Mendillo’s HMC

Following heavy losses, Jane Mendillo charts new course for the endowment

GARY L. NORRIS

The fair value of the university's endowment has increased significantly since 1990, but dropped precipitously during the financial crisis of 2008.

A year after being hired as president and CEO of the Harvard Management Company, Jane L. Mendillo received a present from her staff: the jaws of life.

In that one year, Mendillo had managed to salvage Harvard’s assets from the most violent market crash since the Great Depression, and the hydraulic rescue tool was meant to symbolize Mendillo’s swift rescue effort.

Mendillo had barely moved into her office in the Boston Federal Reserve building since starting the job on July 1, 2008, when financial markets experienced the most serious downturn since the Great Depression.

As some market indices fell more than 54 percent, HMC’s holdings took a serious hit, depressing the University’s endowment value by nearly 30 percent.

But through a series of fast trades, Mendillo managed to extricate the endowment from the most serious effects of the market crash. Now that the dust has settled, Mendillo will begin implementing her vision for the portfolio.

Mendillo’s HMC is a stark break from the company of the past. With the departure of Jack R. Meyer, HMC lost its 14-year veteran leader—who chafed at the negative press coverage of large multi-million dollar salaries but simultaneously quintupled the endowment with double-digit returns.

Today, HMC has repositioned itself to take more responsibility for guaranteeing the University’s budgetary needs, and has abandoned its image as a one-client hedge fund.

Mendillo’s efforts to reduce liquidity risk, reevaluate compensation, and restructure its internal organization are emblematic of a new chapter in HMC’s history in which the CEO has become a more cautious custodian of Harvard’s wealth.

CIRCLING FOR PREY

During Meyer’s reign as HMC’s storied—if somewhat maverick—CEO, a stuffed, toy vulture hung above the trading floor. The vulture was installed after an external hedge fund manager once called HMC a “vulture investor” in a heated dispute.

Indeed, under Meyer’s leadership, the endowment generated hawkish returns and grew nearly fivefold, from $4.7 billion to $22.6 billion to the astonishment of the academic world and to the envy of many traders on Wall Street.

Meyer attributed the fund’s strong returns during that time to aggressive strategies pursued by the company’s internal investment team. At the same time, the fund outsourced some portfolio management to external hedge funds, recognizing market opportunities.

When Meyer joined HMC, 70 percent of the fund was internally managed. When he left, 50 percent was still in-house. Currently, that number rests at 30 percent, according to Stephen Blyth, HMC’s managing director and head of internal management.

Most other universities hand over their endowments entirely to external money managers.

At the time, Meyer said, “I think the endowment actually offers a higher rate of return for the same amount of risk.”

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