Harvard fund managers under fire

Harvard money managers are pocketing millions of dollars in salaries and bonuses, provoking criticism and praise for a management system that consistently makes Harvard more money than any other university in the United States.

Two of the men who manage Harvard's hefty $22 billion endowment earned about $25 million for their work as part of the Harvard Management Company, Inc., according to a company report.

David R. Mittelman and Maurice Samuels each earned the large sum for the last fiscal year ending in June 2004, although most of the reported compensation was not salary but bonuses based on performance.

Harvard spokesman Al Powell argued that the salaries are not abnormally high, and that many universities hire external managers for even larger costs. Because Harvard's internal managers are employees of the University, he said, their salaries must be reported annually and inevitably receive criticism.

Harvard manages an endowment of $22.6 billion, principally with its internal management group, HMC, which is owned entirely by the University and was established in 1974.

Harvard's management system is unique among other universities, most of which use outside hedge fund managers that are unaffiliated with the schools. Not only does Penn manage its assets with external hedge fund managers, but it also has a much smaller endowment than Harvard at only $4 billion.

"Most of us don't manage money internally," Chief Investment Officer Kristin Gilbertson said of Penn and other similar schools, adding that she felt negative press coverage of the Harvard salaries was unfair.

"They have made so much money for the endowment," she said, noting that the HMC had outperformed fixed income by 20 percent in the last year. Harvard's 21.1 percent fiscal 2004 return outpaced the median performance of the 25 largest university endowments, which posted an average 17.1 percent return.

"They sort of built this [system] up gradually," Gilbertson said of Harvard, adding that the system would be difficult to replicate at Penn and other schools because "it's hard to find talent on this level that consistently beats this market."

She also noted that building a successful team of managers would be an intensive, long-term project, and because the hedge fund industry has grown so much, many good hedge funds are already closed.

"Harvard did something that was very unique," Gilbertson said, "It would sad if all of this ended because of the controversy."

"It might seem excessive," she said of the salaries, but the system "is a good thing for Harvard."

Harvard money managers are paid with compensation standards that are consistent with those of outside investment firms with comparable performance. All bonuses are approved by the HMC board of directors, the members of which are not eligible for bonuses.

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