Top Finance Manager Discusses Endowment

The president of the Harvard Management Company left open yesterday the possibility of moving to external administration of the University’s multibillion-dollar endowment in order to quell growing criticism of fund-manager compensation rates.

“Maybe it’s not possible to maintain world-class investment managers in an academic setting,” said Jack Meyer, whose in-house company invests Harvard’s endowment, in a free-wheeling discussion with students in Lamont Library last night.

He repeatedly came back to the option of external management, often without prompt, and said pressure from within the company’s board could force such a change.

Alums in recent months have objected to fund manager bonuses that topped $30 million in two cases last fiscal year, and students protested those wages outside the library yesterday.

Already, 45 percent of the endowment is managed outside of Harvard, but Meyer said any move toward entirely external management was far from imminent.

Meyer was generally frank with students during his presentation, which offered a rare glimpse into the framework and operations of higher education’s most successful management company.

He shared internal portfolio numbers and the benchmarks against which the often lofty bonuses of Harvard’s fund managers are calculated.

And bucking a tight-lipped tradition, Meyer also hinted that the University endowment had risen from $19.3 billion, where it stood as of June 30, 2003.

“Fortunately, it’s a little bit larger than that now,” Meyer said.

Last month, David W. Scudder, vice president of trusts for the management company, made similar remarks in an interview with The Crimson.

“I think it’s going to be quite a satisfactory year, unless things really turn around in the next three or four months,” Scudder said.

Discussion participants were greeted last night outside Lamont by a handful of protestors who sought to draw a contrast between the fund-manager salaries and ongoing layoffs at the Harvard libraries.

“Lay off Jack Meyer and save millions of dollars annually,” yelled Tom Potter, a Harvard Law School library employee.

Meyer said last month that the management company board had lowered the cap on fund-manager compensation, and University President Lawrence H. Summers said the cap would prevent payouts on the magnitude of last fiscal year.

Inside Lamont last night, Meyer entertained a more sympathetic crowd, gathered by the Harvard Investment Association, but was at times pressed to answer hostile lines of questioning.

“I’m not sensitive,” Meyer told the audience of approximately 75 students at the start of his remarks. “I was when I first got here. I’m not anymore.”

He responded to all but one of the question posed to him, only declining to reveal the salary of the lowest-paid worker at Harvard Management Company.

Meyer had previously floated the possibility of external fund management with reporters, but he was unusually candid last night about the option. Most universities, including Yale and Princeton, manage their endowments with outside investors.

“It could be that we will eventually move to the same external system that other schools use,” Meyer said. But he said external management would not lower costs and would only sweep the compensation issue under the rug since fund managers detached from non-profit organizations like Harvard are not required to disclose their salaries.

With the departure—and the spin-off of their own funds—of five top fund managers in the last six years, Harvard has increasingly seen its endowment move to hedge funds outside the University.

Jeff Larson, who oversees foreign equities in the endowment, announced last month he will leave June 30 to establish his own hedge fund backed with $500 million of Harvard money. The University will also invest $200 million in an exclusive commodities fund run by Larson.

Meyer said he did not expect the outflow of Harvard’s fund managers to ebb, and he was not optimistic about plugging the holes.

“It’s real hard to hire replacement people,” he said.

Meyer has argued that the departure of Larson and other managers indicates they are not overpaid, and he staunchly defended Harvard’s compensation formula again last night.

Meyer dismissed calls to abandon the management company’s incentive-based system in favor of flat salaries or more modest bonuses.

“I can’t do it and pay competitive rates,” Meyer said. “I won’t try.”

In a moment of what appeared to be uncharacteristic frustration, Meyer said he would have the best job in the world, if not for the fury over compensation.

—Staff writer Zachary M. Seward can be reached at seward@fas.harvard.edu.