Harvard Picks Insider to Run $36.4 Billion Endowment

Harvard University named Stephen Blyth as head of its $36.4 billion endowment, picking an insider as it looks to boost investment returns that have lagged Ivy League peers.

Blyth, 46, is an eight-year veteran of Harvard Management Co., which runs the largest college endowment. He was hired from Deutsche Bank AG for his bond-trading acumen and rose through the ranks. A statistician with a doctorate from Harvard, he is known for his commitment to the university, teaching classes, serving on faculty committees and advising a cricket team.

“I’m excited about the opportunity to lead and grow a program that has a tradition of investment innovations, creativity and intellectual rigor,” Blyth, who takes over on Jan. 1, said in a telephone interview yesterday.

Currently head of public markets, Blyth inherits Harvard’s investment arm, founded in 1974, that helped revolutionize how universities manage their money. Under Jack Meyer, the legendary chief executive officer who ran the endowment from 1990 to 2005, Harvard expanded from conventional bonds and stocks into difficult-to-sell assets such as hedge funds and private equity, and assets grew to almost $26 billion from $4.7 billion.

Harvard has struggled to recover from the global recession, which led to a 27 percent investment loss in 2009 and a cash crunch that forced it to sell holdings and borrow money.

15.4% Gain

The Cambridge, Massachusetts-based university said yesterday it had a 15.4 percent investment return in the year ended June 30, trailing the three other Ivy League schools that have reported returns to date.

Over five years, Harvard’s average annual return was 11.6 percent. In its 2014 annual report, the management company said it will expand investments in hedge funds and private equity as it seeks to boost returns.

The endowment had the worst performance among the eight Ivy League schools in the previous two years, which it blamed largely on the same “illiquid investments” that once provided such rich gains.

“The advantages that some endowments might have had 20 years ago are now much smaller,” said Steven Kaplan, a professor at the University of Chicago’s business school. “There was less competition to get into the top funds and less scrutiny.”

Mendillo Departure

As president and CEO, Blyth will succeed Jane Mendillo, another Harvard Management veteran who had left to oversee the endowment at Wellesley College in 2002 and was hired back in 2008 in the midst of the financial crisis. Blyth was disappointed at being passed over for the top job at that time, two people familiar with the matter said in 2010.

Mendillo announced in June her plans to leave at year end.

“He is an outstanding appointment,” John Campbell, an economics professor at Harvard and former member of the management company board, said in an e-mail. “I have high hopes for what HMC will be able to accomplish under his leadership.”

Blyth joined the management company in 2006 when Mohamed El-Erian was CEO and the university was rebuilding the endowment’s staff after the departure of Meyer, who left along with most of the top managers amid controversy over compensation at HMC. Blyth was formerly head of the global rates proprietary trading group at Deutsche Bank in London and worked for Morgan Stanley in New York.

Blyth Compensation

Since coming to Harvard, Blyth has been elevated to oversee internal trading, which grew to 42 percent of the assets under management from 30 percent five years ago, the university said in a Sept. 12 letter to alumni. Harvard has saved $2 billion over the past decade by using traders on staff as opposed to paying fees to external managers, which is common at other schools, according to the annual report.

Blyth was the third-highest paid employee at HMC in 2012, making $5.35 million in the period, the most recent year available. Mendillo’s compensation that year was $4.8 million.

“He has a terrific track record,” Glenn Hutchins, an HMC board member who co-founded the buyout firm Silver Lake Management LLC, said in a telephone interview. “He’s outperformed his peers, he’s outperformed his benchmarks, and he’s been one of the best performers in our organization.”

The 13-member board of the management company served as the search committee, interviewing both internal and external candidates, Hutchins said. Blyth was the “first and unanimous choice,” he said.

Monthly Meetings

Harvard President Drew Faust, a member of the board, has moved to establish better communication with the management company since the credit crisis. Mendillo made it a practice to take monthly trips from the endowment’s office in Boston’s financial district to the campus in Cambridge to meet with the president.

Blyth may be the first endowment head to also be a Harvard faculty member, said Harry Lewis, a computer science professor and former dean of Harvard College. Blyth is often seen at faculty meetings, Lewis said.

“It’s very nice to think of someone who understands the academic culture being in that important role with the management of the endowment,” Lewis said.

Blyth is known for his passion for finance, writing for academic journals and magazines, and he is also the author of books such as an introduction to quantitative finance. He teaches a class in Harvard’s Statistics Department, where he studied. Blyth hails from England, growing up in North London and studying as an undergraduate at Cambridge University.

Cricket Adviser

“He’s a funny guy and a good professor,” said Anastasiya Borys, a Harvard student who took Blyth’s class. “It was a great class, but difficult. He brought us chocolates once when he came back from the U.K.”

Blyth grew up playing cricket and played for Christ’s College, Cambridge and Imperial College London, Harvard said in December. He is a faculty adviser to the Harvard Cricket Club team and once played a game as a substitute, hitting a game-winning shot, the university said.

“He’s a very good player, and even at his age he’s able to make it into our playing 11,” said Rishav Mukherji, a 21-year-old senior majoring in computer science who is on the team.

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