiana system helped stem losses
    • Fitch Group in deal to acquire CreditSights
      Credit managers’ outlook still gloomy but brightening – survey
      Digital Colony picks head of Europe capital formation
      Joseph Dowling
      Blackstone taps Brown University official as global co-head of alts
    • Will Martindale
      Cardano Group chooses group head of sustainability
      Meketa hires first chief marketing officer
      Nick Horsfall
      Redington names managing directors for investment consulting team
      Marsh & McLennan Agency sets sights on Compass Financial
    • Credit managers’ outlook still gloomy but brightening – survey
      Investors call for action on COVID-19-induced humanitarian crisis at sea
      U.S. jobs worker restaurant
      Job market slipped in December as virus surge hindered activity
      Boston Mayor Marty Walsh
      Biden taps Boston Mayor Marty Walsh as labor secretary
    • Ascensus, Empower acquire Truist record-keeping business
      PCS Retirement acquires Alliance Benefit Group-Rocky Mountain
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Impact investors getting savvier, more efficient – report
      SSGA alum named head of ESG at Mirova
      Aegon moves to cut carbon from workplace DC business
      Asset owners alliance offers net-zero protocol
    • Blackstone holiday video
      Blackstone would like to show you how things are done around the office
      Galina Churkina
      Building research earns honor from Aquila Capital
      MacArthur Foundation invests in women’s safe housing fund
      CAIA’s expansion to online exams yields big results
    • The Sun Hung Kai Properties Ltd. logo is displayed on the Sun Hung Kai Centre building in Hong Kong on Sept. 13, 2018
      SHK spins out East Point Asset Management
      Man holding a business card with Hedge Fund written on it
      Hedge funds chalk up decade’s best returns in 2020 – HFR
      New hedge fund launches surpass liquidations in third quarter
      Michael Hintz
      CQS deal with spinoff team falls apart
    • Louisiana School Employees plans $20 million allocation to ArrowMark funds
      Los Angeles City Deferred Comp narrows list to 2 in manager search
      A sign for The Nomura Holdings Inc. is displayed outside a Nomura Securities Co. branch in Tokyo on April 23, 2019
      Nomura, SPARX to help individuals invest in unlisted companies
    • The Chinese flag flies in front of the Liaison Office of the Central People's Government in Hong Kong on May 22, 2020
      Standard Life Aberdeen JV to open mainland China pension insurance company
      BlackRock headquarters in New York
      BlackRock sets record with $8.7 trillion in AUM
      Steve Weiss
      SLC Management appoints head of U.S. business development
      Crestbridge selects head of institutional services, head of private equity
    • Los Angeles City Deferred Comp narrows list to 2 in manager search
      Connecticut pension fund CIO resigns
      Arizona State Retirement looking for CIO
      Cincinnati seeks search firm to help with executive director selection
    • SSGA alum named head of ESG at Mirova
      Capital Group hires BlackRock executive to launch ETF unit
      Steve Weiss
      SLC Management appoints head of U.S. business development
      Crestbridge selects head of institutional services, head of private equity
    • Pension funds continue private equity investing spree
      Big jump in private equity AUM expected over next 5 years
      Thoma Bravo takes in $22.8 billion for 3 funds
      Jason Thomas
      Data, technology become new prized possessions
    • Ivanhoe Cambridge Inc. signage is displayed outside the company's office near Bay Street in Toronto on Aug. 29, 2011
      Ivanhoe Cambridge, PAG announce joint venture for Japan logistics investments
      Residential buildings in Hong Kong on Feb. 20, 2020
      KKR closes first Asia-Pacific real estate fund at $1.7 billion
      CPPIB in deal with Greystar to develop U.S. housing
      Global real estate investments to hit $79 billion in 2021 – survey
    • Neal and Brady
      Retirement security could be only issue both sides accept
      Retirement cartoon
      Hopes rising for retirement readiness in 2021
      Shawn O'Brien
      Annuities coming to target-date funds, but not right away
      David Ireland
      Sponsors returning to questions about in-plan annuities
    • Outlook 2021
      The top 10 stories of 2020
      The best places to work in money management
      Investment consultants
    • U.S. still a key market for investors
      Collected coverage of P&I's 2020 WorldPensionSummit
      Pedestrians pass a large advertisement on the Arndale Center shopping mall reading 'Act now to avoid a local lockdown' in Manchester, England
      COVID-19 puts new opportunities and risks on the agenda - WPS panelists
      Screens display stock price information over the trading floor of the NYSE Euronext exchange in Paris
