Jane Mendillo to Depart Harvard Management Company
Harvard announced today that Jane L. Mendillo, president and chief executive officer of Harvard Management Company (HMC) since July 2008, would depart as of the end of 2014. HMC invests the University endowment and other assets.
Mendillo became leader of HMC just months before the financial crisis that devastated financial markets and threatened the University's liquidity. During the fiscal year ended June 30, 2009, investment returns were a negative 27.3 percent, and the total value of the endowment plunged nearly $11 billion. It fell to Mendillo and colleagues to manage cash, steer through contracted commitments to invest funds with outside managers in future years, and build a new system for managing investment risk and meeting the University's future needs for liquid resources. Returns were stronger as the markets recovered (11 percent in fiscal 2010; 21.4 percent in fiscal 2011) but still volatile (returns were a negative 0.05 percent in fiscal 2012 before recovering to 11.3 percent last year)—and the University's financial leadership has made a point of projecting more subdued endowment investment returns in the future, compared to mid- to high-teens long-term rates of return enjoyed in the decades preceding the 2008 meltdown.
Mendillo championed investing in certain real assets, such as timberland, and had enormous, early success in that area earlier in her career. Of late, slower growth in the developing world, particularly China, has put pressure on several kinds of real assets and commodities. HMC has also been challenged by less than stellar results in private equity, long a strong category for the endowment-fund managers, and now targeted for some 16 percent of the endowment's model policy portfolio. Given that such assets are less liquid than public securities, investors who focus on them expect greater returns for the liquidity risk they assume; Mendillo wrote in her fiscal 2013 report on HMC performance that recent private equity performance was "fair" and that for the past decade, "our private equity and public equity portfolios have delivered similar returns"—not the desired result. In the same year, real assets in the natural resources portfolio lagged the returns of the benchmark for such assets by 2.5 percentage points.
According to longer-term statistics compiled by Charles Skorina & Company, Harvard's returns have trailed peers during the last half-decade. That may reflect both the magnitude of the fiscal 2009 losses in the Harvard endowment, and other, smaller schools' greater reliance on the recently robust public securities markets. Changes in Harvard's strategy may also enter into the results during this period.
Today's announcement comes as a surprise, and at a time of transition in the University's financial leadership, with the recent announcement of a new treasurer. (Both the incumbent, James F. Rothenberg, and his successor, Paul J. Finnegan, are HMC board members; each serves as a member of the Harvard Corporation.)
Jane Mendillo's Perspective
In a brief telephone conversation, Mendillo said, “I have been thinking about this for a little while. I feel like I’ve accomplished a lot of what I set out to accomplish.” She cited her 21 years at HMC—15 years as an investment professional, and then, following her service as Wellesley College’s chief investment officer, her current term as president and CEO. The HMC “organization and portfolio are doing well,” she said, and “the trajectory is positive,” so it is a suitable time for an orderly succession.
She noted that the endowment had recovered from the period of financial crisis (its value remains below the peak of nearly $37 billion, reflecting both the severe losses in fiscal 2009 and the annual, 10-figure distributions to support Harvard’s operating budget). The invested assets have been repositioned. And the team of investment professionals has been broadened and deepened (in past discussions, Mendillo and others have pointed to enhanced oversight of risk, volatility, correlation among asset classes, and, of course, planning for Harvard’s cash needs).
Asked about particular asset classes, Mendillo said of the illiquidity problem in private-equity holdings during the financial crisis, “We fixed that.” Although care is required to invest in such assets, she said, there are still promising opportunities for investors with Harvard’s needs and time horizon. In real assets and natural resources, she said, Harvard had a “unique team” of investment professionals with a “great perspective” on the markets and opportunities around the world, and HMC would continue to pursue such investments. In those and other areas, she maintained, “We’re firing on all cylinders” and “doing some things we couldn’t do a few years ago.”
As the portfolio has been refashioned, HMC has, during Mendillo’s tenure, reemphasized internal management of assets, reversing the growth of external management during the prior decade. About 42 percent of assets are managed internally, through the fixed-income trading team for example, and direct investments in natural resources and real estate. These internal and direct investments, she said, are managed at costs lower than those charged by external managers—and, importantly, confer several other advantages, such as transparency. HMC has better oversight of these investments, and therefore more direct control of the risks it assumes and flexibility in deploying funds.
HMC no longer borrows money, using leverage to boost returns, and the assets are managed with greater concern for liquidity needs. Do those policies penalize the returns HMC can realize? Mendillo said they were less consequential than the “market-wide factors” in shaping current and prospective returns. Given low interest rates and a more subdued outlook for public and private equity gains compared to prior decades, she said, it is reasonable to expect lower market returns overall. But HMC has good “alpha generation opportunities” (the professional term for generating returns in excess of market returns). And, she emphasized, “our alignment of the endowment with University needs for liquidity is improved.” Today, she said, “We know we can deliver what the University needs” and won’t have to scramble to sell or redeploy assets, or take other financial steps, in a future down market (the threat that forced the University to borrow $2.5 billion in late 2008). “We feel good about that.”
