A Brit with a Harvard doctorate in statistics, Blyth’s wonkiness can mask an intense competitive spirit. He was paid $11.5 million in 2013, more than his boss Mendillo or anybody else in the industry. In his office, he’s hung a framed t-shirt that reads, “Yale Sucks.”
“It says there’s a great rivalry between Harvard and Yale,” Blyth says, smiling. “And a lot of respect.”
Investment Losses
The two endowments have diverged since the global financial panic in 2008. While almost all top schools posted investment losses of more than 20%, Harvard was plunged into a deeper liquidity crisis, borrowing $2.5 billion as it paid penalties to unwind derivatives that backfired.
Mendillo, who succeeded former Pimco chief Mohamed El-Erian when hired in 2008, raised cash by selling more than $1 billion of prized private equity stakes at a discount. She dialed back risk, slashing commitments to less liquid buyout and venture capital funds that before the crisis had been the endowment’s top performing assets. Some critics say she missed out not investing at the lower prices.
“As a private equity fund investor, you want to have a consistent exposure to the market,” says Kevin Albert, head of global business development at London-based Pantheon Ventures LLP, which oversees $30 billion of assets. “Ideally you would be countercyclical.”
Mendillo, 57, who declined to comment, tried to distinguish the fund by making more direct investments in real estate and natural resources. While real estate has performed well, holdings in timberland in developing markets such as Romania have produced disappointments.
Blyth, who oversaw almost half the university’s portfolio before he was promoted, is committing more to private and public equity funds. He’s opening the door to bigger bets across the portfolio by replacing a strict asset allocation with ranges. Private equity and hedge funds could see the biggest increases, with new upper targets of more than 20% each, according to scenarios laid out in his first annual report.
He faces several headwinds, including lower expectations for equities amid predictions of reduced global growth. Harvard’s size is another factor. While Yale manages $25.6 billion, it employs fewer than 30 investment experts, who farm out almost all the money to external managers. Harvard’s management company has 265 employees, excluding interns and part-time staff, with a trading floor dabbling in stocks, bonds and other markets.
With a new chief executive and private equity head hired last year, Harvard may also be at a disadvantage against funds such as Yale, where investment chief David Swensen’s relationships with top alternative asset managers go back decades.
Good Pay
“You can promise but it’s not very easy to deliver top quartile returns, to find all the opportunities, with a fund the scale of Harvard’s,” says Roger Ibbotson, a professor at Yale’s School of Management.
Harvard pays its managers more than counterparts at other schools, opening it up to criticism as it trailed rivals. The university is seeking to change that by tying everybody’s bonus more closely to overall returns, hoping it will encourage more collaboration across asset classes, Blyth says. Yet it could also accelerate the pace of departures, led this year by former alternative assets head Andrew Wiltshire, who retired in September and is not being replaced
“It’s been a period of significant change,” says Blyth. “This is a new CEO, this is a new executive team, this is a new strategy, this is a new culture.”