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. Given the size of Harvard’s endowment (pardon the Freudian connotations), it still amazes me that they charge tuition at all.

  2. Harvard’s endowment up or down- a loss for Americans. Competition from university endowment investments drive up prices of real estate, stocks, etc. and, when the “non-profit’s” gains are made, they avoid taxation. The alumni’s money is stockpiled, with little spent directly on the schools, students or community. Then, with a pittance the richest buy influence with targeted “gifts”, shifting the university in the direction they want. The worst of the worst are the schools that use legacy for admission and get to label themselves “non-profit”.

  3. No institution of higher learning should ever be allowed to invest in the natural resource sector. It’s highly volatile and risky and vulnerable to geopolitical risks. What a bad, bad idea.

  4. They continue to think they can beat the market. Vanguard has retirement accounts that allow all or part of the profits to be distributed….for basic almost no fee. How much different is this from a congame?

  5. Awww. Too bad, too sad. Maybe they’ll think twice about allowing their “students” to protest every single conservative who comes there to speak.

    1. Who’s the “they”? The people doing the endowment investing have no interaction at all with students, I expect. And no say in who does or does not get to speak on campus.

  6. This should be a clue to the left of how higher education has become a propaganda arm for the revolving door of corporatist government. This story is directly relevant to the propaganda produced by Harvard for the sugar industry to blame heart disease on fat instead of sugar. The scope continues to grow. Every time an SJW has a temper tantrum, they drink a toast. Truly the most effective display of divide and conquer in world history.

  7. JT’s headline should read $1.1 billion. $2.9 billion is the value of the Natural Resources portfolio after the write down. I just want to say one word to you. Just one word. Mr. McGuire: There’s a great future in plastics.

  8. Why Brazil?

    To make money or was there a social justice angle?

    On the larger note, why do the alums of these elite colleges blindly throw money into the endowments and not demand the schools:

    A – invest it wisely

    and

    B – not allow the schools to stray from their missions.

  9. What is the tuition at Harvard?
    Who would want a business degree from Harvard after this?
    Went in dumb, come out dumb too. Hustlin round Atlanta in her alligator shoes.

    1. You don’t learn any more facts at Harvard than you can get from any small private college or state U, or even at the local library. The only reason to go to Harvard is the cachet of the name on the diploma, and (more importantly) the chance to rub shoulders with very wealthy and influential people.

  10. She needs to be sent South. To Brazil. Perhaps go work with Donna Brazil.
    This is The Harvard Way!

  11. She must have been taught by Robert “Bob” Citron, the former Orange County Tax Collector whose investment strategy resulted in a Chapter 9 Bankruptcy filing by the County.

  12. I had a client once who was an investment guy for CALPERS, the largest union fund in the world. The billions of dollars handled resulted in investments of all sorts, some lost money and some made money. They bought Mother Goose potato chip company and lost millions. They invested in Napa Valley mini vineyard estates and made millions. He never missed a paycheck. The fund is still growing. I bet Harvard’s will keep on growing as well.

    1. Issac,
      An internet search of Gates Foundation Harvard Graduate School of Education provides a case study in the spread of oligarch goals. Harvard led the privatization of America’s most important common good- public education. In addition to the domestic fleecing of the middle class via corporatization of their schools (achieved by buying the state legislatures who were given cover by “research” like Harvard’s), hot shot Harvard MBA’s, with funding from Bill Gates (not his foundation) and Z-berg, took a for-profit model, schools- in-a-box, to the poorest parents in Africa. The “expected return on investment-20%”.
      Former Gates Foundation employees worked at the U.S. Dept. of Ed. and reportedly, a Sec. of Ed.’s wife was employed by a Gates “education philanthropy”. Gates funded the Senior Congressional Education Staff Network, to provide them with a “safe space” for policy development. (Coincidentally Gates prefers to live in a state with no income tax.)

      The oligarchs’ education goal is “brands on a large scale” where they create standards, curriculum and measurement.
      The Kennedy School of Government gave Jeb Bush, a school privatizer, a platform as a visiting lecturer.The School boasted at its intern page that there were placements with DFER (hedge funds for education reform and, at the Heritage Foundation.
      Harvard may once have been a bastion of independent thought just as newspapers, t.v. and magazines strived for objectivity before they limited themselves to being the plutocrats’ mouthpieces.

    1. You might be right, but when you say “Period” it suggests you have a closed mind.

  13. This sounds like feel good investing. Done from the point of view of social justice, not from the point of view of prudent investing.

    1. Historically, social justice type funds underperformed the market. There can be constraints to what an organization invests in, many put themselves into lowered returns because of excessive limitations into where money can be invested. This can put money managers into a difficult position. They have a fiduciary duty to maximize the return for their client according to the risk tolerance of that client and the other being the investment directives of the client. Yet, despite these constraints, they risk being sacked because they follow the client’s demands to the letter despite an investment underperforming.

      The church I formerly belonged to had similar issues with their pension funds.

      1. Darren, You may know something about this particular investment that wasn’t in the Bloomberg article, but natural resources investments, such as deforestation, are not intrinsically the same thing at all as “social justice” funds. Do you have a specific reason for your comparison? I would be curios if you have some independent information. Generally, Harvard is pretty hard nosed, even if not always very smart, about their investments. Unlikely they would invest in a slavery scheme, or in child pornography, but more due to optics than any vestige of old fashioned liberalism.

        The reason for failure that was given in the article was post investment corruption in the Brazilian Government creating an atmosphere in which investor confidence in the project fell apart.

  14. a very graphic example of the power of objectivism over subjectivism aka reality vs mysticism and now the reality is they are expecting DEA to bail them out.

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