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MIT endowment chief tops Harvard money managers

Portfolio grows $2.4b over 9 years

Seth Alexander trained with Yale University’s famed endowment chief.
Seth Alexander trained with Yale University’s famed endowment chief.MIT Investment Management Company

In the realm of ivory tower rivalries, one might expect the Massachusetts Institute of Technology to outdo Harvard University when it comes to science and engineering, even in high-tech start-ups.

But managing money?

It’s true: MIT has outperformed Harvard over the nine years since Seth Alexander became president of its endowment. The $10 billion portfolio that he inherited now weighs in at $12.4 billion, the sixth-largest among US colleges.

Alexander, 41, learned the investment profession at the elbow of a famed Yale University endowment chief, David Swensen. Since arriving at MIT in 2006, Alexander has produced average annual investment returns of 9.3 percent, among the best in the university endowment world. Those gains handily outpace a 7.9 percent annual average at Harvard’s $36.4 billion fund and come close to the 9.5 percent posted by his mentor at Yale.

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Alexander is a bargain in his field, earning $1.2 million in 2013, the latest year for which compensation data are available. The top-paid managers running Harvard’s endowment earn 10 times as much.

“MIT is getting their money’s worth,’’ said Charles Skorina, an executive search consultant in San Francisco who tracks the endowment world. “Seth is just quietly doing well.”

It’s a turnaround from the 1990s and early 2000s, when Harvard’s fund, then run by Jack Meyer, and Yale’s, under Swensen, were the heavyweights of the endowment world. MIT was much smaller and barely on the radar.

Alexander declined to be interviewed, and MIT officials said they didn’t want to talk about their endowment chief, either.

A Yale graduate with a biology degree, Alexander joined the investment office of his alma mater in 1995 and was soon teaching a class on managing endowments.

In New Haven, he became part of a cadre of Swensen assistants who have gone on to run endowments at other prominent schools, including Princeton University, the University of Pennsylvania, Wesleyan University, and Bowdoin College.

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Alexander had a particularly good year at MIT in 2014, delivering a 19.2 percent return, compared with Harvard’s 15.4 percent. But he has lagged behind Harvard in most bull market years. Alexander has outperformed over time largely by losing less than his rivals in bad years.

Consider 2009, when the entire investment world nearly collapsed.

The massive Harvard endowment plunged 27 percent; Yale’s lost nearly a quarter of its value. MIT took a hit, too, but fell by a relatively modest 17 percent. The average loss for US endowments and foundations was 19 percent that year, ended June 30, 2009, according to the National Association of College and University Business Officers.

In 2012, when most everyone’s performance was flat or down, MIT pulled out an 8 percent return, nearly double Yale’s 4.7 percent gain.

“Sometimes you just have a year when things come together,’’ Alexander told a group of MIT alumni that year.

Allen Bufferd, MIT Investment Management Co.’s first president, said creating stable performance is a key to success.

“Broadly speaking, the lower the volatility of results — by which I mean the up-down, up-down,’’ Bufferd said, “you’ll come out better.” Most importantly, he said, “This is not a one-year game.”

Bufferd retired in 2005 after 33 years at MIT, 18 of them as its chief investment officer.

MIT uses the so-called Yale model of investing, developed by Swensen and now widely used by large endowments, foundations, and pensions. It is based on a belief that an endowment with money in a wide array of asset classes, like venture capital, real estate, and hedge funds, can do better than a portfolio of just stocks and bonds.

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While at Yale, Alexander was steeped in this method, specializing in timber, asset allocation, hedge funds, and international investments, according to his Yale biography. He also coauthored a paper on alternative investments, like venture capital and private equity.

On the side, he handled more basic finances, keeping the books for a New Haven food pantry — paying the bills, overseeing payroll, and helping with annual budget projections.

“He was supportive of us and very much interested in the mission of the soup kitchen,” said David O’Sullivan, executive director of the Community Soup Kitchen. “He wanted to know what was going on, how many meals we were doing.”

Alexander hasn’t had much chance to let success go to his head.

Schools like Harvard and MIT rely heavily on endowment income to run their operations. Even though the MIT endowment beat rivals in 2009, the school laid off 174 employees between January 2009 and June 2010, according to a spokeswoman. It also had to cut its budget by millions of dollars, in what officials recall as a painful time.

“As much as you want to say to yourself, well, one year doesn’t matter because we’re focused on 10 years, psychologically it does — it does matter,’’ Alexander told alumni in a speech videotaped in 2012. “Because it can influence your thinking, it can influence your mood.”

But as the economy and markets recovered, MIT had less ground to recover from its losses than many of its peers. Since 2008, the MIT endowment has added $2.5 billion to its coffers, reaching $12.4 billion, while Harvard’s assets have not returned to their $36.9 billion peak. Yale has added $1 billion to the portfolio in that period.

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MIT marketing documents and the Alexander video say the fund takes a “value” approach, by hunting for bargains and scouting out smaller, start-up investment funds where MIT is the first endowment involved.

“We won’t engage in speculation,’’ Alexander said in the video. “We’re not going to buy high-flying growth stocks in hopes that they’ll keep going up.’’

That can mean missing out on gains in frothy times. Alexander and his colleagues like getting into hot initial public stock offerings, like those for Facebook and LinkedIn, he said, but only in the early days when they’re still private, and still cheap.

While Harvard manages some money itself, MIT farms most of its funds out to independent firms to invest. Ten of the 14 new managers MIT hired in 2011 and 2012 had no other endowment clients, Alexander said. Eight of the 14 were small, with less than $200 million in assets.

“We are pursuing a different path than other people,’’ Alexander said.

Average annual returns for endowment funds
Year MIT Harvard Yale
2007 22.1% 23.0% 28.0%
2008 3.2% 8.6% 4.5%
2009 -17.1% -27.3% -24.6%
2010 10.2% 11.0% 8.9%
2011 17.9% 21.4% 21.9%
2012 8.0% -0.1% 4.7%
2013 11.1% 11.3% 12.5%
2014 19.2% 15.4% 20.2%
AVERAGE 9.3% 7.9% 9.5%
SOURCE: The universities

Beth Healy can be reached
at beth.healy@globe.com.
Follow her on Twitter @HealyBeth.