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Meyer lemons

23 September 2015 By Richard Beales

Stephen Blyth knows his thesis. That ought to be expected of the $38 billion Harvard University endowment’s chief executive, who is also a statistics professor. Reporting the first annual result since he took over in January – a 5.8 percent gain in the year to June – Blyth on Tuesday laid out refreshingly clear performance goals.

It’s almost exactly 10 years since the Harvard Management Co’s biggest star, Jack Meyer, quit after a decade and a half in the job. He left the university far richer but also, thanks to both skill and timing, with a tough act to follow – and a habit of paying its managers more than the norm.

As of last year, Harvard’s returns languished in 10th place or lower among top schools on a five- or 10-year view, according to Charles Skorina & Co, an investment executive search firm. That’s despite having the biggest endowment in the United States by far.

Blyth has three objectives. One is to make a 5 percent annualized return, after inflation in higher-education costs, over 10 years. This should at least preserve the value of the pot after an average 4.4 percent distribution every year. It’s the minimum a university board member would want, but it’s a target Harvard has struggled to beat meaningfully since the 2008 crisis hit its investments hard.

So much for absolute returns. Relatively speaking, Blyth also wants to beat an appropriate blended market benchmark for Harvard’s portfolio by 1 percentage point annually over five-year periods. It’s possible to massage the choice of yardsticks a bit, but assuming Blyth and his colleagues aren’t too easy on themselves it’s a solid goal – and one his predecessor, Jane Mendillo, missed in 2012 and 2013.

Last is what might be called a competitive objective, namely to produce top-quartile performance against the next 10 largest endowments, also over five years. Harvard hasn’t managed this since 2008, despite its scale.

Blyth’s communiqué on Tuesday talked about a new system of so-called factor-based allocation to different types of investment. Perhaps more importantly, he wrote about shaking up the way his team makes decisions and rejigging how bonuses are determined. So far, that’s all less clear than his objectives. The test of whether it’s working will be delivering the results.


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