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Universities lead. It’s who we are and what we do. We meet complex challenges with sophisticated solutions. On diversity, America’s core challenge, Harvard has been — to some — a gold standard, with its inclusion of women and people of color in admissions and faculty. But there’s one area of Harvard life, opaque to be sure, where its record is likely less than desirable: the diversity of people who work on, and benefit from, our enormous endowment.
Harvard has led the way on diversity in many areas — including significant scholarship funds to allow for need-blind admissions, a push for greater racial and economic diversity in our student body, and visible efforts to broaden the diversity of our faculty and senior administrators. Just as Harvard now routinely makes diversity a crucial component of its academic mission and a priority in its student body, faculty, and administrators, it would be inconsistent not to extend the same commitment to diversity to its investment practices.
On the business side, universities like Harvard routinely seek out and employ minority-owned firms to fulfill core business needs, such as campus maintenance, catering, and security. But, one glaring exception to this commitment has been the university’s failure to select minority and women-owned asset management firms to manage its endowment dollars.
Of the over $500 billion in assets that North American university endowments hold, Harvard holds by far the largest share, with an endowment of $39.2 billion. A single percentage point change in endowment returns can have dramatic consequences.
In several attempts to better returns, Harvard has tried various CEOs and experimented with investment approaches that ultimately fell short. Most recently, Harvard Management Company's newest CEO, N.P. Narvekar, has announced a new strategy to outsource and use external money managers.
During this rapid change, Narvekar should take a moment to consider the makeup and track record of these new money managers he seeks to entrust with the billions in Harvard’s endowment.
The likelihood that these new money managers are white men is extremely high. A 2017 study commissioned by the John S. and James L. Knight Foundation revealed that the average mutual fund in the United States has an $47.4 billion of assets under management, compared to $3.8 billion for majority women-owned firms and $2.1 billion for minority-owned firms. Only about 1 percent of $70 trillion in industry assets is managed by minority and women-owned asset management companies.
I love Harvard, and my life has been enriched by the classes I’ve taken, the relationships I’ve built, and the outside-of-classroom experiences I’ve had. As a soon-to-be alumnus of this great institution, I only want the best for the University and am concerned that our current fiscal management practices are not sufficient to ensure the longevity of the University.
In 2003, Dan Rooney, owner and president of the Pittsburgh Steelers and former chairman of the National Football League's diversity initiative, instituted what would become known as the “Rooney Rule,” which mandates that for every open coaching position NFL teams must interview minority candidates. Since 2003, the number of minority head coaches in the NFL has increased by 18. Of these, four have gone on to compete in the Super Bowl over the past 15 years. Talent is equally distributed; opportunity is not.
Research has demonstrated that, on average, the performance of minority and women-owned asset management firms, both in terms of absolute returns and risk-adjusted returns, is often stronger than non-minority owned firms. This is true across asset classes. Minority asset managers are, at best, continuously overlooked, and, at worst, intentionally precluded from managing large institutional investment funds.
Furthermore, the Knight Foundation study found that though there is no statistical difference in performance between minority and women-owned firms and their white counterparts, foundations and endowments are less likely to invest with minority and women-owned firms than other types of institutional investors including public pension funds. This is a mistake.
We know that prioritizing diversity can actually make organizations much more competitive and successful, especially in our constantly evolving economy.
Harvard has a tremendous opportunity and immediate need to engage in this space. But, more importantly, Harvard has a fiduciary responsibility to generate the greatest return to the University’s endowment. We know that it is possible to do both, as evidenced by the University of Chicago, which has been partnering with minority-owned asset management firms to manage a portion of the endowment since 2011.
For Harvard to make a similar commitment, the University will require strong leadership from Narvekar to inform and educate the University’s leadership about investment opportunities with minority and women-owned firms and take steps to seek out and hire these firms. Additionally, it will be imperative for Harvard, its leadership, and other peer institutions to explore their own unconscious biases. Understanding that bias exists, even within the most prestigious educational institutions, is the first step toward deconstructing it and ensuring true diversity and inclusion.
In its process to grow its endowment, Harvard is in a position to craft effective investment strategies that align with its overarching social mission and increase returns, in perpetuity, all while building a stronger economy through the diversification of asset management.
Hasani A. Hayden ’19 is an Economics concentrator in Kirkland House.
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