For now, Mendillo said, although she regards her job as “the best in the world,” she has been at HMC for 21 years: “a long time.” She has personal priorities she wants to pursue. And so, she will manage the organization and its investment operations through the end of 2014, giving the HMC board time to conduct a search for a successor, which has begun.
The News Announcement
The University's announcement reads:
Jane Mendillo today announced that she plans to step down from her role as president and chief executive officer of Harvard Management Company (HMC) at the end of calendar 2014. Mendillo successfully led HMC through the financial crisis, repositioned key elements of the portfolio, built a strong team of investment professionals and delivered strong returns for the University. She has worked for HMC for a total of 21 years. Mendillo will continue at the helm of HMC for the remainder of the year to facilitate the transition process. After her departure, Mendillo will continue to serve on a number of boards and investment committees.
“I am incredibly proud of the work we have accomplished over the last six years,” said Mendillo. “The team’s dedication, creativity, talent and sheer hard work in the face of, and following the financial crisis has led to a dramatic recovery and a portfolio that is once again firing on all cylinders. The work HMC is doing today – on everything from asset allocation, to internal trading, to direct deals, to fund investing, to investment operations – is better than it has ever been. This excellent teamwork and the resulting investment judgment it enables will have a lasting positive impact on the portfolio. I can’t imagine a better way to spend a career or a more noble cause. It has been my privilege to serve Harvard University.”
Harvard President Drew Faust said, "Jane has been an excellent leader for HMC and a true partner for the University. She has repositioned the endowment and re-established a world-class investment platform to support Harvard and all of its activities for many years to come. Jane has strengthened risk management and operations, introduced new ways of thinking and investing into the portfolio, and has fostered greater alignment with the University. She has also elevated attention to sustainability in HMC’s investment processes and decision making. I am deeply grateful to Jane and I will miss her thoughtful and farsighted leadership.”
“Under Jane’s leadership HMC has consistently outperformed its benchmark over the last five years, delivering over $1.5 billion of added value to the University over the Policy Portfolio,” said James F. Rothenberg, chairman of HMC’s Board of Directors. “She elegantly managed the endowment through the financial crisis and attracted a broad slate of high-caliber professionals to strengthen the organization and position the portfolio for strong, long-term returns. I am very sorry to see her go and I join Drew Faust and the entire HMC Board in congratulating Jane on her accomplishments and thanking her for her substantial contributions to HMC and the University.”
Following the financial crisis, HMC has consistently exceeded its Policy Portfolio benchmark, delivering an estimated average annual return of 11-12% for the five years ended June 30, 2014. During the same time frame, distributions from the endowment to Harvard University totaled approximately $11 billion.
Mendillo was appointed president and CEO of HMC in July 2008. Since this time, Mendillo has reoriented and grown HMC’s investment platform and organization to position the portfolio for continued long-term success through:
- Increased depth and breadth of HMC’s investment, risk management and support teams and expanded global reach;
- Strengthened and expanded internal management and direct investing, which now accounts for roughly 42% of the endowment portfolio, bringing greater transparency, control and cost-efficiency;
- Improved alignment of the endowment’s risk/return profile with Harvard University’s goals and liquidity needs;
- Heightened focus on attractive investment themes such as natural resources, emerging markets and real estate; and
- Greater commitment to sustainability in the investment decision-making process, including the hiring of HMC’s first vice president of sustainable investing, and collaboration with the University in signing the United Nations-supported Principles for Responsible Investment.
Mendillo rejoined HMC after spending six years (2002-2008) as chief investment officer of Wellesley College, where she built the college’s first investment office, directed the restructuring of its investment portfolio, and achieved substantial and sustained endowment growth through a period of rapidly changing conditions. Mendillo received the 2007 Industry Leadership Award given by 100 Women in Hedge Funds in recognition of her "talent, ethics, and passion, which help define the hedge fund industry's standard of excellence." In 2008 and 2009, Mendillo was named to Forbes’ list of The 100 Most Powerful Women. From 1987 to 2002, Mendillo served as one of HMC’s senior investment officers, rising to become HMC's vice president of external investments and overseeing the investment of a portfolio that grew to $7 billion—roughly a third of HMC's assets then under management.
Mendillo currently serves as a member of the board of directors for the Boston Foundation. She also serves on the investment committees at the Rockefeller Foundation and Partners Healthcare.
A search for Mendillo's successor has already begun.