September 30, 2024 • 11 mins
Harvard University’s endowment fund is larger than the endowment of any other university on the planet. That’s, in part, because of a pioneering investment strategy. But in recent years, the returns haven’t measured up to rival universities like Yale or Brown.
Bloomberg’s Janet Lorin joins host David Gura to talk about how Harvard University’s early edge seems to have waned in the midst of changing leadership and strategies.
Read more: Harvard’s Not-So-Smart Money: Two Decades of Poor Returns and Rich Pay
Further Listening:
- Facing Huge Challenges, One College Tries to Be Too Big to Fail
- If College Is an Investment, These Offer the Best ROI
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Harvard University's endowment fund is the stuff of legend. It's
larger than the endowment of any other university on the planet,
and larger, in fact, than the GDP of many countries.
Speaker 1 (00:22):
As of June twenty twenty three, the last time that
they've given us a public value, it's fifty point seven
billion dollars.
Speaker 2 (00:30):
But Janet Lauren, who covers higher education at Bloomberg, says
this was not always the case. It's only in the
last few decades that Harvard's endowment went from an approach
that could be described as kind of vanilla investing mostly
in stocks and bonds, to something very different, involving hedge
funds at private equity. That move made the Harvard Management Company,
(00:52):
which oversees the endowment in investing powerhouse. In its heyday,
it employed more than two hundred people at him still
pays some staffers millions of dollars every year. The growth
of Harvard's endowment is thanks in large part to the
vision of one man, Jack Meyer, who oversaw it for
more than a decade. He embraced risk, and that paid off.
Speaker 1 (01:16):
They were extremely successful. They were the envy of the world.
Speaker 2 (01:22):
Meyer's method quickly propelled the Harvard Management Company into financial superstardom.
Universities and colleges studied its approach and tried to emulate
its success, But in the meantime, Myer's method as it
evolved was not without controversy. Scrutiny of compensation awarded to
Meyers managers eventually led to his departure. Now, Harvard's endowment
(01:44):
is at another crossroads. After years of lagging returns. Many
say Harvard's pioneering fund has lost its edge to competitors.
Speaker 1 (01:53):
At the turn of the century, Harvard was double the
size of Yale, and now they're only twenty five percent
larger than you.
Speaker 2 (02:04):
This is the big take from Bloomberg News. I'm David
Gera today on the show The Harvard Management Company. It
turns fifty this year, and celebrations may be kind of
muted despite its legendary status. We look at the rise
and the plateauing of what's become the most famous endowment
fund in the world. How Jack Meyer blazed a new
trail for the world's universities and other nonprofits, and why
(02:27):
building on that success has proven to be so difficult
for Harvard how did Harvard's endowment get as big as
it is today? I guess how long has it been around?
And when it it kind of have its most dramatic growth.
Speaker 1 (02:45):
So Harvard is the oldest and richest college in America.
So they started getting donations, you know, hundreds of years ago,
and you've heard of the principle of compounding interests. That
has certainly helped them for years. The managers of Harvard's
endowment followed a pretty straightforward strategy like other schools of
its age and status, Most college endowments just invested in
(03:09):
a traditional stocks and bonds portfolio.
Speaker 2 (03:13):
But in the nineteen nineties, when Jack Meyer took over
the Harvard Management Company, the institution that oversees the endowment
and is separate from the university, he advocated for a
much more diversified portfolio.
Speaker 1 (03:24):
Jack Meyer at Harvard pioneered the idea of more liquid
assets private equity hedge funds.
Speaker 2 (03:32):
This way of thinking wasn't necessarily new. In the nineteen sixties,
the Ford Foundation, a philanthropy that has its own sizeable endowment,
published a report with this central idea that a university
like Harvard, which has a time horizon hundreds of years
long can afford the risk of more volatile, illiquid investments
such as venture capital and private equity, and Janet says
(03:54):
Meyer saw the opportunity to make a change.
Speaker 1 (03:57):
He built sort of an in house hedge fund. It
really is not an exaggeration to say Harvard literally built
its own hedge fund.
Speaker 2 (04:05):
Meyer's ideas proved to be very lucrative under his leadership.
Harvard's endowment grew from four point eight billion dollars to
twenty five point nine billion by most measures a stellar performance.
