Harvard's Hoard
By JOHANNA BERKMAN
Next Sunday, Lawrence Summers becomes the 27th president of Harvard....Summers's appointment in April was barely a month old before Massachusetts Hall, which houses his new office, was taken over by dozens of students protesting Harvard's failure to provide a "living wage" of $10.25 to all its employees. Over the next 26 days, tents popped up in Harvard Yard, as students, professors and workers slept outside in sympathy....If the issues of the protest are small for such a rich and enormous institution -- about 400 employees and several hundred contract workers are affected by the university's position, which it has pledged to reconsider -- they call attention to a growing chorus of critics who believe that Harvard is at least squandering an opportunity to rethink its culture, or even its mission, in light of that one stunning number: $19 billion. (The next largest endowment, Yale's, is $10 billion.)...
From his 16th-floor perch inside the Boston Federal Reserve office tower, Jack Meyer, Harvard Management Company's president and C.E.O., oversees a staff of 185 and the investment of the university's billions. Were it not for the sign on the door, you would have no idea that H.M.C. is a university-owned nonprofit rather than an independent, highly sophisticated money-management firm. There is the water view, the beautiful wood paneling and the very for-profit salaries. Last year, H.M.C.'s top five performing portfolio managers earned bonuses totaling more than $50 million. The single biggest payout went to the foreign-equity manager. He got $17 million, more than 48 times as much as Rudenstine's compensation of $352,650.
Once, these bonuses made Meyer, a friendly man who speaks with the fast clip common among those who wield power on Wall Street, a scourge in the Harvard community. "In the early 90's, I received a lot of correspondence that was somewhat less than friendly," he says. Today, after the long bull market, even Jeremy Knowles, the arts and sciences dean, has made peace with Harvard's rewarding those who produce wealth much more generously than those who produce knowledge: "I ask myself, How much would they have made at Goldman Sachs?" (Knowles's salary, like that of every dean but that of the medical school, is less than $300,000. The average salary of a full professor at Harvard is $135,200.)
Harvard began its metamorphosis into a hedge fund in the mid-70's, when, after a pair of Ford Foundation monographs encouraged universities to invest more aggressively, it set up its own shop. Since Meyer took over in 1990, H.M.C. has employed an aggressive but diversified arbitrage strategy to make a fortune for the university's endowment -- $4.3 billion last year alone, a sum roughly equal to Columbia University's entire endowment. H.M.C. has also spread its investment tentacles into 68 private equity and venture-capital firms and seeds new investment funds too. The first -- there are now four, all run by former employees -- was seeded in 1998, when H.M.C.'s top-performing hedge-fund manager, Jonathon Jacobson, quit to start his own firm shortly after receiving a $10 million bonus. The deal: Meyer gave Jacobson $500 million to manage in exchange for reduced fees. Another dividend: as a free agent at Highfields Capital Management, Jacobson can invest Harvard's money in controversial holdings -- he has invested in casino stocks, for example -- while reducing the risk of a major P.R. blow-up. (H.M.C.'s only in-house prohibition is tobacco investments.) Last year, according to the university's tax returns, H.M.C. paid Highfields $29 million for investment-management services.
Another factor helping the growth of the endowment has been Harvard's conservative payout policy. While the endowment's returns have surpassed the internal target of 6 to 6.5 percent above inflation for the last nine years, the corporation has paid out only 4.2 percent of its endowment on average to the deans for spending, less than the typical university target of 4.5 to 5 percent. The strategy has netted the university additional billions....
Johanna Berkman, a former Goldman Sachs analyst, has written for Lingua Franca, New York and Worth.
[The full article is available at <http://www.nytimes.com/2001/06/24/magazine/24HARVARD.html?searchpv=nytToday&pagewanted=all>.]