Harvard Management Company has finalized its decision to outsource its property management team to Boston-based private equity firm Bain Capital, according to a Wall Street Journal report.
HMC’s 22-person property management team, led by Daniel W. Cummings, will be leaving Harvard to form a new property unit in Bain effective February 2018, the Wall Street Journal reported. In fiscal 2016, real estate assets represented 14.5% of Harvard’s total endowment and achieved a return on investment of 13.8%, which is higher than the returns of other asset classes in the University, including private equity, domestic bonds, or foreign stocks.
The deal between Bain and HMC, which manages Harvard’s $ 37.1 billion endowment, had been expected for weeks and the spin-out for months. In January, NP CEO “Narv” Narvekar indicated in a letter accompanying Harvard’s annual financial report that he planned to halve HMC’s workforce of 230 and complete HMC’s real estate investments by the end. of the calendar year.
In that letter, Narvekar described the endowment’s performance as “disappointing and not where it should be,” attributing some of its underperformance to structural issues in the portfolio.
Experts say Harvard-Bain’s most recent move is in line with Narvekar’s transition to an external management system in which Harvard’s assets are managed by third-party investors. This strategy is similar to those employed by other Ivy League institutions such as Yale, whose endowment exceeded Harvard’s 8.1% endowment growth in fiscal 2017. Harvard posted the returns weakest in the Ivy League.
“This agreement is a natural way to continue [Narvekar’s] strategy, ”said Steven N. Kaplan ’81, professor of finance at the Booth School of Business at the University of Chicago. “It’s very consistent with what Narv is trying to do and seems to make a lot of sense.”
Charles A. Skorina, head of a financial executive search firm, said the deal was a “win-win,” allowing Harvard’s real estate team to do more while allowing Bain Capital to ” enter a new area of real estate investment.
“I think it’s a great shot, just great,” Skorina said. “I think it’s a win-win, it’s good for the school, for Harvard Management Company and for Bain.”
Other experts also saw the deal as beneficial for Harvard. Brad R. Balter, Managing Partner of Balter Capital Management, called this a “milestone” for the University.
“As someone who generally reacts negatively to these deals, I was surprised and I think it’s a lot,” Balter said. “And I don’t usually say that.”
– Editor William L. Wang can be contacted at firstname.lastname@example.org. Follow him on twitter @ wlwang20.