The head of Harvard’s massive endowment, Jane Mendillo, has reported a staggering loss of roughly $1.1 billion in its holdings — an amount larger than the total value of most academic endowments. It is an astonishing loss coming only six years since Mendillo took over the endowment and is being attributed to her heavy bet on natural resource investments.
Harvard’s endowment is one of the world’s largest at $37.1 billion but even Harvard feels a loss of this size.
Mendillo reportedly poured money into investments like an agricultural development in Brazil’s remote and impoverished northeast producing tomato paste, sugar, and ethanol, as well as energy.
In their highly informative article, Michael McDonald and Tatiana Freitas report “Harvard bet the farm in Brazil and lost.” They tracked at least $150 million in the Brazilian development but it was part of the bad bets that led the current endowment chief, N.P. “Narv” Narvekar to write down the value of resources portfolio by $1.1 to a value of $2.9 billion.
Here is one of the most striking details: Harvard’s money managers made $242 million from 2010 to 2014. Among those drinking deeply at the Harvard well were Alvaro Aguirre, who oversaw natural resources investments, who made $25 million in roughly four years and boss Andrew Wiltshire who was paid $38 million over five years. Mendillo may have made $13.8 million “in a single year.”
In the meantime, Harvard annual endowment return was only 4.4 percent in comparison to MIT with 7.6 percent and Columbia with 7.3 percent. At four percent, it is worth a faculty inquiry whether the university could have done better with a standard diversified portfolio available from relatively low cost investment advice or even relying on its own faculty. In my view, universities have a duty to their faculty, students and alumni to adopt relatively low-risk portfolios to avoid gambling with the donation and tuition revenue from their institution. More importantly, the obscene payments to these managers are problematic regardless of their performance for a non-for-profit institution in my view.