Harvard’s sick of losing to Yale and has a plan to fix endowment

In October, dozens of Wall Street financiers including activist shareholder Bill Ackman were invited to a lecture hall at Harvard to scrutinise the university’s lacklustre endowment returns – and a plan to revive them.

For more than an hour the Harvard Business School alumni debated whether the US$37.6 billion fund could generate at least 5 per cent a year as markets falter and whether it made sense to try to beat peers such as Yale University and Princeton University. At stake was Harvard’s status as the world’s richest university, with Yale, Stanford University and other schools making up ground through savvier investing and aggressive fundraising.

“It was kind of reassuring,” said Stephen Blyth, 48, who put together a turnaround plan after being named chief executive of Harvard Management in January. “There were people on both sides so I felt we must have it about right.”

Harvard’s endowment, the world’s largest and once the envy of asset managers, has sunk into mediocrity. Over the last five years, the fund has been trounced by chief rival Yale by almost 4 percentage points annually, equating to billions of dollars in lost revenue. Its 5.8 per cent one-year gain through June even lagged the Ivy League average, by 2 percentage points.

Blyth, a trader at Deutsche Bank before joining the fund in 2006, has vowed to produce better returns by revamping the investment decision-making process while leaning on Harvard’s rich alumni network for opportunities, particularly in alternative assets such as private equity and venture capital. The university was among the first to diversify into those riskier assets when they were much cheaper, pioneering a model of endowment management under former chief Jack Meyer.