FAS: Faculty and Fisc Have Been Substantially Renewed, and Become Much More Diverse
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JOHN HARVARD'S JOURNAL portfolio and perhaps tweaking some pri- es “require a five-year timeframe to reposi- ers, investment specialists, and supporting vate-equity holdings; and, presumably, repo- tion the organization and portfolio”—a mes- analysts), and Narvekar cited as an “espe- sitioning the cohort of hedge-fund manag- sage he has underscored continuously. But cially welcome discovery” that “HMC has ers). “Second, looking beyond the returns of he added a phrase about “subsequent strong an extraordinarily talented, skilled, and individual asset classes, asset allocation—or performance.” For those who may have dedicated team on both the investment risk level—was the dominant factor in the missed the subtlety, that suggests that re- and support sides,” making it “well within overall returns. In general, the higher the making HMC and activating its new invest- our capacity to effect this turnaround and risk level, the higher the return.” That might ment disciplines; refining its risk framework generate long-term success for Harvard.” suggest HMC’s portfolio, in transition, suf- (involving at least a two-year collaboration In the near term, it would not be surpris- fered on a relative basis because its assets with HMC’s board and the University, to be- ing if there are more bumps in the road, per- were not yet allocated ideally, in his view. gin soon); reestablishing relationships with haps in the runoff natural-resources portfo- (Many peer institutions reported returns superior external fund managers; and getting lio. Those discussions with the University higher than HMC’s 10 percent fiscal 2018 them money to invest, are all encompassed about its appetite for risk are crucial, too. result; their risk profiles and investment ob- within that five-year transition—after which Is Harvard’s traditional expectation of an 8 jectives differ, of course.) the harvesting of presumably superior re- percent annual return attainable (see har- He observed, further, that “as sophisticated sults should show up. That is the nature of vardmag.com/distribution-16)—and if so, investors well know, there are very limited investing in long-term, illiquid assets, where at what level of risk? Is a single pool of as- conclusions that we can draw from a single those higher risks and returns reside over sets appropriate for separate Harvard enti- year of either manager performance or as- time. But it is also the nature of achieving ties when their dependence on endowment set allocation.” Thus, “Had this past year’s superior returns over the course of an entire invest- distributions varies from 85 percent of an- return been significantly higher or lower, it ment cycle. Doing so is critical to the definition nual operating revenues to 51 percent to 17 still would not be reflective of the work we of HMC’s aim, as he put it, to “ensure that percent (the Radcliffe Institute, the Fac- are undertaking, nor change the path we are Harvard University has the means to con- ulty of Arts and Sciences, and the public- pursuing. This is a reality that will apply to tinue its vital role as a leader in teaching and health school, respectively)? How does the the remaining years of our transition as well.” research for future generations.” University sort that out, given its autono- Refining his description of that transition, HMC’s generalist team is in place (per- mous schools? And how does managing the Narvekar wrote that those significant chang- haps a couple of dozen people: senior lead- endowment to profit from robust markets has remained at 731 or slightly more since 2014), the faculty ranks FAS: Faculty and Fisc have been substantially renewed, and become much more diverse. At a November 8 reception in University Hall, the Faculty of Arts The faculty has also continued to evolve in disciplinary terms. and Sciences (FAS) celebrated Michael D. Smith for his 11 years In the fall of 2007, arts and humanities positions accounted for of service as dean, concluded last August, conferring on him an 29.3 percent of the ladder faculty; that share has declined two amusing rendering of all the faculty’s leaders, from the inception percentage points. The social scientists held 34.3 percent of po- of the position in the late nineteenth century through his tenure. sitions—a percentage-point more than now. Scientists held 26.7 (Mark Steele, who conceives and creates the art for Yesterday’s percent of the positions—and now occupy 27.4 percent of the News, page 20, won the FAS commission.) A pair of separate total. And the engineers and applied scientists have increased from tributes to Smith, lastingly important to the faculty as a whole, 9.7 percent to 12.0 percent of FAS’s ranks (and will likely grow were embedded in the annual report issued by his successor, further after the facilities rising in Allston open in the fall of 2020, Claudine Gay, covering Smith’s final year—and his