TWP and Harvard Management Company

A more sophisticated lens will always focus first upon risk appetites rather than simply returns” – N.P. “Narv” Narvekar, CEO Harvard Management Company

At TWP, we are constantly looking for ways to give our partners/ clients more- more return for less risk, more liquidity, more flexibility, more quality, more utility. Today, we want to share how “more” institutions are moving toward our framework and what we believe to be the gold standard of portfolio management.

One of the things we pay attention to in the fall months is the release of endowment returns. The Ivy League has long been considered a great proxy for portfolio performance and while the schools do not report their returns on a risk adjusted basis, it is still worth perusing a few of the reports from time to time. Today’s focus is Harvard.

The Harvard Management Company (HMC) manages Harvard’s endowment of ~$37B. HMC has been undergoing some significant changes of late to improve performance. They recently hired a new CEO, N.P. “Narv” Narvekar. Narv previously ran Columbia’s endowment and did an extraordinary job while there. His 10-year average returns of 10.1% were good enough to make him the top investment manager in the Ivy League (to be fair it was a tie at the top).  Take a look at what Narv is doing at HMC… Let’s just say it’s one small step toward the type of “modeling” we use at TWP and one giant leap toward a “risk-first framework.” Sound familiar?

“Risk Framework

We have created a new risk allocation framework that will replace the asset allocation approach previously used by HMC. This model is very different from past HMC approaches and we have completed the first phase of building and integrating this framework into our investment decision making.

In managing the University’s financial assets, HMC seeks to maximize returns, subject to the risk tolerance established by the University, in consultation with HMC’s Board of Directors. We will determine with the University’s financial team the appropriate risk level for Harvard. Our dialogue with this team is just beginning and we expect it to grow over time, allowing us to achieve this important understanding and objective…

While at Columbia, it was a proud moment on two separate occasions to have the highest ten-year return of any endowment, despite taking less risk than many. That being said, I also consider it to be of limited relevance. HMC’s returns will largely be a function of Harvard’s chosen risk level and not necessarily related to that of any peers, who might have different risk appetites. Comparisons to other peers are natural, but not productive. In my opinion, misdirected pressures caused by peer return comparisons contributed meaningfully to the challenges experienced by leading endowments during the financial crisis. A more sophisticated lens will always focus first upon risk appetites rather than simply returns.”