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Harvard University's endowment fund is the stuff of legend. It's larger than the endowment of any other university on the planet, and larger, in fact, than the GDP of many countries.

Harvard University's endowment fund is the stuff of legend. It's larger than the endowment of any other university on the planet, and larger, in fact, than the GDP of many countries.

As of June twenty twenty three, the last time that they've given us a public value, it's fifty point seven billion dollars.

As of June twenty twenty three, the last time that they've given us a public value, it's fifty point seven billion dollars.

But Janet Lauren, who covers higher education at Bloomberg, says this was not always the case. It's only in the last few decades that Harvard's endowment went from an approach that could be described as kind of vanilla investing mostly in stocks and bonds, to something very different, involving hedge funds at private equity. That move made the Harvard Management Company, which oversees the endowment in investing powerhouse. In its heyday, it employed more than two hundred people at him still pays some staffers millions of dollars every year. The growth of Harvard's endowment is thanks in large part to the vision of one man, Jack Meyer, who oversaw it for more than a decade. He embraced risk, and that paid off.

But Janet Lauren, who covers higher education at Bloomberg, says this was not always the case. It's only in the last few decades that Harvard's endowment went from an approach that could be described as kind of vanilla investing mostly in stocks and bonds, to something very different, involving hedge funds at private equity. That move made the Harvard Management Company, which oversees the endowment in investing powerhouse. In its heyday, it employed more than two hundred people at him still pays some staffers millions of dollars every year. The growth of Harvard's endowment is thanks in large part to the vision of one man, Jack Meyer, who oversaw it for more than a decade. He embraced risk, and that paid off.

They were extremely successful. They were the envy of the world.

They were extremely successful. They were the envy of the world.

Meyer's method quickly propelled the Harvard Management Company into financial superstardom. Universities and colleges studied its approach and tried to emulate its success, But in the meantime, Myer's method as it evolved was not without controversy. Scrutiny of compensation awarded to Meyers managers eventually led to his departure. Now, Harvard's endowment is at another crossroads. After years of lagging returns. Many say Harvard's pioneering fund has lost its edge to competitors.

Meyer's method quickly propelled the Harvard Management Company into financial superstardom. Universities and colleges studied its approach and tried to emulate its success, But in the meantime, Myer's method as it evolved was not without controversy. Scrutiny of compensation awarded to Meyers managers eventually led to his departure. Now, Harvard's endowment is at another crossroads. After years of lagging returns. Many say Harvard's pioneering fund has lost its edge to competitors.

At the turn of the century, Harvard was double the size of Yale, and now they're only twenty five percent larger than you.

At the turn of the century, Harvard was double the size of Yale, and now they're only twenty five percent larger than you.

This is the big take from Bloomberg News. I'm David Gera today on the show The Harvard Management Company. It turns fifty this year, and celebrations may be kind of muted despite its legendary status. We look at the rise and the plateauing of what's become the most famous endowment fund in the world. How Jack Meyer blazed a new trail for the world's universities and other nonprofits, and why building on that success has proven to be so difficult for Harvard how did Harvard's endowment get as big as it is today? I guess how long has it been around? And when it it kind of have its most dramatic growth.

This is the big take from Bloomberg News. I'm David Gera today on the show The Harvard Management Company. It turns fifty this year, and celebrations may be kind of muted despite its legendary status. We look at the rise and the plateauing of what's become the most famous endowment fund in the world. How Jack Meyer blazed a new trail for the world's universities and other nonprofits, and why building on that success has proven to be so difficult for Harvard how did Harvard's endowment get as big as it is today? I guess how long has it been around? And when it it kind of have its most dramatic growth.

So Harvard is the oldest and richest college in America. So they started getting donations, you know, hundreds of years ago, and you've heard of the principle of compounding interests. That has certainly helped them for years. The managers of Harvard's endowment followed a pretty straightforward strategy like other schools of its age and status, Most college endowments just invested in a traditional stocks and bonds portfolio.

So Harvard is the oldest and richest college in America. So they started getting donations, you know, hundreds of years ago, and you've heard of the principle of compounding interests. That has certainly helped them for years. The managers of Harvard's endowment followed a pretty straightforward strategy like other schools of its age and status, Most college endowments just invested in a traditional stocks and bonds portfolio.

