Harvard Endowment Compensation Sparks Letter From AlumniMichael McDonald and Lauren Streib
A group of alumni that has previously criticized Harvard University for how much it pays its endowment managers is again finding fault after compensation more than doubled in three years at the investment arm.
Harvard Management Co. paid $132.8 million in salaries, bonuses and benefits in the year ended June 30, 2013, up from $63.5 million in 2010, according to tax filings. The company, which oversees the university’s $32.7 billion endowment, employed 324 people in 2012, 19 percent more than in 2009, the filings show.
“We are astonished by what we discovered,” nine members of the class of 1969 wrote in a letter to Harvard President Drew Faust. Bloomberg News obtained a copy of the letter dated Aug. 20. Compensation is “increasing at a much faster rate than the endowment, which still has a long way to go before it reaches its pre-crisis peak,” they said in the letter.
Harvard, with the world’s largest university endowment, is still seeking to recover from a 27 percent investment loss from the credit crisis. The value of the endowment fell from a peak of $36.9 billion in 2008 to $26 billion in the year ended June 30, 2009. It posted an 11.3 percent investment gain last year, trailing Ivy League peers including the University of Pennsylvania, which reported a 14.4 percent increase, and Yale University, which had a gain of 12.5 percent.
The university’s endowment operation is different from most schools because it has a larger staff doing internal trading while others use asset-management companies.
$1.5 Billion Saved
“HMC’s unique hybrid model has saved the university more than $1.5 billion in management costs compared to what an equivalent external management strategy would have cost over the past decade,” Christine Heenan, a spokeswoman for Cambridge, Massachusetts-based Harvard, said today in an e-mailed statement.
Members of the class of 1969 have been critical of the compensation at Boston-based Harvard Management since 2003 when the university disclosed that its five highest-paid endowment employees got a combined $100 million in one year, including about $35 million each for two traders. The controversy prompted some alumni to threaten to withhold donations and preceded the departure of Jack Meyer, who ran the endowment for 15 years.
David Kaiser, a member of the class of 1969 who helped write the most recent letter to Faust, said he hadn’t received a response yet. The class is scheduled to meet with the president next month as part of its 45th reunion, according to the letter.
The other signatories from the class of 1969 were Laurence Brunton, Paula Caplan, Jim Davidson, Stanley Eleff, Barbara Foley, Jonathan Hoffman, Kenneth Jost and Robert Shetterly. The group, which includes academics, lawyers, a pastor and an artist, graduated at a tumultuous time when Harvard students took over a university hall to protest the escalating war in Vietnam.
“I am certain a lot of people agree with us,” said Eleff, a lawyer in Tampa, Florida, regarding the compensation criticism. He said that while he and others may not have participated in the 1969 protests, they all took away from that era “skepticism about received wisdom.”
Jane Mendillo, chief executive officer of Harvard Management since 2008, has been rebuilding the company’s internal trading operations, which shrank amid Meyer’s departure. Mendillo said in June that she is resigning as CEO at the end of the year. The board overseeing the company is conducting a search for her replacement.
In 2010, the university said it would alter compensation, tying senior management pay to the entire fund’s performance while reducing bonuses if there were negative returns. It said more than 90 percent of the pay was tied to returns and that bonuses often reflected several years of gains and losses relative to a benchmark.
“HMC’s overarching compensation strategy is to maximize alignment of interests between our investment management teams and the university,” Mendillo wrote in a 2010 letter to the school’s alumni.
Nonprofit institutions such as Harvard are required to disclose total staff compensation as well as their highest-paid employees in publicly available tax filings.