Harvard boasts the largest endowment in the world sitting at $50.7 billion in 2023 — larger than the economies of 120 countries. Yet the past decade has seen lackluster investment performance in comparison to its peers, sparking concerns over management transparency and the University’s ability to fund operations.

Harvard has remained the wealthiest institution in higher education after it benefited from tremendous returns from the 1990s to the mid-2000s, when the endowment grew by over $21 billion in 15 years. During that period, the University managed to outpace a traditional 60/40 investment portfolio of U.S. stocks and bonds by 6 percent a year and beat top Wall Street hedge funds.

But in the aftermath of the 2007-2008 financial crisis, Harvard’s fortunes changed. For the last 15 years, the University’s endowment has struggled to keep pace with the investment returns of Ivy-Plus peers — a group of universities that include the eight Ivy League schools, Stanford University, Duke, the University of Chicago, and MIT.

As Harvard has become a university that is dependent on income from its endowment, the poor returns were cause for concern for University leadership. Since 2005, Harvard has cycled through four chief executive officers of the Harvard Management Company, before recruiting N.P. “Narv” Narvekar in December 2016 to overhaul the management of the University’s endowment.

Over the last eight years, Narvekar’s tenure has been defined by slow but consistent improvements in the management of Harvard’s endowment, which now contributes more than one-third of the University’s $5.9 billion annual operating budget.

Still, some prominent Harvard affiliates, including former University President Lawerence H. Summersm said the HMC’s underperformance over the past 20 years has had a profound impact on the University’s ability to perform its academic mission.

“If Harvard’s endowment management had been as successful as the average Ivy League school, or as successful as the average of the large endowment schools — Stanford, Princeton, Yale, MIT — Harvard would today have an endowment in the range of $20 billion more,” Summers said.

Lagging Behind

Through fiscal year 2023, the average 10-year return rate for an Ivy League university was 9.9 percent. Harvard tails that with an 8.6 percent return rate.

Summers said the $20 billion growth that Harvard lost out on as its endowment underperformed its closest peers has prevented the University from growing its academic offerings and improving its experience for students.

“To put that in perspective, $1 billion would be 100 professorships,” Summers said. “It would be full financial aid permanently for more than 100 students. It would be enough to renovate half the Harvard houses or a vast range of other initiatives.”

HMC spokesperson Patrick S. McKiernan declined to comment on Summers’ criticisms of the endowment’s performance.

The poor returns have placed the University at the bottom of the Ivy League — only ahead of Columbia University’s endowment, which was managed by Narvekar from 2002 to 2016. (Columbia’s endowment performed better than Harvard’s for most of Narvekar’s tenure in New York.)

When comparing Harvard’s annual endowment returns over the past 20 years to its top peer institutions, the University has experienced the worst performance by a wide margin.

The above figure illustrates the return on investment year over year if you invested $1 in the endowments of Harvard, Yale, Princeton, Stanford, and MIT in 2004.

At the end of this most recent fiscal year, Yale and Princeton Universities proved to be the best stewards of the $1 investment, seeing it grow to north of $7. Meanwhile, Harvard’s returns would generate the lowest matriculated value of a $1 investment, at $4.90 — 55.9 percent less than Yale.

In October 2023, the University announced that its endowment declined in value for the second year in a row in fiscal year 2023, following a $2.3 billion decline during fiscal year 2022. This was the first time in two decades the school experienced two consecutive years of endowment decline.

A post-pandemic recovery that rallied markets in 2021 led to historic endowment returns among Harvard and its peers. While the University posted a 33.6 percent return, it still managed to pale in comparison to the average return rate of 45.6 percent posted by Yale, Princeton, Stanford, and MIT.

Maya Sen ’00, a professor of public policy at the Harvard Kennedy School, questioned why the University does not seek to increase transparency in its investments.

“Given that the rate of return is so low,” she said. “I don’t understand why we are moving with these hedge funds that are so untransparent.”

Returns from 2021 — the driving force behind the current 10 year figure — are almost entirely reflective of an endowment’s allocation to venture capital from 2010-2014. As a result of Harvard’s lower risk tolerance compared to its peers, the University had a lack of exposure to higher risk asset classes such as private equity and venture capital, thus delivering subpar returns in 2021.

But excluding 2021, Harvard’s endowment performance averaged over 2018-2023 was marginally better than Princeton, Stanford, and MIT — second only to Yale.

Beauty of Harvard’s Scale

The unique profile of Harvard’s endowment — particularly its scale, lower risk appetite, and lower private equity exposure — contribute to the unique challenges it faces.

The sheer size of Harvard’s endowment makes it hard for a one-off good investment to significantly contribute to the overall performance of the endowment.

Harvard Treasurer Timothy R. Barakett ’87, who also serves on the HMC Board of Directors, said that Harvard doesn’t have some of the flexibility that smaller endowments enjoy.

“It’s much easier to make significant portfolio shifts when you have a small endowment,” he said.

“The scale of Harvard’s endowment makes it harder to move around,” Barakett added. “Narv, in these six years, has done that, but it takes time.”

Some have compared Harvard’s endowment to the exceptional performance of endowments such as Bowdoin College and the University of Texas in recent years.

“Bowdoin — with $2 billion — if they invested in Google, they look like heroes. At Harvard, any one investment’s not going to move the needle very much anymore,” said Charles A. Skorina, the founder of a finance executive search fund.

“The bigger you get, the harder it is to look good,” Skorina said.

