Harvard University's N.P. "Narv" Narvekar is doubling down on an investment that has fallen out of fashion: hedge funds.
Mr. Narvekar's bet on the sophisticated, high-cost brand of money manager marks the biggest since the university hired him in 2016 to turn around the lagging performance of its $39 billion endowment.
Over the two years ended in June, the largest fund in higher education almost doubled its investment in hedge funds, which now total $13 billion, university filings show. Harvard's hedge funds comprise a third of the endowment, compared with roughly a quarter at Yale and Princeton.
Hedge funds have had years of uneven or poor performance during a long bull market that has favored low-cost investing in market indexes. Their returns and fees — traditionally 2% of assets and 20% of profits —- have frustrated many other institutions. A third of U.S. endowments and foundations anticipate allocating less to hedge funds this year, according to a survey last month by consultant NEPC.
To achieve his mandate of beating his peers, Mr. Narvekar appears to be making a contrarian move that could pay off if stocks head south.
"He's trying to position the portfolio for the next market cycle," said Laurence Siegel, former head of investment research at the Ford Foundation. "Any good manager should be doing that."
The moves are part of an overhaul of Boston-based Harvard Management Co., the university's investments arm. Since he was hired as the endowment's chief executive officer, Mr. Narvekar has streamlined operations, eliminating a trading desk using hedge fund strategies, outsourcing a real estate team and writing off timberland and farm assets. While he cut 100 jobs, he added some former Columbia and Penn colleagues to help remake operations.
Harvard had been unusual among major endowments because it had managed much of the money in-house. Some of its portfolio managers — who could earn millions, even tens of millions, a year — in a sense operated an in-house hedge fund.
Following the model of Yale, which is led by top-performing investment chief David Swensen, Harvard is now focused on hiring only the best external money managers. It is mining its existing hedge fund portfolio, allocating more money to top performers while chasing established and emerging stars.