“It is possible, of course, that the new CEO will come in and say, ‘I want to rebuild this [internally], it makes a lot of sense here at Harvard,’ and the ratio actually increases,” he says.

Despite the avalanche of departures from HMC, Meyer says that the current mix of internal and external management could also be maintained if the firm’s leadership believes that route is practical.

And Meyer cautions against premature speculation about what structural changes his successor will implement, noting that upon his arrival at HMC in 1990 he had a history of externally managing funds at previous jobs but embraced the internal model at HMC.

“I know people here at HMC thought [a shift to external management] was going to happen...and maybe even the board thought that was going to happen too,” he says. “I came here and I saw things that were happening internally that were just great and we nurtured those strategies.”

Meyer says for several years the percentage of the endowment invested internally rose from 80 to 85 percent before declining as managers left the company.

“It’s a little bit like the Supreme Court justices,” he says. “You’re never too sure how they’re going to behave when they actually get on the bench.”

OUTSOURCING THE ENDOWMENT

Moving to an externally managed structure would shield the University from the scrutiny it currently faces over managers’ salaries.

But competition for high quality external managers mean that their fees are much higher than the relatively low compensation Harvard grants its internal staff.

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.

And the investment chiefs of such firms have to “manage managers” rather than securities, Griswold says.

Having managed both assets and managers, Meyer calls the latter more of a “different skill set” than a challenge.

For Harvard, the chief disadvantage to external management could be decreased performance, because some top-tier external managers only permit each investor to invest a few million dollars. This means that Harvard would have to work with scores of different investors to manage its billions.

The 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.”