That's money that goes to university operations like professor's salaries
and libraries, but also to graduate fellowships and scholarships. They
recruited portfolio managers from Wall Street men and women who
(04:28):
could have just as easily taken jobs at top hedge
funds and private equity firms. But for all his success,
Jack Meyer's strategy and the compensation packages for his managers
that came with it started to draw scrutiny, especially from
donors from Harvard alumni.
Speaker 1 (04:43):
The pay was an issue for a long time. Jack
Meyer paid for performance, and the performance was so spectacular.
In one year, they paid a bond trader thirty five
million dollars. Wow, and there was a whole group of
alumni the class of sixty nine. Mary famously said, this
is just not right for a nonprofit to be paying
people so much money.
Speaker 2 (05:05):
Eventually, at Harvard, Jack Meyer left, he started his own firm,
and others followed suit. Harvard's endowment started bleeding talent and
turnover at the top became an issue.
Speaker 1 (05:16):
They had an interim for a bit, and then they
had Muhammad Alarian, who had good returns when he was there,
but he decided to go back to PIMCO, so he
was there for less than two years, and then they've
had several interims, and then they had Jane Mindelo. She
was there for a longer tenure but was hit with
the global financial crisis. Harvard had the worst return to
(05:36):
the Ivy League schools. I think it was minus twenty
seven percent and they had to take a long time
to recover. Then she left, Then somebody came in for
less than two years, and then there was another interim,
and now they have their current chief executive officer. But
that's a lot of people over a lot of time,
and you know when you have somebody coming in new
They switched.
Speaker 2 (05:57):
Strategies the constant change in leadership and strategy has left
Harvard's endowment in a bind, struggling to emulate the success
it once had and having to defend diminishing returns. Janet
says years of turmoil have taken their toll.
Speaker 1 (06:12):
So over the last ten years, Harvard's annualized return is
eight point two percent, which sounds good, But when you
look at the rest of their peers funds over five
billion dollars, they're in the bottom twenty percent. That's not
a place you would ever think of Harvard being. And
for the last twenty years, a twenty year annualized return
(06:34):
is they're in the bottom forty percent. And what about
Yale top ten percent?
Speaker 2 (06:40):
After the break, as Harvard was losing its edge, competitors,
including one of its fiercest rivals, used strategies Harvard pioneered
to make billions of their own. Well, Harvard's endowment is
struggle to see the kind of returns had gotten the past.
(07:02):
Bloomberg's Janet Lauren says other colleges and universities have also
pursued aggressive investment strategies. Is it alone at the top
of the list of college and university endowments? Who's kind
of nipping at its heels if anyone.
Speaker 1 (07:15):
Well, the University of Texas. And I did a story
that I really enjoyed a couple of years ago that
looked at oil in the University of Texas and why
is the University of Texas so rich? And the answer
is because they have two point one million acres in
West Texas that the state designated for higher education in
(07:35):
the eighteen hundreds, and then in nineteen twenty three oil
was discovered and now it's the Permian Basin, and a
couple of years ago they got two billion extra dollars
just from the price of oil in production.
Speaker 2 (07:49):
And it's not just oil money coming for Harvard's enviable gains.
Also nipping at Harvard's heals the bulldogs Yale, Harvard's longtime rival,
and that is extremely unpawered palle to many Harvard alums.
Janet says Yale also deserves credit for early innovations and
endowment investing thanks to David Swenson, who managed Yale's endowment
(08:09):
when Jack Meyer was running Harvard's.
Speaker 1 (08:11):
Alongside Jack Meyer, there was a guy at Yale who
took over the endowment in nineteen eighty six. David Swinson,
who was an economist trained at Yale, and he also
pioneered this idea of liquid assets, you know, the illoquidity premium,
and he also did spectacularly well, but he had a
(08:31):
very different model.
Speaker 2 (08:33):
Yale's endowment did very well under Swinson's stewardship, and he
managed to avoid the pushback jack Meyer got partly because
Yale didn't employ a large, well paid investment staff like Harvard,
and compared to Harvard, it's been a lot more stable.
