Recent Hirings Dropped from HMC

Harvard Management Company—the investment group charged with managing the University’s endowment—announced Friday that it will reduce staff levels by roughly 25 percent in the coming months.

In an effort to “re-balance and re-engineer the organization,” reductions will include investment professionals as well as “back office” and support personnel, according to University spokesman John D. Longbrake.

HMC—which currently employs more than 200 people—has faced heightened scrutiny in recent months as University officials prepare for a projected 30 percent decline in the endowment for the year ending June 30.

Harvard’s endowment, valued at almost $37 billion last June, was reported to have lost over $8 billion—or roughly 22 percent—by the end of October. But other market indices posted even worse returns, with the S&P 500 falling 24.6 percent in the same period.

HMC chief executive Jane L. Mendillo wrote in a statement that an analysis conducted by the firm’s management team to evaluate the size and structure of the company in light of current market conditions had concluded that “the time was right for a significant rebalancing of our staff and our functions.”

But she added that the analysis was conducted more as a standard procedure than as a response to unprecedented losses in the endowment.

“This type of thinking and rebalancing is done, and should be done, continuously, in organizations that are and that want to stay at the top of their field, through all kinds of market cycles and economic conditions,” she wrote.

Because of the recent losses in the endowment, HMC has drawn renewed criticism from some alumni, who called for the University to withdraw the multi-million dollar bonuses paid to top managers in a letter to University President Drew G. Faust. Former endowment chief Mohamed A. El-Erian and his five highest-paid associates received a total of $26.8 million in compensation for the year ending last June.

In 2003, the same group of alumni from the College’s class of 1969 led a charge to reduce what they saw as exorbitant compensation, ultimately contributing to the departure of several top HMC managers including long-time CEO Jack R. Meyer.

The alumni had also voiced concerns about the cost-effectiveness of HMC’s reliance on expensive internal investment managers, arguing that schools like Yale outsource most of their endowment work to hedge funds and external firms and achieve comparable returns.

According to Longbrake, external firms now manage roughly 70 percent of Harvard’s endowment—a marked increase from only a few years earlier. When Meyer left Harvard in 2005 to start his own hedge fund—taking with him 30 employees, four top managers, and $500 million in start-up cash from HMC—the University had half its endowment under outside management.

Mendillo—a 15-year veteran of HMC and the former manager of Wellesley College’s endowment—wrote that Harvard had no plans to change the current allocations, which had been in place before her tenure began in July.

“The business model at HMC—the internal platform combined with a selectively chosen external set—is the right one for our future,” she wrote.

—Staff writer Peter F. Zhu can be reached at pzhu@fas.harvard.edu.