The Man Who Bankrupted Harvard
Is Narv Narvekar the worst investor of all time?
Harvard is broke.
It can’t pay it bills.
How can this be? Harvard University famously owns a very large endowment. That $53 billion endowment is supposed to see Harvard through any financial crisis. But it failed to do so.
Harvard is suffering a liquidity crunch. Despite sitting on a massive endowment, Harvard can’t meet it’s operating costs. Trump cut Federal funding to Harvard- and the elite university has been forced into the role of a distressed seller to pay the bills.
The Harvard Endowment is trying to peddle stakes of highly illiquid investments in hedge funds and private equity on the secondary market, in order to meet its daily operating costs.
Put simply, Harvard University is going to the pawn shop.
It needs cash. Urgently. And it’s selling the family silver for pennies on the dollar to raise it.
Harvard is trying to peddle its portfolio of junky, illiquid investments in hedge funds that nobody wants. Billions of dollars worth.
It didn’t have enough cash and liquid assets on hand to meet its obligations.
Harvard got caught with its pants down.
The fault of this is largely down to one man: the CEO of the Harvard Endowment, Narv Narvekar.
Narv Narvekar took over the Harvard Endowment in 2017. His tenure has been marked by controversy.
The performance of Harvard’s endowment has lagged its peers. Returns have trailed those of Yale, Stanford, Princeton, and MIT by a wide margin.
Former Harvard President Lawrence Summers acidly stated that if Harvard’s endowment performance had merely matched that of its Ivy League rivals, the university would be $20 billion richer today.
Ouch!
Narv Narvekar eliminated public reporting of endowment assets and performance, cutting disclosure to a bare minimum. He refuses to meet with the press, despite Harvard being a public-facing institution. He plunged the Harvard Endowment into a culture of secrecy bordering on paranoia.
When he joined the Harvard Endowment, Narv Narvekar fired the fiscally conservative Harvard portfolio manager staff. He replaced them by farming out money to hedge fund and private equity managers instead. Nearly 80% of Harvard’s assets are now invested in these highly illiquid and fee-rich asset classes.
Hedge funds and private equity are sexy. Every trader on Wall Street wants to work at one of these high octane funds.
Narv Narvekar didn’t want Harvard to be boring, prudent investment manager any longer. He wanted to sit at the cool kid’s table.
Put simply, Narv Narvekar is addicted to hedge funds.
Narvekar wanted to be a part of the action. And Harvard has paid dearly for that immaturity.
In his excellent book on private equity “Merchants of Debt,” author George Anders accurately described how endowment managers become star-struck by hedge fund managers. He likened them to a “Walter Mitty” who wants to live vicariously in the exotic world of the hedge fund manager, with its rock star lifestyle of private jets and private islands.
That’s a dangerous fantasy. And fiscally imprudent. It’s inappropriate for the serious fiduciary responsibility of managing other people’s money.
Hedge funds and private equity have pernicious features. They charge fees that the Mafia would find unreasonable. Layers of fees: management fees. Deal fees. And something called “carried interest,” a huge cut of the profits, regardless of how an investment performs.
If the investment goes up, the managers keep a big slice of the gains. If it goes down- well, that’s on you, buddy.
Hedge fund managers pocket a large slice of any wins, but the investors cover all losses. It’s “heads I win, tails you lose.”
If you want to know why hedge fund managers own $100 million mansions in the Hamptons, it’s not because they are great investors. It’s because of the fees they charge.
The most damning feature of hedge funds and private equity is called a “lockup.” These investments can’t be redeemed for many years. A lockup is exactly what the name says: it puts your money in jail, for up to a decade.
If you own 100 shares of Apple, you can sell it in a nanosecond. If you make a $100 million investment in a private equity fund, it may take you ten years to get it back.
Harvard can’t redeem its investments due to the lockup feature. So they’re trying to sell them to another sucker instead. They want to pass the buck to someone dumber.
It’s like a gambling addict trying to pawn his Rolex at the pawn shop to raise quick cash. The watch may have some value under the right circumstances. But it’s illiquid. When you’re in a hurry, the only buyer in town is the pawn shop- and he knows he has the seller over a barrel.
The distressed seller will only receive pennies on the dollar.