But in the nineteen nineties, when Jack Meyer took over the Harvard Management Company, the institution that oversees the endowment and is separate from the university, he advocated for a much more diversified portfolio.

But in the nineteen nineties, when Jack Meyer took over the Harvard Management Company, the institution that oversees the endowment and is separate from the university, he advocated for a much more diversified portfolio.

Jack Meyer at Harvard pioneered the idea of more liquid assets private equity hedge funds.

Jack Meyer at Harvard pioneered the idea of more liquid assets private equity hedge funds.

This way of thinking wasn't necessarily new. In the nineteen sixties, the Ford Foundation, a philanthropy that has its own sizeable endowment, published a report with this central idea that a university like Harvard, which has a time horizon hundreds of years long can afford the risk of more volatile, illiquid investments such as venture capital and private equity, and Janet says Meyer saw the opportunity to make a change.

This way of thinking wasn't necessarily new. In the nineteen sixties, the Ford Foundation, a philanthropy that has its own sizeable endowment, published a report with this central idea that a university like Harvard, which has a time horizon hundreds of years long can afford the risk of more volatile, illiquid investments such as venture capital and private equity, and Janet says Meyer saw the opportunity to make a change.

He built sort of an in house hedge fund. It really is not an exaggeration to say Harvard literally built its own hedge fund.

He built sort of an in house hedge fund. It really is not an exaggeration to say Harvard literally built its own hedge fund.

Meyer's ideas proved to be very lucrative under his leadership. Harvard's endowment grew from four point eight billion dollars to twenty five point nine billion by most measures a stellar performance. That's money that goes to university operations like professor's salaries and libraries, but also to graduate fellowships and scholarships. They recruited portfolio managers from Wall Street men and women who could have just as easily taken jobs at top hedge funds and private equity firms. But for all his success, Jack Meyer's strategy and the compensation packages for his managers that came with it started to draw scrutiny, especially from donors from Harvard alumni.

Meyer's ideas proved to be very lucrative under his leadership. Harvard's endowment grew from four point eight billion dollars to twenty five point nine billion by most measures a stellar performance. That's money that goes to university operations like professor's salaries and libraries, but also to graduate fellowships and scholarships. They recruited portfolio managers from Wall Street men and women who could have just as easily taken jobs at top hedge funds and private equity firms. But for all his success, Jack Meyer's strategy and the compensation packages for his managers that came with it started to draw scrutiny, especially from donors from Harvard alumni.

The pay was an issue for a long time. Jack Meyer paid for performance, and the performance was so spectacular. In one year, they paid a bond trader thirty five million dollars. Wow, and there was a whole group of alumni the class of sixty nine. Mary famously said, this is just not right for a nonprofit to be paying people so much money.

The pay was an issue for a long time. Jack Meyer paid for performance, and the performance was so spectacular. In one year, they paid a bond trader thirty five million dollars. Wow, and there was a whole group of alumni the class of sixty nine. Mary famously said, this is just not right for a nonprofit to be paying people so much money.

Eventually, at Harvard, Jack Meyer left, he started his own firm, and others followed suit. Harvard's endowment started bleeding talent and turnover at the top became an issue.

Eventually, at Harvard, Jack Meyer left, he started his own firm, and others followed suit. Harvard's endowment started bleeding talent and turnover at the top became an issue.

They had an interim for a bit, and then they had Muhammad Alarian, who had good returns when he was there, but he decided to go back to PIMCO, so he was there for less than two years, and then they've had several interims, and then they had Jane Mindelo. She was there for a longer tenure but was hit with the global financial crisis. Harvard had the worst return to the Ivy League schools. I think it was minus twenty seven percent and they had to take a long time to recover. Then she left, Then somebody came in for less than two years, and then there was another interim, and now they have their current chief executive officer. But that's a lot of people over a lot of time, and you know when you have somebody coming in new They switched.

They had an interim for a bit, and then they had Muhammad Alarian, who had good returns when he was there, but he decided to go back to PIMCO, so he was there for less than two years, and then they've had several interims, and then they had Jane Mindelo. She was there for a longer tenure but was hit with the global financial crisis. Harvard had the worst return to the Ivy League schools. I think it was minus twenty seven percent and they had to take a long time to recover. Then she left, Then somebody came in for less than two years, and then there was another interim, and now they have their current chief executive officer. But that's a lot of people over a lot of time, and you know when you have somebody coming in new They switched.

