March 31, 2009
Trial by fire would be an understatement.
A mere six weeks after taking the helm of the Harvard Management Company, which oversees the nation’s largest university endowment, Jane Mendillo confronted the Lehman bankruptcy and the unraveling of the financial markets. Since then, Mendillo has been forced to make abrupt changes to the endowment’s asset allocation in order to raise cash, while her portfolio has suffered the worst returns in its history.
In a speech to the Boston Security Analysts Society on March 25, Mendillo discussed her market outlook and the changes she has made to Harvard’s asset allocation, organization, and operating principles.
Mendillo is “cautious” about the current markets, despite the recent, near-20% rally. She is “neither rushing for the exits nor rushing back in,” she said, but she has raised cash allocations. Though she has reviewed several very attractive real estate opportunities, she believes the time to invest is still two or three years away.
Mendillo is “not sure” that the current rally “is supported by the economics or the fundamentals,” she said.
Significant parts of Harvard’s portfolio are not generating cash, Mendillo said, but “we will continue to support the very best managers.”
This is Mendillo’s second stint at Harvard, where she worked starting in the mid-1990s. Prior to taking charge of Harvard’s endowment, she oversaw Wellesley College’s endowment. Mendillo had previously served as Harvard’s Vice President of External Management, during which time she initiated a timberland investment program under which the university acquired large tracts of land in the Pacific Northwest and in the Northeast. Those holdings have since been sold – many at substantial profits – and replaced by investments in natural resources.
In her former position at Harvard, which she left in 2002 to take the Wellesley job, Mendillo oversaw the endowment’s private equity, venture capital, real estate, and distressed situation investments. These illiquid holdings are at the core of the problem Harvard now faces.
She has no regrets about accepting her current position, citing Harvard as the “pinnacle of the endowment profession.”
Harvard’s fiscal year ends June 30, and Mendillo shared the endowment’s performance over various time periods:
|
Annualized |
Policy Portfolio |
Performance v. |
FY 2008 |
8.6% |
6.9% |
1.7% |
5 years |
17.6% |
13.5% |
4.1% |
10 years |
13.8% |
9.5% |
4.3% |
20 years |
14.2% |
12.0% |
2.2% |
30 years |
14.6% |
12.9% |
1.7% |
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