Every American learned this lesson during the 2008 financial crisis. They saw what happened to people who owned a home but couldn’t pay the mortgage. Sure, the home may have some value in a good market. It may be worth something in ten years. But in a down market- here and now- there are no buyers. The asset is illiquid. If you’re forced to sell in a down market, you lose everything.
If there’s one thing you don’t want to be on Wall Street, it’s a distressed seller.
Wall Street is where the big sharks roam. These predators can smell blood in the water. They take no prisoners. When a distressed seller shows up, he will be shown no mercy.
At Harvard, the shoe is now on the other foot. The Harvard Endowment is now a distressed seller. And they are about to find out how distressed sellers get treated on Wall Street. They’re going to learn the hard way.
The Harvard Endowment is trying to sell the worst possible investments at the worst possible time. It’s trying to peddle illiquid, highly specialized investments in hedge funds at a time when the global markets are rocked by the uncertainty of the Trump tariffs.
Each investment Harvard is trying to sell is priced the hundreds of millions of dollars. In the best of times, there are only a handful of buyers in the entire world who could conceivably purchase such rarefied investments: pension funds, endowments, and large insurance companies.
In a down market? Forget it.
This crisis is the result of mismanagement of the highest order.
The investment lockup feature of hedge funds and private equity violate the most basic principle of sound institutional investment management:
Save for a rainy day.
Preparing for a rainy day is the most elementary duty of every portfolio manager. Bad days will come. What goes up, must come down. Everyone on Wall Street knows that.
A war will break out. A financial crisis will occur. There could be another Cuban Missile Crisis or 9/11 attack or a 2008-style financial crash at any time.
To put 80% of the Harvard Endowment in such illiquid assets is grossly negligent. Even a first-year Wall Street analyst knows that.
Insurance companies also manage large investment portfolios, just like the Harvard Endowment does. These insurance companies know that an earthquake, hurricane, or devastating wildfire can occur at any time. They prepare accordingly.
They stay liquid, to meet the policy claims they know are sure to arrive.
How would you feel if your house burned down in a wildfire, but your insurance company refused to pay up? If they told you “Sorry, we can’t pay your claim. We invested all your premiums into hedge funds and private equity with a 10 year lockup. Check back in a decade.”
You would be outraged. You would feel defrauded.
And so should the stakeholders of Harvard University.
Bad things are guaranteed to happen in the stock market. Crashes, crises, and disasters are a recurring feature of our global political-economic system. The only question is not “if,” but “when.”
The prudent investment manager knows this- and prepares accordingly.
Ironically, the current financial crisis at Harvard was not caused by anything as dramatic as a war or an economic crash. It was caused by something much more prosaic: President Trump cutting Federal funding to the Ivy League university.
It turns out that Harvard is a pyramid scheme. It sits on a $53 billion endowment (tax free, no less) but relies on the US taxpayer to fund its operating costs.
A welder in Topeka or a roofer in Minnetonka bust their backsides all day, paying taxes so their hard-earned money can be given to Harvard to fund the studies of elite kids.
Why should Harvard use its $53 billion endowment to pay its own way, when the US taxpayer is dumb enough to pay for them?
President Trump cut off the spigot of Federal funding to Harvard. He halted millions of dollars of annual funding the Ivy League university receives.
Ironically, the amount that President Trump cut was not much. But it was enough to send Harvard over the edge into financial disaster.
The Harvard Endowment is being run like a pyramid scheme. It sits on a vast empire of money, yet can’t produce enough income for Harvard to pay its bills in a time of mild financial distress.
It invests its billions into junky, illiquid investments with little resale value. It fails the most basic test of risk management: make provisions for times of distress.
Such mismanagement makes you wonder how Harvard would fare if a real crisis came along.
The mismanagement of the Harvard Endowment is a scandal of the highest order. Congress should investigate.
Transparency must ensue. Harvard must open the books, so the public can see exactly what the university is doing with its tax-free money.
If the American taxpayer is funding Harvard- either directly with payments, or indirectly through its tax-free status- then the American taxpayer has every right to know what this elite university is doing with the money.
And Narv Narvekar- who is reportedly paid $10 million dollars a year- should be called on the carpet to explain how the Harvard Endowment couldn’t pay it’s bills, despite sitting on a $53 billion endowment.