      Private assets will continue to grow in portfolios – WPS panelists
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q2 2020 searches and hires overview report
      Q2 2020 money manager M&A activity summary
      Q2 2020 legal overview report
      Q1 2020 searches and hires overview report
    • Louisiana School Employees plans $20 million allocation to ArrowMark funds
      Arizona Public Safety seeks third-party administrator
      Norwood Contributory seeks international equity manager
      San Francisco sticks with Cambridge as consultant for private equity, private credit
    • Louisiana School Employees plans $20 million allocation to ArrowMark funds
      Arizona Public Safety seeks third-party administrator
      Norwood Contributory seeks international equity manager
      San Francisco sticks with Cambridge as consultant for private equity, private credit
    • International Small Cap Manager Services
      Financial Expertise
      Passive Index Manager Services
      Emerging Markets Equity Investment Management Services
    • U.S. fixed-income returns post another positive year
      Nasdaq delivers an impressive year
      U.S. dollar's recent decline continues
      Hedge funds warming up to financial sector, remain long U.S. equities
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Letters to the Editor
    • Partner Content
    • Publisher's Update
    • Retirement cartoon
      Hopes rising for retirement readiness in 2021
      view gallery
      25 photos
      2020 in editorial Cartoons
      view gallery
      25 photos
      Cartoons depict a year like no other
      Consultants cartoon
      Seeking an investment consultant? Caveat emptor
    • Climate change and emerging markets after Covid-19
      An Asset Owner's Guide to Multi-Manager Portfolio Management
      Research for Institutional Money Management
      The Future of the U.S. Dollar - Dominant currency or one of many?
    • Michael McNally
      Commentary: New ‘investment-plus’ test poses risks to private equity investors
      Adam Waterous
      Commentary: Institutions urged to act now on opportunities created by current global oil disruption
      Ron Lagnado
      Commentary: Straw man critiques don’t hold up in face of real world success
      Robert Raben
      Commentary: What the asset management industry must do to bolster diversity
    • Writer using a typewriter
      OCIO industry needs to adopt GIPS
      Writer or journalist workplace. stock illustration
      Even as it assails China, Trump administration emulates it
      Skeptical of Main Street support for proxy adviser proposal
      Focus on manager diversity pushes asset owners’ to walk the talk
    • Sponsored Content By iShares
      ETFs are becoming a cornerstone of insurance equity portfolios
      Sponsored Content By Aberdeen Standard Investments
      Taking a passive approach to the hedge-fund universe
      Sponsored Content By World Gold Council
      Gold: the most effective commodity investment
      Sponsored Content By Moody's Analytics
      The Industrialization of ESG Investment
    • Help us help you by supporting quality journalism
      You Must Believe in Spring
      Everything Must Change
      Tomatoes & Investments
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • watch video
      1:24
      U.S. stocks were 2020’s comeback kid
      watch video
      1:23
      Outlook 2021
      watch video
      1:52
      Buy gold's pullback?
      Coronavirus and the S&P 500: 2020
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
      The Institutionalization of Retail Part Two: A Webinar Series from P&I Content Solutions and Chestnut Advisory Group
    • POLL: Retirement issues in 2021
      POLL: Money managers' priority in Asia-Pacific region
      POLL: Retirement issues in the presidential election
      POLL: The S&P 500 in the third quarter
    • view gallery
      9 photos
      Coronavirus and the markets
      view gallery
      22 photos
      The 1,000 largest retirement funds: 2020
      view gallery
      10 photos
      Outlook 2020
      view gallery
      10 photos
      2019 as seen through the eyes of Roger
    • Graphic: U.S. stocks were 2020's comeback kid
      U.S. fixed-income returns post another positive year
      By the Numbers
  • Events
    • Conferences
    • Webinars
    • Defined Contribution Spring Virtual Series
      DC Investment Lineup Virtual Series
      ESG Investing Virtual Series
      Private Markets Virtual Series
    • Getting Back to Normal: How to Creatively Manage Fixed Income Portfolios in a Rising Rate Environment
      What might a Biden DOL and SEC mean for retirement plans?
      Staying on target with target-date funds
      The Institutionalization of Retail Part Two: A Webinar Series from P&I Content Solutions and Chestnut Advisory Group
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. ASSET OWNERS
October 05, 2015 01:00 AM