cumulative im- creating room for expansion). pact. Second, FAS closed its fiscal year 2018 books with a surplus First, the faculty data reveal that during Smith’s deanship, FAS under its version of Generally Accepted Acounting Principles appointed 364 ladder (tenured and tenure-track) members. Of this (GAAP)—a stupendous result for an endowment-dependent or- cohort, 312 remain at Harvard: 43 percent of FAS’s 734 faculty ganization that was hammered during the financial crisis and has members as of the beginning of this academic year. Thus, even subsequently been stretched by the costs of renovating its under- though the census remained largely steady in the wake of the finan- graduate Houses (for which the Corporation had authorized cial crisis and recession (it was 709 when Smith began as dean, and spending of $873.9 million as of last June 30—with work in prog- Ladder Faculty Members Arts & Humanities Social Science Science SEAS 200 245 201 88 24 January - February 2019 Reprinted from Harvard Magazine. For more information, contact Harvard Magazine, Inc. at 617-495-5746 while minimizing losses during downturns ments slow because those eligible worry three to four times as endowment-dependent. line up with the shorter time horizons of about diminished savings. Bacow rebooted the Tufts budget in one year. individual deans? In other words, all the enormous benefits In contrast, he said, the multiyear process of derived from endowment distributions mean smoothing out the losses at Harvard protract- Being Prepared that “endowments are not a cushion in tough ed the period of constraint, even as external Usefully, those questions will be ad- times.” And in general, Bacow said, at most conditions improved. That was challenging dressed under the ultimate direction of a universities, governance of the endowment for morale—and perhaps tangibly, too: Tufts leader who has lived through the severest is separate from governance of the operating was able to get back in the hunt sooner to hire investment cycle in memory. entities and functions. That makes it easy, and faculty members from institutions that were During a conversation at Massachusetts dangerous, for administrators and deans to still cutting back. Hall on November 2, President Bacow out- lined some of his perspectives on these is- Endowments confer enormous benefits—but sues. In general, he said, universities for- tunate enough to enjoy endowments take they “are not a cushion in tough times.” risks in their budgets that turn out to be highly correlated with the risks in their proceed without appreciating the correla- Bacow was an Eagle Scout before he was investment portfolio. Thus, when the tion. (Hence the importance of that discus- a university president. Unsurprisingly, he economy is weak and the value of assets sion about risk that Narvekar highlighted.) wants to be prepared, so he is working depressed, schools relying on endowment Moreover, the more heavily endowed the with the deans, he said, on planning sce- distributions typically have to spend more institution, the greater the mismatch. Thus, narios for the economic downturn that will on financial aid, cope withless current-use Tufts derived 12 percent of its revenues from surely come. giving, and face reduced support for spon- endowment distributions during the 2008- Similarly, vice president for finance Thom- sored research. And of course, if they seek 2009 financial crisis and recession: a 25 per- as J. Hollister, Harvard’s chief financial of- to rein in costs, half or more of which are cent decline in its endowment translated, ficer, and treasurer Paul J. Finnegan, a mem- for their people, there is resistance to lay- roughly, into a 3 percent adjustment to reve- ber of the Corporation and chair of HMC’s offs; attrition diminishes as employees have nue—a haircut about one-third as severe as board, were relatively restrained in their let- fewer opportunities elsewhere; and retire- that faced by Harvard and Yale, which were ter accompanying the annual financial report ress on Lowell House, and yet to proceed on Adams and the huge means that FAS will owe bigger payments, especially toward the end Eliot-Kirkland complex). of the two-decade agreement. In the meantime, however, it provides A review of the detailed financial report is rewarding. Fiscal a modest cash cushion, without obligating the dean to further de- 2018 turned out as well as it did, despite the flat rate of endow- capitalize endowment funds. ment distributions, for several reasons. Capital-campaign largess In effect, that represents a resetting of the generational balance. helped to enlarge FAS’s endowment (pledges receivable decreased Under Dean Smith, FAS began addressing its largest deferred- from $768 million to $657 million as donors fulfilled their gifts), maintenance item from prior decades (renovating the undergrad- so the absolute endowment distribution, which accounts for uate residences), at a cost to current and future programs—dur- nearly half of revenue, rose some $12 million.