Strategies the constant change in leadership and strategy has left Harvard's endowment in a bind, struggling to emulate the success it once had and having to defend diminishing returns. Janet says years of turmoil have taken their toll.

Strategies the constant change in leadership and strategy has left Harvard's endowment in a bind, struggling to emulate the success it once had and having to defend diminishing returns. Janet says years of turmoil have taken their toll.

So over the last ten years, Harvard's annualized return is eight point two percent, which sounds good, But when you look at the rest of their peers funds over five billion dollars, they're in the bottom twenty percent. That's not a place you would ever think of Harvard being. And for the last twenty years, a twenty year annualized return is they're in the bottom forty percent. And what about Yale top ten percent?

So over the last ten years, Harvard's annualized return is eight point two percent, which sounds good, But when you look at the rest of their peers funds over five billion dollars, they're in the bottom twenty percent. That's not a place you would ever think of Harvard being. And for the last twenty years, a twenty year annualized return is they're in the bottom forty percent. And what about Yale top ten percent?

After the break, as Harvard was losing its edge, competitors, including one of its fiercest rivals, used strategies Harvard pioneered to make billions of their own. Well, Harvard's endowment is struggle to see the kind of returns had gotten the past. Bloomberg's Janet Lauren says other colleges and universities have also pursued aggressive investment strategies. Is it alone at the top of the list of college and university endowments? Who's kind of nipping at its heels if anyone.

After the break, as Harvard was losing its edge, competitors, including one of its fiercest rivals, used strategies Harvard pioneered to make billions of their own. Well, Harvard's endowment is struggle to see the kind of returns had gotten the past. Bloomberg's Janet Lauren says other colleges and universities have also pursued aggressive investment strategies. Is it alone at the top of the list of college and university endowments? Who's kind of nipping at its heels if anyone.

Well, the University of Texas. And I did a story that I really enjoyed a couple of years ago that looked at oil in the University of Texas and why is the University of Texas so rich? And the answer is because they have two point one million acres in West Texas that the state designated for higher education in the eighteen hundreds, and then in nineteen twenty three oil was discovered and now it's the Permian Basin, and a couple of years ago they got two billion extra dollars just from the price of oil in production.

Well, the University of Texas. And I did a story that I really enjoyed a couple of years ago that looked at oil in the University of Texas and why is the University of Texas so rich? And the answer is because they have two point one million acres in West Texas that the state designated for higher education in the eighteen hundreds, and then in nineteen twenty three oil was discovered and now it's the Permian Basin, and a couple of years ago they got two billion extra dollars just from the price of oil in production.

And it's not just oil money coming for Harvard's enviable gains. Also nipping at Harvard's heals the bulldogs Yale, Harvard's longtime rival, and that is extremely unpawered palle to many Harvard alums. Janet says Yale also deserves credit for early innovations and endowment investing thanks to David Swenson, who managed Yale's endowment when Jack Meyer was running Harvard's.

And it's not just oil money coming for Harvard's enviable gains. Also nipping at Harvard's heals the bulldogs Yale, Harvard's longtime rival, and that is extremely unpawered palle to many Harvard alums. Janet says Yale also deserves credit for early innovations and endowment investing thanks to David Swenson, who managed Yale's endowment when Jack Meyer was running Harvard's.

Alongside Jack Meyer, there was a guy at Yale who took over the endowment in nineteen eighty six. David Swinson, who was an economist trained at Yale, and he also pioneered this idea of liquid assets, you know, the illoquidity premium, and he also did spectacularly well, but he had a very different model.

Alongside Jack Meyer, there was a guy at Yale who took over the endowment in nineteen eighty six. David Swinson, who was an economist trained at Yale, and he also pioneered this idea of liquid assets, you know, the illoquidity premium, and he also did spectacularly well, but he had a very different model.

Yale's endowment did very well under Swinson's stewardship, and he managed to avoid the pushback jack Meyer got partly because Yale didn't employ a large, well paid investment staff like Harvard, and compared to Harvard, it's been a lot more stable.

