Outgoing Harvard overseer raises concerns over ‘opaque’ investments

  • Assets under management: $37.1 billion endowment managed by Harvard Management Co
  • Target allocation to PE/VC: 20% as of September 2016
  • What’s new: Kathryn Taylor resigned one day before the end of her six-year term on Harvard University’s Board of Overseers claiming Harvard’s endowment has failed to adopt ethical investment standards.

Kathryn “Kat” Taylor, in her resignation letter from Harvard University’s Board of Overseers, claimed the university’s $37 billion endowment had no idea what kind of impact its investments were having on the world because they were increasingly held in “opaque funds.”

Taylor resigned a day before her retirement this month to protest the university’s failure to adopt ethical commitments in its multibillion-dollar endowment.

The endowment could have energy, land or water-related investments across the portfolio. Harvard, like its peers, is facing pressure from student activist groups demanding it divest fossil-fuel investments. Under pressure, Harvard said in 2017 that it was “pausing” investments in some fossil fuels like minerals, oil and gas.

“There is a difference between student activism and someone senior like Taylor taking a stand. It makes it harder for Harvard,” said a source familiar with the Harvard endowment.

In addition, “Harvard’s endowment has severely underperformed financially compared to its peers,” Taylor’s letter said.

The endowment, managed by Harvard Investment Management, has suffered from managerial exits and poor returns in the past few years.

Harvard endowment’s investments declined by 2 percent, and the endowment dropped by $2 billion because of investment losses in 2016. At the time, the PE allocation was 20 percent.

Indeed, consistently poor performance forced Harvard Management’s chief investment officer, Nirmal “Narv” Narvekar to make significant changes when he took over the endowment in late 2016.

Narvekar moved Harvard Investment to a generalist investment model, asset allocation was modified, its 230 people team was almost halved, and most of the endowment’s investments were outsourced to third parties.

Harvard Investment shut down the relative value and equity platforms, the credit platform team left, and the real estate platform was to be spun off, Narvekar said in a letter dated September 2017.

The Harvard endowment returned 8.1 percent on its investments in 2017. In comparison, peer Dartmouth College posted a return of 14.3 percent in 2017.

Harvard Investment also executed a secondary sale of its private equity and real estate portfolios to reduce exposure, Narvekar said in his letter.

Action Item: Read Kathryn Taylor’s letter here https://bit.ly/2so77q7