Harvard will keep disputed pay policy
Under new chief, endowment also will continue managing some of its own funds
Harvard University plans to stick with the policies that have made the management of its $26 billion endowment both successful and controversial.
In an interview yesterday, Harvard President Lawrence Summers yesterday said Harvard was committed to two things: managing some of its money in-house, and paying the high salaries required to retain star money managers.
''Harvard is prepared to provide the necessary compensation to attract top talent to work at Harvard Management Co.," said Summers, referring to the entity that runs the endowment.
Summers made his remarks on the day the university named a new president of Harvard Management. As the Globe reported yesterday, Mohamed El-Erian, a key figure in the world of emerging-market debt, will succeed Jack Meyer, Harvard Management's current president, early next year.
El-Erian, 47, is a managing director at Pacific Investment Management Co. At Pimco he manages $28 billion in bonds from Third World countries as well as other bond portfolios.
''This is a tremendous opportunity," El-Erian said yesterday. ''It is one in which I'm following someone with a great track record."
When Meyer came to Harvard in 1990, the endowment stood at $4.7 billion. Over the past 10 years Harvard's investments returned 16.1 percent annually, far above the 12.5 percent average of the 25 largest endowments.
Harvard stood out from the pack in other ways. Whereas most endowments farm out all their money to outside managers, Harvard historically has chosen to manage a big chunk of its money with its own staff. Currently, slightly less than 50 percent of the endowment is managed internally.
Because Harvard Management is a part of the university, the salaries of its highest-paid people are publicly reported each year. The school's top money managers have earned as much as $35 million each in a single year. Meyer himself made as much as $7 million. Meyer said the compensation system was necessary to keep Harvard competitive in an environment in which top private money managers routinely earn tens of millions of dollars. Critics, including a small but vocal group of alumni, said it was inappropriate for Harvard to pay anyone so much money.
Meyer and a group of his money managers have revealed plans to set up their own private investment firm, Convexity Capital Management. Harvard previously said it would give Meyer's company as much as $500 million of the university's money to manage.
In a statement, Summers praised the contribution Meyer and his team made to Harvard. ''Generations of Harvard students and faculty will benefit from the investment successes they achieved," said Summers.
El-Erian is a relative newcomer to money management. After earning a doctorate in economics at Oxford, he spent 15 years at the International Monetary Fund where he worked on Middle East and Latin American affairs. In 2004 El-Erian was a candidate to become managing director of the IMF. The job went to former Spanish finance minister Rodrigo Rato.
El-Erian joined Pimco in 1999. A mutual fund he manages, Pimco Emerging Markets Bond fund, outperformed nearly 70 percent of its rivals over the past three years and more than 80 percent over the past five years, according to Arijit Dutta, an analyst with Morningstar in Chicago. ''The fund has had a solid record under his management," Dutta said.
At Pimco, which controls more emerging-market debt than any other institutional investor, El-Erian wielded considerable clout. Finance ministers of Third World countries regularly solicited his opinions on potential bond offerings and fiscal policy. He has written and spoken on issues ranging from Argentina's debt problems to the strength of China's currency.
El-Erian was born into an international environment. His mother was French and his father Egyptian. He speaks several languages and was educated in Europe.
Yesterday El-Erian said he was attracted to the Harvard job because it would allow him to practice money management in an academic community. He will be a faculty member at Harvard Business School, where he will teach a course in international finance.
Charles Stein can be reached at firstname.lastname@example.org.