Harvard moving ahead with new set of plays

CEO embraces strategy that borrows from several sources

James Comtois
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Stephen Blyth outlined a process to gain long-term returns and end short-term disappointment.

    Harvard Management Co. President and CEO Stephen Blyth has mapped out a detailed investment plan for the company overseeing Harvard University's $37.6 billion endowment, aiming to improve long-term investment performance and revitalize lagging returns.

    The result is a new approach deemed the flexible indeterminate factor-based asset allocation, incorporating elements from modern portfolio theory, factor-based investing, the reference portfolio approach and best-ideas investing.

    Mr. Blyth and his team outlined the FIFAA approach in a four-step process: selecting appropriate factors; measuring asset class exposure to selected factors; choosing desired factor exposures; and determining asset class targets and ranges to match desired factor exposures.

    The approach is referenced in a letter addressed to Harvard alumni and friends announcing the results for the fiscal year ended June 30. In the letter, Mr. Blyth outlined three investment objectives: to achieve a real return of 5% or more on a rolling 10-year annualized basis; to outperform appropriate benchmarks by 1 percentage point or more on a rolling five-year annualized basis; and to perform in the top quartile among the next 10 largest university endowments on a rolling five-year annualized basis. Harvard's is the nation's largest academic endowment.

    “Our objectives are to be achieved while maintaining a portfolio whose risk profile is in line with the university's risk tolerance,” Mr. Blyth wrote. “Thus, in addition to these investment objectives, we have established an appropriate set of risk guidelines that provide suitable flexibility for a long-term endowment portfolio, yet maintain a prudent set of risk parameters within the portfolio.”

    For the 12 months ended June 30, Harvard's endowment posted a return of 5.8%, surpassing the 3.9% return of the Cambridge, Mass.-based university's benchmark policy portfolio. It reported an average annual return of 10.5% for the five-year period, surpassing its benchmark return of 9.1%.

    Mr. Blyth, previously HMC's managing director and head of public markets, assumed his new role Jan. 1 after then-CEO Jane Mendillo retired. Mr. Blyth did not respond to requests for an interview.

    Importance of distribution

    In the letter, Mr. Blyth stressed the importance of endowment distributions to the university's operating budget. With distributions averaging 4.4% over the past 20 years, a real return of 5% “will be necessary to maintain the real value of the endowment for future generations,” he wrote.

    But delivering a real return of 5% will be more challenging in the current environment than in the past, he noted.

    The endowment's real returns have declined steadily over time, he wrote, citing a decline in the risk-free real interest rate; reduced risk premiums across asset classes due to “significant liquidity injections;” and fewer opportunities for generating alpha.

    Upon taking the helm, Mr. Blyth and his staff conducted a review of existing asset allocation approaches.

    The FIFAA approach is presented in detail in an upcoming report, to be published in the Journal of Portfolio Management. In that article, Mr. Blyth and fellow authors reviewed various asset allocation frameworks, including modern portfolio theory, targeted risk-objective approaches (e.g. risk parity), the “best ideas” framework, the endowment model, factor-based investing and the reference portfolio approach (as implemented by Canada Pension Plan Investment Board).

    Finding the pros and cons of these approaches, Mr. Blyth and the authors determined that cherry-picking elements from various frameworks might “represent a meaningful improvement over our current process,” one that that is highly quantitative but also combines qualitative inputs.

    The report indentifies the five tradable factors (global equities, U.S. Treasuries, high-yield credit, inflation and currency), which they think “account for 85% to 95% of a typical domestic institutional investor's risk, are low to moderately correlated, and are amendable to relatively confident forecasting.”

    After steps two and three, Mr. Blyth and his team decided on 12 asset classes for 2016 that “satisfy the optimal five-factor exposures.” They are (with ranges):

    •U.S. equity, 6%-16%;

    •Foreign equity, 6%-11%;

    •Emerging market equity, 4%-17%;

    •Private equity, 13%-23%;

    •Absolute return, 11%-21%;

    •High yield, zero-3%;

    •Natural resources and commodities, 6%-16%;

    •Real estate, 10%-17%;

    •Domestic bonds, 5%-9%;

    •Foreign bonds, zero-4%; and

    •Inflation-linked bonds, zero-6%

    The endowment's policy portfolio for the fiscal year 2015 was: domestic equity (11%), foreign equity (11%), emerging markets equity (11%), private equity (18%), natural resources (11%), real estate (12%), absolute return (16%) and fixed income (10%).

