HMC’s 22-person real estate management team, led by Daniel W. Cummings, will leave Harvard to form a new real estate unit at Bain effective February 2018, the Wall Street Journal reported. In the 2016 fiscal year, real estate assets comprised 14.5 percent of Harvard’s total endowment and gained 13.8 percent return on investment—higher than the yields in the University’s other assets classes including private equity, domestic bonds, or foreign equity.
The deal between Bain and HMC, which manages Harvard’s $37.1 billion endowment, had been anticipated for weeks—and the spin-out for months. In January, CEO N.P “Narv” Narvekar indicated in a letter accompanying Harvard’s annual financial report that he expected to reduce the size of HMC’s 230-person staff by half and spin out HMC’s real estate investments by the end of the calendar year.
In that letter, Narvekar described the endowment’s performance as “disappointing and not where it needs to be,” attributing some of its underperformance to structural problems with the portfolio.
Experts say the most recent Harvard-Bain move is consistent with Narvekar’s shift towards an external management system in which Harvard assets are handled by third-party investors. This strategy is similar to those employed by other Ivy League institutions such as Yale, whose endowment outpaced Harvard’s 8.1 percent endowment growth in fiscal year 2017. Harvard posted the lowest returns in the Ivy League.
“This deal is a natural way to pursue [Narvekar’s] strategy,” said Steven N. Kaplan ’81, a professor of finance at the University of Chicago Booth School of Business. “This is very consistent with what Narv is trying to do, and seems to make a lot of sense.”
Charles A. Skorina, the leader of a financial executive search firm, said the deal was a “win-win,” allowing Harvard’s real estate team to potentially achieve more while enabling Bain Capital to enter a new field of investment in real estate.
“I think it is an excellent move, just brilliant,” Skorina said. “I think this is a win-win—this is good for the school, for Harvard Management Company, and for Bain.”
Other experts also saw the agreement as beneficial for Harvard. Brad R. Balter, a managing partner of Balter Capital Management, called it a “marquee move” for the University.
“As someone who generally reacts negatively to these deals, I was surprised—and I think that it’s a great deal,” Balter said. “And I don’t usually say that.”
—Staff writer William L. Wang can be reached at firstname.lastname@example.org. Follow him on Twitter @wlwang20.