Speaker 1 (08:48):
Instead of hiring people to work for Yale, they found
partners that literally partners who could work with them for
you know, ten, twelve longer years. They have head managers
in their portfolio for a very long time. Managers love
to have Yell's money, Janet says Brown, Princeton, MIT, and
others have seen record returns on their endowments, which have followed,
(09:11):
to some extent, the same type of model as Yale,
using outside managers.
Speaker 2 (09:17):
And at the same time as the performance of Harvard's
endowment has been lagging many of its peers. The university
has faced a lot of high profile problems. Its response
to student protesters last October following Hamas's attack on Israel
and the resignation of the school's president, Claudine gay Jenik.
We talk about some of the pressure that Harvard has
been under. I know that over the last year there
(09:39):
have been a number of alumni, very vocal alumni, who
have said that, in light of the way the university
responded to what happened on October seventh, they're going to
withhold their donations. Is that something that's worrisome to the
Harvard management company, to Harvard broadly, that you have these
well healed donors who are deciding not to give money anymore.
Speaker 1 (09:57):
Yes, Harvard has raised over a billion dollars every year
since I think twenty fourteen, every year, every year, and
they're very good at what they do. And you know,
you think, well, maybe somebody from you know, the class
of nineteen eighty is upset and decides to withhold you know,
their five hundred dollars donation forever. Okay, you still getting
(10:20):
you know, millions from other people. But you know, maybe
that person has a lot of classmates who are doing
the same thing.
Speaker 2 (10:26):
Janet says, even as returns have been declining, Harvard has
been relying on its endowment more and more to fund operations.
Last year, Harvard spent more than two billion dollars from
investment earnings out of the fund, and that made up
more than a third of Harvard's operating budget for the year.
If that continues to happen, it risks diminishing Harvard's endowment further.
(10:47):
For all of its struggles, she points out, Harvard still
has the largest endowment fund in the world, larger than
the GDP of Morocco, so we probably don't have to
worry too much for the Crimson. This is The Big
Take from Bloomberg News. I'm David Gura. This episode was
produced by Thomas lou It was edited by Stacy Vanocksmith
(11:09):
and John Heckinger. It was fact checked by Alex Sekura.
It was mixed by Alexander Dubois. Our senior producer is
Naomi Shaven, who helped edit this episode. Our senior editor
is Elizabeth Ponso. Our executive producer is Nicole Beemster. Bor
Sage Bauman is Bloomberg's head of Podcasts. If you liked
this episode, make sure to subscribe and review The Big
Take wherever you listen to podcasts. It helps people find
(11:31):
the show. Thanks for listening. We'll be back tomorrow,
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:10):
Harvard University's endowment fund is the stuff of legend. It's
larger than the endowment of any other university on the planet,
and larger, in fact, than the GDP of many countries.
Speaker 1 (00:22):
As of June twenty twenty three, the last time that
they've given us a public value, it's fifty point seven
billion dollars.
Speaker 2 (00:30):
But Janet Lauren, who covers higher education at Bloomberg, says
this was not always the case. It's only in the
last few decades that Harvard's endowment went from an approach
that could be described as kind of vanilla investing mostly
in stocks and bonds, to something very different, involving hedge
funds at private equity. That move made the Harvard Management Company,
(00:52):
which oversees the endowment in investing powerhouse. In its heyday,
it employed more than two hundred people at him still
pays some staffers millions of dollars every year. The growth
of Harvard's endowment is thanks in large part to the
vision of one man, Jack Meyer, who oversaw it for
more than a decade. He embraced risk, and that paid off.
Speaker 1 (01:16):
They were extremely successful. They were the envy of the world.
Speaker 2 (01:22):
Meyer's method quickly propelled the Harvard Management Company into financial superstardom.
Universities and colleges studied its approach and tried to emulate
its success, But in the meantime, Myer's method as it
evolved was not without controversy. Scrutiny of compensation awarded to
Meyers managers eventually led to his departure. Now, Harvard's endowment
(01:44):
is at another crossroads. After years of lagging returns. Many
say Harvard's pioneering fund has lost its edge to competitors.
Speaker 1 (01:53):
At the turn of the century, Harvard was double the
size of Yale, and now they're only twenty five percent
larger than you.
