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Three Years Into HMC’s Five-Year Plan, Experts Say It Is Too Soon to Judge Narvekar

The Harvard Management Company, which manages Harvard's endowment, is located in the Federal Reserve Bank Building in Boston.
The Harvard Management Company, which manages Harvard's endowment, is located in the Federal Reserve Bank Building in Boston. By Steve S. Li
By Ellen M. Burstein and Camille G. Caldera, Crimson Staff Writers

Despite declining endowment returns since current Harvard Management Company CEO N.P. “Narv” Narvekar began his tenure, experts say the recent performance figures are not necessarily indicative of his success in the role.

Nearly three years ago, Narvekar announced a five-year plan to overhaul the internal structure of the University’s investment-management arm.

The primary changes that Narvekar outlined in the plan included shifting from a unique “hybrid” investment model — one in which HMC retained a large internal staff in addition to hiring outside money managers — to relying more heavily on external firms, a practice consistent with many other university endowments. The plan also included laying off about half of HMC’s then-230-person staff.

Narvekar planned to pursue a broader investment strategy that involves less “silo investing” — in which employees specialize in various asset classes — and move to a “generalist” model where employees focus on overall endowment performance.

“Major change is never easy and will require an extended period of time to bear fruit,” Narvekar wrote in a letter to Harvard affiliates at the time.

Since then, HMC has reported three years of returns. In 2017, the endowment grew by 8.1 percent, which Narvekar called “disappointing” and “a symptom of deep structural problems at HMC.” In 2018, the endowment saw a 10.1 percent return, followed by a more modest growth figure of 6.5 percent in 2019.

Although returns on Harvard’s endowment — the largest of any university in the world — have lagged behind most of its Ivy League peers under Narvekar’s stewardship, experts say it is still too early to tell whether or not this performance is indicative of ineffective strategy at HMC.

Rutgers Business School professor John M. Longo — the Chief Investment Officer and Portfolio Manager for wealth-management firm Beacon Trust — cautioned against using endowment returns alone to judge recent changes at HMC.

“It is true that, given the data, the performance has lagged,” Longo said. “Someone might just look at the numbers and say the performance is lagging, but then you have to say, what kind of risk did they take?”

In his Jan. 2017 letter, Narvekar said that mitigating overall risk was a priority for HMC leadership.

“I should emphasize that our goal is risk-adjusted returns, not simply returns,” he wrote in the letter. “Coming into 2007/2008 there was an arms race among the endowments to take on more and more risk, and many endowments, including Harvard, paid a severe price.”

Longo also emphasized that looking at recent returns is not sufficient evidence to assess Narvekar’s impact.

“Some of these assets are legacy assets which means that they had a long term commitment before Mr. Narvekar took over the portfolio,” Longo said. “You need to kind of give those investments a chance to get out of the portfolio before appropriately measuring the performance.”

The situation is further complicated by the high rate of turnover at the helm of HMC, according to experts. At the time of his hiring, Narvekar was the fourth CEO of HMC in a decade.

Christian T. Lundblad, a professor at the University of North Carolina’s Kenan-Flager Business School, compared the situation to a football coach who is “saddled with whatever players” preceded his or her term.

“If you're gonna fire a coach after three or four or five years, you're almost penalizing them for the previous guys' players and set up,” Lundblad said. “A decent chunk of your portfolio is already governed by whatever preceded you.”

Lundblad said Narvekar has nonetheless made “significant changes” given the constraints of his situation.

Timothy J. Keating ’85, president of Keating Wealth Management, said he believes Narvekar has taken “exactly the right approach” to Harvard’s endowment woes.

“I agree with Narv’s headcount reduction — I assume he's achieved that headcount reduction. I certainly agree with the approach that it makes more sense to look at the endowment as a whole, that's no different from running anything else and a siloed approach creates inefficiencies, so I think everything that Narv has outlined makes conceptual sense,” Keating said. “My question is whether Narv has actually gone far enough.”

Longo also praised the switch from specialized managers to a “generalist” approach.

“It does seem positive that people are incentivized for the performance of the entire fund, so that should result in greater collaboration,” he said. “Having an open environment where everyone sees everything and contributes, in theory, that should be better.”

In October, University President Lawrence S. Bacow told The Crimson he remained “confident” in Narvekar’s five-year plan.

“I think we’re on target for where we’re going to be, but we’ll see,” Bacow said at the time. “Ask me two to three years from now.”

— Staff writer Ellen M. Burstein can be reached at Follow her on Twitter @ellenburstein.

—Staff writer Camille G. Caldera can be reached at Follow her on Twitter @camille_caldera.

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