Indian American leads Harvard’s efforts to outsource Endowment, Staff to be cut by half

 

Indian American Nirmal Narvekar, the new head of Harvard University’s endowment, is elading efforts to make changes to the fund by outsourcing most of its assets and lay off about half the staff, media reports say. Narvekar, who started his new role of endowment head in December, intends to slash half of the Harvard Management Co.’s 230-person staff and shift most of its money to outside managers.

The new chief executive of Harvard Management Co, which manages the university’s endowment, announced the plans in a letter, said the investment arm will shut down its internal hedge funds and let traders go by the middle of 2017, essentially abandoning a so-called hybrid model that was unique among big endowments.

The internal team that oversees real-estate investments will spin out into an independent group that is expected to keep managing money for Harvard. HMC will lay off roughly half of its 230-person staff, by the end of the year.

“The investment landscape has evolved significantly, requiring us to adapt two aspects of HMC’s organizational and investment models in order to maximize performance over the long term,” Narvekar wrote in the letter.

For decades, Harvard’s investment performance was the envy of the financial world, but it has lagged rivals for some years now and posted its worst performance since the financial crisis in fiscal 2016 when the portfolio lost 2 percent.

Harvard has long operated differently from most other schools, including fellow Ivy Leaguer Yale, managing some of its money internally and farming out only a portion to external managers.

Harvard first hinted at upcoming changes in June as performance continued to lag. While Narvekar is preparing to lay off dozens of employees, he is also hiring a team of four investors who he said will be instrumental in moving Harvard away from its specialized asset class investing approach to a more generalist model.

The four are Rick Slocum, who will join in March as chief investment officer, and Vir Dholabhai, Adam Goldstein and Charlie Saravia, who will be managing directors. Goldstein and Saravia worked with Narvekar previously when he ran Columbia University’s $9.6 billion endowment.

Narvekar, tasked to turn around the $35.7 billion fund, has proven that outsourcing could work, as he did with a 20-person staff at Columbia recently, outperforming Harvard in the process, a Bloomberg report said. “We can no longer justify the organizational complexity and resources necessary to support the investing activities of these portfolios,” Narvekar, 54, wrote Jan. 25 in a letter to Harvard. “Therefore, we have made some important but very difficult decisions.”

Harvard’s recent returns have trailed rivals in recent years. The endowment’s annualized gains of 5.7 percent over the 10 years ended June 30, 2016, are second-lowest among Ivy League schools and below the 8.1 percent returns of Yale University and Narvekar’s former employer Columbia, the WSJ reported. The endowment’s budget provides more than a third of the university’s operating budget and contributes to the costs of student financial aid, research and professor salaries.