Yale's endowment did very well under Swinson's stewardship, and he managed to avoid the pushback jack Meyer got partly because Yale didn't employ a large, well paid investment staff like Harvard, and compared to Harvard, it's been a lot more stable.

Instead of hiring people to work for Yale, they found partners that literally partners who could work with them for you know, ten, twelve longer years. They have head managers in their portfolio for a very long time. Managers love to have Yell's money, Janet says Brown, Princeton, MIT, and others have seen record returns on their endowments, which have followed, to some extent, the same type of model as Yale, using outside managers.

Instead of hiring people to work for Yale, they found partners that literally partners who could work with them for you know, ten, twelve longer years. They have head managers in their portfolio for a very long time. Managers love to have Yell's money, Janet says Brown, Princeton, MIT, and others have seen record returns on their endowments, which have followed, to some extent, the same type of model as Yale, using outside managers.

And at the same time as the performance of Harvard's endowment has been lagging many of its peers. The university has faced a lot of high profile problems. Its response to student protesters last October following Hamas's attack on Israel and the resignation of the school's president, Claudine gay Jenik. We talk about some of the pressure that Harvard has been under. I know that over the last year there have been a number of alumni, very vocal alumni, who have said that, in light of the way the university responded to what happened on October seventh, they're going to withhold their donations. Is that something that's worrisome to the Harvard management company, to Harvard broadly, that you have these well healed donors who are deciding not to give money anymore.

And at the same time as the performance of Harvard's endowment has been lagging many of its peers. The university has faced a lot of high profile problems. Its response to student protesters last October following Hamas's attack on Israel and the resignation of the school's president, Claudine gay Jenik. We talk about some of the pressure that Harvard has been under. I know that over the last year there have been a number of alumni, very vocal alumni, who have said that, in light of the way the university responded to what happened on October seventh, they're going to withhold their donations. Is that something that's worrisome to the Harvard management company, to Harvard broadly, that you have these well healed donors who are deciding not to give money anymore.

Yes, Harvard has raised over a billion dollars every year since I think twenty fourteen, every year, every year, and they're very good at what they do. And you know, you think, well, maybe somebody from you know, the class of nineteen eighty is upset and decides to withhold you know, their five hundred dollars donation forever. Okay, you still getting you know, millions from other people. But you know, maybe that person has a lot of classmates who are doing the same thing.

Yes, Harvard has raised over a billion dollars every year since I think twenty fourteen, every year, every year, and they're very good at what they do. And you know, you think, well, maybe somebody from you know, the class of nineteen eighty is upset and decides to withhold you know, their five hundred dollars donation forever. Okay, you still getting you know, millions from other people. But you know, maybe that person has a lot of classmates who are doing the same thing.

Janet says, even as returns have been declining, Harvard has been relying on its endowment more and more to fund operations. Last year, Harvard spent more than two billion dollars from investment earnings out of the fund, and that made up more than a third of Harvard's operating budget for the year. If that continues to happen, it risks diminishing Harvard's endowment further. For all of its struggles, she points out, Harvard still has the largest endowment fund in the world, larger than the GDP of Morocco, so we probably don't have to worry too much for the Crimson. This is The Big Take from Bloomberg News. I'm David Gura. This episode was produced by Thomas lou It was edited by Stacy Vanocksmith and John Heckinger. It was fact checked by Alex Sekura. It was mixed by Alexander Dubois. Our senior producer is Naomi Shaven, who helped edit this episode. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beemster. Bor Sage Bauman is Bloomberg's head of Podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow,

Janet says, even as returns have been declining, Harvard has been relying on its endowment more and more to fund operations. Last year, Harvard spent more than two billion dollars from investment earnings out of the fund, and that made up more than a third of Harvard's operating budget for the year. If that continues to happen, it risks diminishing Harvard's endowment further. For all of its struggles, she points out, Harvard still has the largest endowment fund in the world, larger than the GDP of Morocco, so we probably don't have to worry too much for the Crimson. This is The Big Take from Bloomberg News. I'm David Gura. This episode was produced by Thomas lou It was edited by Stacy Vanocksmith and John Heckinger. It was fact checked by Alex Sekura. It was mixed by Alexander Dubois. Our senior producer is Naomi Shaven, who helped edit this episode. Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beemster. Bor Sage Bauman is Bloomberg's head of Podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow,