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REV: MAY 30, 2012
Harvard Management Company (2010)
In February 2010, Jane Mendillo gazed out of her 16th-floor office window at a cold Boston Harbor
and reflected on the set of issues facing Harvard Management Company (HMC). Since her return to
HMC as CEO in July 2008, Mendillo had successfully managed the endowment through the worst
financial markets crisis in a generation. But that period had brought to the fore multiple issues facing
Harvard’s endowment, and she wanted the lessons from the crisis to inform the decisions at the
HMC board’s next meeting. The board members would soon be reviewing its policy portfolio along
with the current positioning of the endowment. They were eager for an update on a variety of related
issues, highlighted during the crisis, such as the allocation of the endowment between internal and
external managers, the illiquidity of much of the endowment, the effectiveness of HMC’s risk
controls, and coordination with the university regarding its liquidity needs and risk tolerance.
The Role of the Endowment
Harvard University had been founded in 1636, and from the beginning its endowment played an
important role in the financial structure of the institution. As of June 2009, the endowment totaled $25
billion. Each school within the university owned units in the endowment, much like an individual
would own shares in a mutual fund, and received distributions from the endowment (“spending”) in
proportion to the units it owned. Aggregate endowment spending represented 38% of the
university’s budget and varied widely across the schools, ranging from 15% for the School of Public
Health to 87% for Radcliffe. In fiscal year 2009, endowment spending totaled $1.4 billion, or 4.1% of
the value of the fund at the end of the previous fiscal year.
Within its decentralized financial and budgeting system, colloquially referred to as “every tub on
its own bottom,” Harvard sought to...