Speaker 2 (02:04):
This is the big take from Bloomberg News. I'm David
Gera today on the show The Harvard Management Company. It
turns fifty this year, and celebrations may be kind of
muted despite its legendary status. We look at the rise
and the plateauing of what's become the most famous endowment
fund in the world. How Jack Meyer blazed a new
trail for the world's universities and other nonprofits, and why
(02:27):
building on that success has proven to be so difficult
for Harvard how did Harvard's endowment get as big as
it is today? I guess how long has it been around?
And when it it kind of have its most dramatic growth.
Speaker 1 (02:45):
So Harvard is the oldest and richest college in America.
So they started getting donations, you know, hundreds of years ago,
and you've heard of the principle of compounding interests. That
has certainly helped them for years. The managers of Harvard's
endowment followed a pretty straightforward strategy like other schools of
its age and status, Most college endowments just invested in
(03:09):
a traditional stocks and bonds portfolio.
Speaker 2 (03:13):
But in the nineteen nineties, when Jack Meyer took over
the Harvard Management Company, the institution that oversees the endowment
and is separate from the university, he advocated for a
much more diversified portfolio.
Speaker 1 (03:24):
Jack Meyer at Harvard pioneered the idea of more liquid
assets private equity hedge funds.
Speaker 2 (03:32):
This way of thinking wasn't necessarily new. In the nineteen sixties,
the Ford Foundation, a philanthropy that has its own sizeable endowment,
published a report with this central idea that a university
like Harvard, which has a time horizon hundreds of years
long can afford the risk of more volatile, illiquid investments
such as venture capital and private equity, and Janet says
(03:54):
Meyer saw the opportunity to make a change.
Speaker 1 (03:57):
He built sort of an in house hedge fund. It
really is not an exaggeration to say Harvard literally built
its own hedge fund.
Speaker 2 (04:05):
Meyer's ideas proved to be very lucrative under his leadership.
Harvard's endowment grew from four point eight billion dollars to
twenty five point nine billion by most measures a stellar performance.
That's money that goes to university operations like professor's salaries
and libraries, but also to graduate fellowships and scholarships. They
recruited portfolio managers from Wall Street men and women who
(04:28):
could have just as easily taken jobs at top hedge
funds and private equity firms. But for all his success,
Jack Meyer's strategy and the compensation packages for his managers
that came with it started to draw scrutiny, especially from
donors from Harvard alumni.
Speaker 1 (04:43):
The pay was an issue for a long time. Jack
Meyer paid for performance, and the performance was so spectacular.
In one year, they paid a bond trader thirty five
million dollars. Wow, and there was a whole group of
alumni the class of sixty nine. Mary famously said, this
is just not right for a nonprofit to be paying
people so much money.
Speaker 2 (05:05):
Eventually, at Harvard, Jack Meyer left, he started his own firm,
and others followed suit. Harvard's endowment started bleeding talent and
turnover at the top became an issue.
Speaker 1 (05:16):
They had an interim for a bit, and then they
had Muhammad Alarian, who had good returns when he was there,
but he decided to go back to PIMCO, so he
was there for less than two years, and then they've
had several interims, and then they had Jane Mindelo. She
was there for a longer tenure but was hit with
the global financial crisis. Harvard had the worst return to
(05:36):
the Ivy League schools. I think it was minus twenty
seven percent and they had to take a long time
to recover. Then she left, Then somebody came in for
less than two years, and then there was another interim,
and now they have their current chief executive officer. But
that's a lot of people over a lot of time,
and you know when you have somebody coming in new
They switched.
Speaker 2 (05:57):
Strategies the constant change in leadership and strategy has left
Harvard's endowment in a bind, struggling to emulate the success
it once had and having to defend diminishing returns. Janet
says years of turmoil have taken their toll.
Speaker 1 (06:12):
So over the last ten years, Harvard's annualized return is
eight point two percent, which sounds good, But when you
look at the rest of their peers funds over five
billion dollars, they're in the bottom twenty percent. That's not
a place you would ever think of Harvard being. And
for the last twenty years, a twenty year annualized return
(06:34):
is they're in the bottom forty percent. And what about
Yale top ten percent?
Speaker 2 (06:40):
After the break, as Harvard was losing its edge, competitors,
including one of its fiercest rivals, used strategies Harvard pioneered
to make billions of their own. Well, Harvard's endowment is
struggle to see the kind of returns had gotten the past.
