This headline just crossing my screen:
(Bloomberg) — Harvard University said some employees at its $35.7 billion endowment won’t receive full compensation because the fund underperformed in the year through June. Because the endowment lagged its benchmark by 300 basis points in fiscal 2016, “current and former employees will forfeit compensation that was held back in prior years,” Harvard Management Co. said in a statement.
The Harvard Endowment Fund has a very good long-term track record. The thing about good “long-term” strategies is that they indeed, at times, under perform their benchmark. That’s what happens when good managers follow a discipline that has them investing where value exists. The best managers recognize value before the pack and take positions early, then wait patiently. As long as the fundamental reasons remain, they’re confident that it’s only a matter of time before the market wakes up and those positions advance.
By withholding its strategists’ pay due to missing a benchmark, Harvard’s Endowment team is inspiring, at best, index hugging (nothing thoughtful or creative there) or, at worst, short-term desperation (excessive risk taking). The latter could make a 3% miss look like a walk in the park…