Advertisement

Harvard Management Company Completes 'Five Year' Restructuring More Than One Year Early

{shortcode-46ca8f930d7dd0a5fe5f8323da474ace8d84a0c8}

Harvard Management Company has completed its “five-year” organizational and investment restructuring plan more than one year ahead of schedule, HMC CEO N.P. “Narv” Narvekar announced in a message to University affiliates Tuesday.

Narvekar began his tenure in December 2016 following a difficult period for the endowment.

In 2016, the University’s endowment dropped $2 billion, its worst set of returns since the 2008 financial crisis.

To revitalize the struggling firm, Narvekar announced a five-year restructuring, beginning with laying off half of HMC’s 230-person staff by the end of 2017.

Advertisement

The primary changes announced in the five-year plan included a shift away from HMC’s unique “hybrid” investment model in which a large in-house team and outside money managers took charge of the endowment’s investments.

The five-year plan officially concluded with the “spin-out” of HMC’s natural resources team into an independent investment firm in October 2020.

Narvekar wrote in Tuesday's report that HMC “benefits meaningfully” from the new “generalist” model where employees focus on overall endowment performance rather than specialized asset classes.

“A fundamental tenet of HMC’s organizational structure and investment approach is a Generalist investment team,” Narvekar wrote. “While we understand the advantages of specialization, HMC benefits meaningfully from having a team of talented and skilled investors who search for the best risk-adjusted returns for the entire portfolio, regardless of investment structure, asset class, or manager.”

Narvekar also wrote in Tuesday’s report that HMC is “comfortable” with early results following the shift. Harvard’s endowment returned 7.3 percent on its investments in fiscal year 2020, bringing its total to $41.9 billion, the largest sum in its history.

Nevertheless, Narvekar noted that HMC remains focused on the endowment’s long-term returns.

“Of course, we note that we need ten fiscal years, not merely two, to prove ourselves fully,” Narvekar wrote. "Like everyone else, HMC will have good years and bad over that period. We will remain focused on the long-term performance, not on year-to-year performance."

University Treasurer and HMC Chairman Paul J. Finnegan ’75 wrote in an accompanying email that HMC’s board was “pleased” to see “solid portfolio performance” during the transition.

“As Board Chair of HMC, I knew first-hand the difficult work required to accomplish these goals within the prescribed five-year timeframe,” Finnegan wrote. “Narv and his team have now successfully completed the organizational restructuring with remarkable efficiency—more than a year ahead of schedule.”

Despite the challenges of the ongoing pandemic, Finnegan wrote that the board is “confident” HMC’s restructuring will ensure that the endowment maintains a “strong, long-term” performance.

“The endowment’s role has always been to provide a perpetual source of funding in support of the teaching and research mission of Harvard,” Finnegan wrote. “Year-to-year investment returns will always fluctuate, as is their nature, but we are confident that the changes made to HMC will help ensure strong long-term performance.”

—Staff writer Virginia L. Ma can be reached at virginia.ma@thecrimson.com.

—Staff writer Kevin A. Simauchi can be reached at kevin.simauchi@thecrimson.com. Follow him on Twitter @Simauchi.

—Crimson staff writer Virginia L. Ma can be reached at virginia.ma@thecrimson.com.

—Crimson staff writer Kevin A. Simauchi can be reached at kevin.simauchi@thecrimson.com. Follow him on Twitter @simauchi.

Tags

Advertisement