Harvard Writes Off As Much As $1.1 Billion In Endowment Losses

Harvard-seal-3The 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.

The Bloomberg article is a fascinating insight into academic investments and the tolerance for such losses.  We have not really seen this type of scrutiny since various academic institutions were burned in the effective Ponzi scheme run by Bernie Madoff. In that scandal, Tufts, Yeshiva, Harvard (Medical School) and New York Law School also experienced heavy losses with Yeshiva losing $110 million from its endowment.

32 thoughts on “Harvard Writes Off As Much As $1.1 Billion In Endowment Losses”

  1. An article by Joseph Curtin discusses banning plastic bags in today’s TNYT.

    Since I buy wine 6 bottles at a time I am entitled to free wine carrier sacks. Much sturdier than the plastic bags and easier to carry. I also receive 5 cents per bag off at the register.

  2. I’m certain that my memory is not deceiving me and this article’s original headline said that Harvard lost more than $2 billion, but the article is now claiming that only $1.1 billion was lost. If you make important changes to an article, such as corrections, proper protocol says you should have a note about the correction at the end of the article, explaining the changes made to it. Mistakes happen, but that is how mistakes should be addressed, not just correcting them and then pretending they never happened. Please add the necessary clarification note to this article. Okay?

    Furthermore, a billion dollars here and billion dollars there, and, pretty soon, you’re talking about serious money!

  3. It appears that the money managers’ pay was not merit or performance based. Tie pay with performance, and you will get better results.

    Combining an agenda with a financial investment often affects returns. You have to decide what you are doing, making money, or making donations. There are portfolios out there that claim to save the world and make you money at the same time, but it is usually an inflated promise.

    I often have difficulty convincing Democrats that alternative energy is expensive, and not an affordable alternative to conventional energy yet. They need to understand that people need to be able to afford to heat and cool their homes. Getting rid of fossil fuels prematurely, only to either have people freeze to death, chop down trees for heat, or bankrupt governments subsidizing it is not a viable answer. Of course we will replace fossil fuels with cleaner energy, and I look forward to that day. We must endeavor to do so when it is firmly out of the beta test phase. Doing so prematurely will fail.

    When alternative energy is revenue generating, and affordable, it will attract investors.

    These overseas Fair Trade, Environmentally Correct ventures should be treated like charitable donations rather than investments, for the most part.

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