UPDATE 2-Jane Mendillo to step down as Harvard's endowment chief

Tue Jun 10, 2014 8:39pm EDT

(Adds comments from Mendillo)

By Svea Herbst-Bayliss

BOSTON, June 10 (Reuters) - Jane Mendillo, the first woman to run Harvard University's investment arm, will leave at the end of 2014 after guiding the Ivy League school's $32.7 billion endowment through the financial crisis and its aftermath, she said on Tuesday.

Mendillo, 55, took the reins at the wealthiest university's investment arm six years ago. She said she is leaving to spend more time with family and friends and pursue personal interests like music.

She took up her position as president and chief executive officer of Harvard Management Co, one of the most closely watched jobs in the investment management business, just as financial markets began to plunge in July 2008. She was forced to aggressively overhaul the endowment by paring some of its riskier and less liquid investments during her first months on the job, which included Lehman Brothers' bankruptcy filing on her birthday in September 2008. The endowment lost $10 billion - or 27.3 percent - during her first year.

Now she leaves the endowment in what she calls a "good spot." The endowment's performance, which had long been the envy of the investment world, has rebounded. The university has reported average annual returns between 11 percent and 12 percent for the last five years.

"We have had a great recovery from the financial crisis," Mendillo said in a telephone interview, adding, "We have rebuilt the team with incredible talent, and we've rebuilt the portfolio."

The university said it has already begun seeking Mendillo's replacement.

Mendillo said she has been thinking about leaving the position for some time but will give it "100 percent, just as the job requires," until she leaves at the end of the year.

"Jane has been an excellent leader for HMC and a true partner for the University. She has repositioned the endowment and re-established a world-class investment platform to support Harvard and all of its activities for many years to come," Harvard University President Drew Faust said in a statement.

Mendillo replaced Mohamed El-Erian, who left after only two years as CEO of Harvard Management Co to return to Pacific Investment Management Co. At PIMCO, he was groomed as the heir apparent to Bill Gross to run the world's biggest bond fund until his surprising resignation in January. Before El-Erian, Jack Meyer ran Harvard's endowment for 15 years and helped it grow nearly five times to $22.6 billion.

Mendillo, who earned her undergraduate and MBA degrees from Yale, will be 56 when she steps down. She said she is not looking for another full-time position in the investment management industry.

Unlike many universities, Harvard manages much of its money in house, something that is unusual for big endowments and universities. It also employs hedge fund managers, some of whom once worked for Harvard, to invest some money. During Mendillo's tenure, that portion was decreased. Harvard now manages roughly 42 percent of the money internally, up from roughly 30 percent, a move that saves the university money and gives it better control over the assets.

Mendillo's more cautious investing approach may have dovetailed better with the university's needs. Harvard depends on the endowment for roughly one-third of its annual operating budget.

Harvard announced last year that it wants to raise $6.5 billion in a capital campaign. Earlier this year, hedge fund manager Kenneth Griffin pledged a record $150 million gift in honor of his 25th reunion.

(Reporting by Svea Herbst-Bayliss; Editing by David Gregorio, Richard Valdmanis and Jan Paschal)