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N.P. Narvekar, CEO of Harvard Management
N.P. Narvekar, CEO of Harvard ManagementHarvard University

Harvard University’s N.P. “Narv” Narvekar is doubling down on an investment that has fallen out of fashion: hedge funds.

Narvekar’s bet on the sophisticated, high-cost brand of money manager marks the biggest since the university hired him in 2016 to turn around the lagging performance of its $39 billion endowment.

Over the two years ended in June, the largest fund in higher education almost doubled its stake in hedge funds, which now total $13 billion, university filings show. Harvard’s hedge funds constitute a third of the endowment, compared with roughly a quarter at Yale and Princeton.

Hedge funds have had years of uneven or poor performance during a long bull market that has favored low-cost investing in market indexes. Their returns and fees — traditionally 2 percent of assets and 20 percent of profits — have frustrated many other institutions. A third of US endowments and foundations anticipate allocating less to hedge funds this year, according to a survey last month by consultant NEPC.

To achieve his mandate of beating his peers, Narvekar appears to be making a contrarian move that could pay off if stocks head south.

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“He’s trying to position the portfolio for the next market cycle,” said Laurence Siegel, former head of investment research at the Ford Foundation. “Any good manager should be doing that.”

The moves are part of an overhaul of Boston-based Harvard Management Co., the university’s investments arm. Since he was hired as the endowment’s chief executive officer, Narvekar has streamlined operations, eliminating a trading desk using hedge fund strategies, outsourcing a real estate team, and writing off timberland and farm assets. While he cut 100 jobs, he added some former Columbia and Penn colleagues to help remake operations.

Harvard had been unusual among major endowments because it had managed much of the money in-house. Some of its portfolio managers — who could earn millions, even tens of millions, a year — in a sense operated an in-house hedge fund.

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Following the model of Yale, which is led by top-performing investment chief David Swensen, Harvard is now focused on hiring only the best external money managers. It is mining its existing hedge fund portfolio, allocating more money to top performers while chasing established and emerging stars.

Narvekar and his team have put money into managers launching new funds. They include Dan Sundheim’s D1 Capital Partners. Sundheim, former chief investment officer of stock-focused Viking Global Investors, broke out on his own two years ago, saying he wanted a more flexible trading mandate.

Harvard has also committed more money to funds already in the portfolio such as health care specialist Deerfield Management, which invests in public and private equities, according to people familiar with the matter.

For Narvekar, who declined to be interviewed through a spokesman, hedge funds have long represented a favored strategy. They still make up a third of assets at Columbia University, where Narvekar worked for 11 years before heading to Harvard.

In the late 1990s, Narvekar led the University of Pennsylvania’s effort to expand its portfolio of hedge funds and other alternative investments. (Hedge funds currently amount to 29 percent of its endowment.)

Narvekar and his team are targeting managers with a variety of styles, such as long-short equity, D1 Capital’s approach. A classic hedge fund strategy, it’s designed for returns that are less correlated with the stock market. Investors balance bets on stocks deemed likely to rise with those expected to fall.

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D1 also takes stakes in private companies, which are often available at discounts to public ones. The fund gained 10 percent in the first two months of this year, after returning 5.4 percent last year.

Harvard backed MFN Partners Management, cofounded two years ago by Michael DeMichele, a former partner at Baupost Group, according to a person familiar with the matter. Famed value investor Seth Klarman runs Boston-based Baupost. Value investors bet on beaten-down investments in the hope of a rebound.

One winning wager has been Jeffrey Talpins’s Element Capital Management, which Narvekar backed while running Columbia’s endowment. The New York-based company uses a global macroeconomic strategy: trades based on political and economic trends, rather than the fundamental analysis of individual investments.

The fund surged 17 percent last year while producing annualized gains of 21 percent since launching in 2005. Element paid Talpins $420 million last year, among the most of any hedge fund manager.