Harvard Management Co. is reversing its decades-old investment approach, an acknowledgement of the need to cut costs that also is expected to put the bulk of its $34.5 billion endowment in play.
Nirmal P. “Narv” Narvekar, HMC's new president and CEO, is conducting a massive overhaul of the company, which includes halving its staff, eliminating its internal hedge fund teams and fundamentally changing the way it manages the investments of the Cambridge, Mass.-based university's endowment.
“The shift represents a meaningful pool of assets suddenly up for grabs for third-party investment managers,” said Nathan Flanders, managing director, non-bank financial institutions at Fitch Ratings. Inc., New York.
Mr. Narvekar, who declined to be interviewed, did not provide details in a Jan. 25 letter to the Harvard community on how and where the money will be invested.
Tim Barron, chief investment officer at Segal Marco Advisors, Chicago, agreed that Harvard is likely to have a number of asset managers “beating a path” to the school. “It's a marquee name that any asset manager would want on their client list,” Mr. Barron said. “But the magnitude of that is unclear.”
In his letter, written roughly two months after taking on the leadership role at Boston-based HMC, Mr. Narvekar sought to explain his vision for the company, and its move away from the investment style originally put in place in the 1990s by former CEO Jack Meyer. “The investment landscape has evolved significantly, requiring us to adapt two aspects of HMC's organizational and investment models in order to maximize performance over the long term,” he wrote.
The first aspect is the endowment's “hybrid model” of investing, in which HMC relies on a large internal staff to manage public equities and debt plus external managers to participate in private capital and real assets. The second aspect is a “siloed” asset management approach in which team members act as specialists in specific asset classes or strategies.
As part of the restructuring, the endowment's management company will reduce the size of its 230-person staff by about half by Dec. 31, he said. It also will shift from the specialized investment strategy to a more general model in which all members of the investment team will take ownership of the entire portfolio. HMC also plans to outsource management of most of its assets, Mr. Narvekar noted in the letter.
Although the management team could still manage some assets, Mr. Narvekar said he doesn't “expect a large portion of the portfolio to be managed internally” going forward.
Also as part of the restructuring, remaining hedge fund teams will depart by June 30 and the direct real estate investment team will spin out and become an external manager by Dec. 31.
The natural resources portfolio will continue to be managed internally for the time being.