Different endowments also come with different risk profiles. In the investment world, with higher risk comes higher reward. The inverse is also true: Harvard has the second lowest risk tolerance of the Ivy League endowments, which helps explain some of its lackluster returns.

Given the University’s dependence on the endowment for its operations, the level of risk Harvard takes on is significantly lower given its reliance on regular endowment disbursements.

“Harvard is very endowment dependent. The different schools have different dependency on the endowment, which is why we take less risk than many other endowments by design,” Barakett said.

“Harvard needs to do that because we have a university to run,” Barakett added.

It was only in 2021 that Harvard’s board voted to increase its risk appetite from 15 percent to 17.5 percent. With this change came more investments in private equity and venture capital — riskier investments by nature.

Private equity and venture capital can take upwards of 7-10 years to see returns on investments. Any changes in the portfolio’s private equity allocations that Narvekar undertook when he first came into office in 2017 will not pay off until the years to come.

Harvard CFO Ritu Kalra said “what Narv and his team have done is position Harvard well for the future, making decisions over these last several years — and currently — that set us up for the next decade plus.”

Revolving Door of Leadership

When Narvekar joined the HMC in December 2016, he was the fifth CEO in 11 years to lead the University’s endowment.

The period of leadership turbulence did not bode well for the state of the endowment. After a decade of poor returns, Narvekar inherited a portfolio that had been through a number of different hands in a short period.

“His marching orders the first few years were to simplify and clean up the portfolio,” Skorina said. “Harvard didn’t even know what they had when Narv came in. They had investments in all sorts of stuff.”

Under Narvekar’s first few years of leadership, there were major write-offs in excess of $1.5 billion in natural resources, a shut down of the internal hedge fund, and a transition to an externally managed model. Many managers that were laid off spun off into outside firms, such as Bain Capital’s Real Estate division.

With this came a restructuring of the endowment’s management team. In a dramatic overhaul, HMC saw its staff drop from 240 to 110 employees.

Where before the endowment had been managed by independent teams responsible for specific asset classes such as real estate and natural resources, Narvekar’s transition brought the team to a generalist model. Investment management became centralized, with each manager incentivized to care for the overall returns of the entire endowment.

Every other Ivy League had operated under this generalist model, making Harvard an outlier before Narvekar’s tenure.

Former Harvard Treasurer Paul J. Finnegan ’75 said that “it was obvious to the board and Narv that the strategy HMC had been pursuing needed to change.”

“We and Narv came to the conclusion, really looking at performance, that we should move towards an externally managed model,” added Finnegan.

Narvekar’s restructuring was not complete until years later, when illiquid assets such as timber and gas were sold off.

“Harvard was shopping their timber investments for like three years,” Skorina said. “Nobody wanted to buy it.”

Narvekar’s Black Box of Investments

For over two decades, endowment reports provided a glimpse for the Harvard community into how the University invests its $50.7 billion endowment — which is crucial to running day to day operations, funding financial aid, and continuing cutting edge research.

The annual message from the HMC CEO was a way to alleviate concerns from faculty and alumni following years of poor returns in which Harvard’s endowment lagged its peers — or to underscore the most recent successes that boosted endowment performance.

In 2017, when Narvekar was named the next CEO of HMC, the endowment’s performance and investment management started to become increasingly opaque. In his first year at the helm, the HMC report, which previously contained pages of graphs and data points, reported the most recent returns in noticeably less detail.

Narvekar — who declines to speak with the press — halted the disclosure of investment performance by asset class and ended the release of internal benchmarks for returns, making it difficult to assess the appetite for risk and expected performance the University holds.

Then in 2018, the annual message from HMC’s CEO was slashed in half, making the once 3,000 word report just 1,074 words in length.

With reports being drastically reduced by Narvekar, compared to his three predecessors, he issued the shortest statement HMC has released in over twenty years following the endowment reporting a negative return for the first time during his tenure.

The significant revisions have left donors and alumni without the necessary data to interpret the current performance and investment strategies, with the HMC communications now mainly containing summary figures such as asset distribution and the overall annual return.

Members of the Faculty of Arts and Sciences — the school that receives the most funding from the endowment — have grown increasingly skeptical of the lack of transparency and disclosure of the endowment’s investments.

During a FAS town hall in early May with members of the Harvard Corporation — the University’s highest governing body — and interim University President Alan M. Garber ’76 faculty members asked a series of questions over the endowment’s management, yet they were repeatedly dodged.

The faculty pressed Garber about the secrecy surrounding Harvard’s investments, and why contracts with firms do not allow for the disclosure of exact investments holdings, referencing the 70 percent of the endowment managed by outside hedge funds and private equity firms.

Garber said all investments with hedge funds and private equity firms are inherently scarce in the information provided, adding that Harvard’s dealings are no exception.

“We use outside managers and there are contractual limits on disclosure of what is inside those portfolios,” Garber said according to an attendee’s notes during the town hall.

“We choose to have these managers because they expect to have high returns,” he added.

Sen — the Kennedy School professor — said recent pro-Palestine protests calling for divestment have highlighted a deeper issue in how Harvard manages its investments which “does not seem politically sustainable.”

“The University is in some sense tying its own hands perfectly because by investing in funds that are not transparent, you can always go back to students and say, ‘we don’t know where the money is because that’s our arrangement with these funds,’” Sen said.

—Staff writer Sidney K. Lee can be reached at sidney.lee@thecrimson.com. Follow her on Twitter @sidneyklee.

—Staff writer Thomas J. Mete can be reached at thomas.mete@thecrimson.com. Follow him on Twitter @thomasjmete.