Word: meyers
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Having managed both assets and managers, Meyer calls the latter more of a “different skill set” than a challenge...
According to Meyer, hedge funds, a common form of external management, charge an average of 1.5 percent in annual management fees plus 20 percent of profits. HMC, on the other hand, gets the job done while charging a base fee of 0.26 percent plus incentives—which can be positive or negative. Thus, Meyer estimates that Harvard would have paid roughly twice as much over the past 10 years to achieve the same returns on the endowment using external management...
...same is true of private equity and external hedge funds, Meyer adds. As a result, Harvard’s size could mean that once it has exhausted investment opportunities with top-tier firms, it has “to go down the quality spectrum [of firms], which is very dangerous,” according to Meyer...
While Yale has also achieved impressive returns using outside management, Meyer says size is far less of a problem for the Bulldogs. Yale has the second-largest university endowment at $12.7 billion, but it pales in comparison to Harvard’s $22.6 billion. For Harvard, Meyer says, increased competition for external funds has ensured that achieving Harvard’s current performance under a fully external system would be “very difficult...
...Harvard, internal management skirts the problems of securing enough high-quality outsiders to handle the endowment, and also provides for greater control over risks, more effective financing, and more efficient use of capital, Meyer says...