(07:02):
Bloomberg's Janet Lauren says other colleges and universities have also
pursued aggressive investment strategies. Is it alone at the top
of the list of college and university endowments? Who's kind
of nipping at its heels if anyone.
Speaker 1 (07:15):
Well, the University of Texas. And I did a story
that I really enjoyed a couple of years ago that
looked at oil in the University of Texas and why
is the University of Texas so rich? And the answer
is because they have two point one million acres in
West Texas that the state designated for higher education in
(07:35):
the eighteen hundreds, and then in nineteen twenty three oil
was discovered and now it's the Permian Basin, and a
couple of years ago they got two billion extra dollars
just from the price of oil in production.
Speaker 2 (07:49):
And it's not just oil money coming for Harvard's enviable gains.
Also nipping at Harvard's heals the bulldogs Yale, Harvard's longtime rival,
and that is extremely unpawered palle to many Harvard alums.
Janet says Yale also deserves credit for early innovations and
endowment investing thanks to David Swenson, who managed Yale's endowment
(08:09):
when Jack Meyer was running Harvard's.
Speaker 1 (08:11):
Alongside Jack Meyer, there was a guy at Yale who
took over the endowment in nineteen eighty six. David Swinson,
who was an economist trained at Yale, and he also
pioneered this idea of liquid assets, you know, the illoquidity premium,
and he also did spectacularly well, but he had a
(08:31):
very different model.
Speaker 2 (08:33):
Yale's endowment did very well under Swinson's stewardship, and he
managed to avoid the pushback jack Meyer got partly because
Yale didn't employ a large, well paid investment staff like Harvard,
and compared to Harvard, it's been a lot more stable.
Speaker 1 (08:48):
Instead of hiring people to work for Yale, they found
partners that literally partners who could work with them for
you know, ten, twelve longer years. They have head managers
in their portfolio for a very long time. Managers love
to have Yell's money, Janet says Brown, Princeton, MIT, and
others have seen record returns on their endowments, which have followed,
(09:11):
to some extent, the same type of model as Yale,
using outside managers.
Speaker 2 (09:17):
And at the same time as the performance of Harvard's
endowment has been lagging many of its peers. The university
has faced a lot of high profile problems. Its response
to student protesters last October following Hamas's attack on Israel
and the resignation of the school's president, Claudine gay Jenik.
We talk about some of the pressure that Harvard has
been under. I know that over the last year there
(09:39):
have been a number of alumni, very vocal alumni, who
have said that, in light of the way the university
responded to what happened on October seventh, they're going to
withhold their donations. Is that something that's worrisome to the
Harvard management company, to Harvard broadly, that you have these
well healed donors who are deciding not to give money anymore.
Speaker 1 (09:57):
Yes, Harvard has raised over a billion dollars every year
since I think twenty fourteen, every year, every year, and
they're very good at what they do. And you know,
you think, well, maybe somebody from you know, the class
of nineteen eighty is upset and decides to withhold you know,
their five hundred dollars donation forever. Okay, you still getting
(10:20):
you know, millions from other people. But you know, maybe
that person has a lot of classmates who are doing
the same thing.
Speaker 2 (10:26):
Janet says, even as returns have been declining, Harvard has
been relying on its endowment more and more to fund operations.
Last year, Harvard spent more than two billion dollars from
investment earnings out of the fund, and that made up
more than a third of Harvard's operating budget for the year.
If that continues to happen, it risks diminishing Harvard's endowment further.
(10:47):
For all of its struggles, she points out, Harvard still
has the largest endowment fund in the world, larger than
the GDP of Morocco, so we probably don't have to
worry too much for the Crimson. This is The Big
Take from Bloomberg News. I'm David Gura. This episode was
produced by Thomas lou It was edited by Stacy Vanocksmith
(11:09):
and John Heckinger. It was fact checked by Alex Sekura.
It was mixed by Alexander Dubois. Our senior producer is
Naomi Shaven, who helped edit this episode. Our senior editor
is Elizabeth Ponso. Our executive producer is Nicole Beemster. Bor
Sage Bauman is Bloomberg's head of Podcasts. If you liked
this episode, make sure to subscribe and review The Big
Take wherever you listen to podcasts. It helps people find
(11:31):
the show. Thanks for listening. We'll be back tomorrow,
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