The chief executive of Harvard University’s endowment, Jane Mendillo, will step down at the end of 2014, capping six years in which she steadied the world’s largest university investment fund after it lost billions in the financial crisis.
“Harvard Management is in a really good spot now. The company and the portfolio are firing on all cylinders,’’ Mendillo said in an interview Tuesday. “It feels like the right time.’’
Mendillo, 55, took the top job at Harvard Management Co. in July 2008 after years of preparation. She had worked there for 15 years, honing her investment skills in stocks, real estate, and emerging markets before moving on to manage the Wellesley College endowment for six years. She returned to Harvard to become the first woman to oversee the university’s $32.7 billion endowment.
If Mendillo’s tenure was shorter than her board of directors and university officials might have hoped, her tour of duty was as demanding as it gets.
When she arrived, Mendillo found an investment group in disarray as a result of heavy leadership turnover in the prior three years. Just months later, she faced one of the most devastating market collapses in history.
By September that year, global markets were plunging. Because the endowment had been aggressively invested, Mendillo had to sell assets and pare back risky holdings to head off a cash crunch at the university.
“Jane has made enormous strides in fixing much of what was broken,’’ said William Helman, a venture capitalist and longtime board member at Harvard Management. “The organization has never been stronger.’’
A search is underway for Mendillo’s replacement both inside and outside Harvard, officials said. Her successor should find an endowment in far better shape than she found it.
Harvard has not yet released its performance for the current fiscal year, which ends June 30. But it estimates the endowment earned an average annual return of 11 percent to 12 percent for the past five years on Mendillo’s watch.
That estimate does not include her first year running Harvard management, when the endowment shed 27.3 percent of its value, or about $10 billion, in the market plunge of 2008-2009. For the five-year period from 2008 through 2013, Harvard’s average annual return was 3.3 percent, underperforming the 3.8 percent average among large universities, according to the NACUBO-Commonfund Study of Endowments.
Directors said it is hard to pin the endowment’s worst performance on Mendillo because her predecessors — Jack Meyer and Mohamed El-Erian, as well as the interim directors who followed them — laid the groundwork for a large part of the portfolio. While both men enjoyed strong returns during their tenures, Mendillo inherited some investments that have fared poorly since the downturn.
The portfolio had no cash available when she arrived. It had even borrowed money to make larger investment bets. In the heat of the financial crisis, Mendillo scrambled to deal with illiquid hedge funds and private equity funds, as well as money-losing real estate holdings.
She also had to raise money to get out of large, money-losing “swaps,” or interest rate investments, authorized when Lawrence Summers was president of the university.
“It’s been a challenging time for HMC and for Harvard,” Mendillo said. But, “we’ve had a great recovery from the financial crisis. We’ve rebuilt the team with some incredible talent, and we’ve rebuilt the portfolio.’’
Mendillo said she is proudest of hiring talented managers to oversee more of Harvard’s money internally, rather than farming so much out to hedge funds. Harvard now directly handles 42 percent of its money, up from 30 percent when she took over. Mendillo also pressed for more direct real estate investing, over real estate funds.
“The investments we’ve made over the last several years are doing really, really well,’’ Mendillo said. “Some of the investments we inherited are not doing as well,’’ but are becoming smaller portions of the portfolio as time goes on.
Mendillo earned $4.8 million in 2012, down from $5.3 million in 2011, while some of her top investment staff earned more for performance that dramatically beat their benchmarks.
High pay is one of many issues at the endowment that draws criticism from some alumni and professors. Some also question whether Harvard uses its investment muscle carefully enough for a nonprofit institution.
Mendillo said she put a greater focus on sustainable investing and was gratified that in April Harvard became the first US university endowment to sign on to the UN-supported Principles for Responsible Investment.
Mendillo is credited with helping the endowment and the university forge a better relationship, which officials say had broken down. The university counts on the endowment’s earnings for its expenses each year, and has improved its balance sheet since the crisis and set aside a large cash cushion.
“Jane has been an excellent leader for HMC and a true partner for the university,’’ Harvard president Drew Faust said in a statement. “She has repositioned the endowment and reestablished a world-class investment platform to support Harvard and all of its activities for many years to come.”
Mendillo said she has no immediate plans to take another job, calling her current role “the best job in the world.’’ She will continue to serve on the board of the Boston Foundation and on the investment committee of Partners HealthCare and the Rockefeller Foundation.
She said she wants to pursue personal interests, including music and education, and did not rule out writing a book about her experiences.
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