    Collaboration, discussion

    In his letter, Mr. Blyth also noted that he has charged HMC's portfolio managers to engage in more cross-asset class discussion and collaboration; be creative in considering new partnerships, vehicles and platforms for investing that provide the maximum benefit for Harvard; develop the conviction to invest in scale; and to engage more fully both with HMC's investment partners and with peer institutional investors globally.

    Mr. Blyth added: “HMC will maintain portfolio liquidity so that at least 5% of the endowment ... can be realized in liquid form within 30 days.”

    That liquidity target impressed William Jarvis, managing director, head of research at the Commonfund Institute, Wilton, Conn., who described it as “a specific quantitative goal ... and I don't know if I've seen anyone from an endowment be so specific.”

    Charles A. Skorina, founder of San Francisco-based executive search firm Charles A. Skorina & Co., which specializes in the hiring of chief investment officers, commended Mr. Blyth for the investment strategy.

    “I like the fact that he actually laid down something. It was always muddy before. In any case, Mr. Blyth tried to be clear and I applaud him for it,” Mr. Skorina said, adding “the goals are not spectacular, (but) they're reasonable.”

    Before Mr. Blyth took over, Harvard's endowment was facing challenges after years of being known as the biggest and strongest kid on the block — not only for being the largest endowment but also for typically generating the highest returns.

    When Ms. Mendillo became president on July 1, 2008, the endowment was valued at $34.9 billion. Then just 2½ months later, Lehman Brothers Holdings Inc. filed for bankruptcy.

    The portfolio dropped to $26 billion at the end of its 2009 fiscal year.

    Making the grade

    Harvard Management Co. fiscal 2015 returns by asset class.

    Asset class2015 returnBenchmark
    Total public equity2.9%-0.5%
      U.S. equity12.4%7.2%
      Foreign equity-1.8%-3.8%
      Emerging markets equity-2.2%-5.1%
    Private equity11.8%10.8%
    Public bonds2.1%-2.5%
    Absolute return0.1%3.5%
    Natural resources and commodities3.5%3.1%
    Real estate19.4%11.5%
    Total endowment5.8%3.9%

    Source: Harvard Management Co. annual report

    For the five years ended June 30, 2013, the endowment posted an annualized return of 1.7%, well below the median 4.6% annualized return among foundations and endowments for the period, according to the Wilshire Trust Universe Comparison Service.

    However, the endowment managed to shake off the effects of the global financial crisis and pick itself up. It posted an average annual return of 11.6% for the five years ended June 30, 2014.

    Mr. Skorina noted the endowment's returns this year can be attributed primarily to Ms. Mendillo's leadership. “It takes about two years minimum before you can turn a giant tanker like this in a new direction,” he said.

    Not all U.S. university endowments have released their fiscal year figures. For the 12 months ended June 30, Harvard's return of 5.8% is below that of Massachusetts Institute of Technology's 13.2%, Yale University's 11.5%, University of Pennsylvania's 7.4% and the Stanford University merged pool's 7% return. It was, however, higher than UTIMCO's 3.5% over the same period.

    Mr. Blyth's letter to alumni and friends can be found on Harvard Management Co.'s website.

    Related Articles
    Harvard endowment returns 5.8% for fiscal year
    Harvard's natural resources portfolio manager resigns
    2 more managers leave Harvard Management
    High payout rates jeopardize endowments, foundations
    Harvard's endowment to anchor ex-Apollo partner fund
    Harvard's Blyth to take temporary medical leave
    Endowments' battle to maintain real value
    Recommended for You
    Asset owners focus more on stewardship despite obstacles – survey
    Asset owners focus more on stewardship despite obstacles – survey
    Retirement adequacy and sustainability suffer in coronavirus pandemic - report
    Retirement adequacy and sustainability suffer in coronavirus pandemic - report
    University of Toronto’s $7 billion fund makes bet on ESG debt
    University of Toronto’s $7 billion fund makes bet on ESG debt
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management
    sponsored
    Events
     
     
    Sponsored
    White Papers
    Climate change and emerging markets after Covid-19
    An Asset Owner's Guide to Multi-Manager Portfolio Management
    Research for Institutional Money Management
    Bond ETFs show maturity during Covid market mayhem
    Global gold-backed ETFs: A popular gateway to the gold market
    The Future of the U.S. Dollar - Dominant currency or one of many?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2021. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Asset owners and the coronavirus
      • Alternatives
      • Consultants
      • Coronavirus
      • Defined Contribution
      • ESG
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • SECURE Act
      • Special Reports
      • WorldPensionSummit
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Letters to the Editor
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center