Key Takeaways
- • Harvard University's endowment has nearly doubled hedge fund allocations to $13 billion over two years, representing approximately one-third of its $39 billion portfolio—a higher concentration than Yale and Princeton, which hold roughly 25% in hedge funds.
- • CEO Narv Narvekar, hired in 2016 to reverse underperformance, is making a contrarian bet against industry trends: one-third of U.S. endowments and foundations surveyed by NEPC anticipate reducing hedge fund allocations this year due to persistent fee concerns and uneven returns during the extended bull market.
- • The reallocation reflects Narvekar's strategic repositioning of Harvard Management Co. for the next market cycle, positioning the endowment defensively at a time when hedge funds have underperformed low-cost index strategies favored by institutional investors.
- • Since 2016, Narvekar has streamlined operations through job cuts (100 positions eliminated), outsourced real estate management, closed an internal hedge fund trading desk, and recruited talent from Columbia and Penn to modernize the $39 billion investment operation.
- • Harvard's historical reliance on in-house asset management contrasts with peer institutions; the increased hedge fund allocation and organizational restructuring signal a strategic shift toward external manager partnerships and alternative strategies.
Summary
Harvard University's endowment is significantly increasing its exposure to hedge funds under the strategic direction of CEO Narv Narvekar, marking the most substantial portfolio reorientation since his appointment in 2016. Over the two-year period ending June 2019, the $39 billion endowment nearly doubled its hedge fund investments to $13 billion, positioning hedge funds as approximately one-third of total assets. This allocation exceeds comparable concentration levels at Yale and Princeton, where hedge funds comprise roughly 25% of endowments.
Narvekar's decision represents a deliberate contrarian positioning against prevailing institutional sentiment. The broader endowment universe has grown skeptical of hedge fund allocations due to years of inconsistent performance during an extended bull market that has systematically favored low-cost index investing. Industry surveys indicate that one-third of U.S. endowments and foundations anticipate reducing hedge fund allocations in the current year, reflecting sustained frustration with traditional 2-and-20 fee structures and their drag on net returns. This skepticism has positioned hedge funds as an increasingly unfashionable asset class among institutional investors.
According to Laurence Siegel, former head of investment research at the Ford Foundation, Narvekar's strategy reflects disciplined portfolio construction for cyclical market transitions. Narvekar's broader operational overhaul of Harvard Management Co. includes streamlined staffing (100 job eliminations), elimination of an internal hedge fund trading desk, outsourcing of real estate management, and strategic write-downs of timberland and farm assets. Simultaneously, the endowment has recruited experienced talent from Columbia and Penn to recalibrate investment operations.
Harvard's historical model of in-house asset management has given way to increased reliance on external hedge fund partnerships as Narvekar remakes the organization's structure and strategy. The timing of this contrarian hedge fund accumulation—against industry consensus—suggests positioning for potential portfolio diversification and downside protection as equity valuations reach elevated levels in 2019.
Narvekar's decision represents a deliberate contrarian positioning against prevailing institutional sentiment. The broader endowment universe has grown skeptical of hedge fund allocations due to years of inconsistent performance during an extended bull market that has systematically favored low-cost index investing. Industry surveys indicate that one-third of U.S. endowments and foundations anticipate reducing hedge fund allocations in the current year, reflecting sustained frustration with traditional 2-and-20 fee structures and their drag on net returns. This skepticism has positioned hedge funds as an increasingly unfashionable asset class among institutional investors.
According to Laurence Siegel, former head of investment research at the Ford Foundation, Narvekar's strategy reflects disciplined portfolio construction for cyclical market transitions. Narvekar's broader operational overhaul of Harvard Management Co. includes streamlined staffing (100 job eliminations), elimination of an internal hedge fund trading desk, outsourcing of real estate management, and strategic write-downs of timberland and farm assets. Simultaneously, the endowment has recruited experienced talent from Columbia and Penn to recalibrate investment operations.
Harvard's historical model of in-house asset management has given way to increased reliance on external hedge fund partnerships as Narvekar remakes the organization's structure and strategy. The timing of this contrarian hedge fund accumulation—against industry consensus—suggests positioning for potential portfolio diversification and downside protection as equity valuations reach elevated levels in 2019.
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