Harvard Endowment Fund goes past $25 Billion

Last updated on: October 2, 2005 at 5:05 am by Desh Kapoor

Harvard Endowment Fund goes past $25 Billion 2005-10-02T05:05:54-05:00 Desh Kapoor

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URL Link:

http://www.guardian.co.uk/worldlatest/story/0,1280,-5313706,00.html

Highlights:

Harvard University’s riches have surged past $25 billion, the school announced Friday, but the news came amid signs that the world’s wealthiest university is struggling to find a permanent CEO for its in-house money management company.

Harvard said that former Morgan Stanley Asset Management president Peter Nadosy will serve as interim chief investment officer of the quasi-independent Harvard Management Company, replacing Jack Meyer, while the search for a permanent successor continues.

Harvard’s endowment, now $25.9 billion, exceeds No. 2 Yale’s by more than $10 billion and is one-and-a-half-times larger than the market value of General Motors. The endowment functions as a kind of trust fund, kicking in $850 million a year to Harvard’s budget.

Meyer, who added billions to Harvard’s coffers by consistently beating benchmarks over his 15 years there, announced in January he would leave to start his own company. He had postponed his departure while the university searched for a permanent successor. But Friday was his last day and the school announced the appointment of Nadosy, an HMC board member, in the company’s annual letter to the Harvard community.

“We’ve been talking to a lot of very interested and very talented people, and it is tricky for them to understand and learn enough about Harvard, and it’s tricky for us to make sure we find the right person,” James Rothenberg, chair of HMC’s board of directors, said in a telephone interview.

Harvard faced criticism from some alumni for paying its in-house investment advisers as much as $35 million, though top investment managers at for-profit companies can command far larger salaries and bonuses.

“Compensation is probably an issue for some people, because some of the people you’re talking to are walking away from larger opportunities,” Rothenberg said. “For other people, it’s not an issue at all.”

The uncertainty over HMC’s future cast a shadow on another year of stellar returns Meyer: 19.2 percent, compared to a median of 15.8 percent for comparable endowments, according to figures provided by Harvard.

The school’s nest-egg stood at just $4.7 billion when Meyer arrived in 1990. But he complemented the school’s prodigious fundraising – it received 123 gifts of $1 million or more last year alone – with aggressive investments in nontraditional assets like hedge funds, timber and venture capital. In the letter released Friday, Rothenberg said that if Harvard had performed only as well as the average large, diversified fund over the last 10 years, it would be $14.4 billion poorer today.

Those extra billions have transformed the university, though critics say Harvard should spend more of its savings. The university recently eliminated tuition for low-income families. The business school, which already has a wood-paneled gym, recently spent $53.4 million renovating its library. There are new medical research buildings, and plans for a new campus in Boston for several of the professional schools.

“It’s nice to be rich,” said government professor Harvey Mansfield. “You can travel, you can buy books. You can hire helpers. You can do this at a place that is embellished by well-kept buildings and beautiful surroundings.”

But whether Harvard can sustain its financial growth depends significantly on its money managers. And it’s unclear whether HMC will survive in its current form. The committee searching for Meyer’s successor also has been examining broader issues, such as compensation and whether to entrust more of its endowment to outside managers, who would likely charge higher fees.

But Harvard has apparently decided not to entirely separate its structural changes from its search for a new CEO. Said Rothenberg: “We have wanted the next head of Harvard Management to be part of those discussions.”

Rothenberg also said he did not consider the search’s duration a problem, noting Harvard spent 18 months searching before it hired Meyer.

Rothenberg declined to discuss whether anyone had been offered the position, saying only there had been “discussions” with various candidates. He said there had been “intensive discussions” with Bain Capital’s Mark Nunnelly, whom The Boston Globe reported in early September had turned down the job.

Rothenberg’s letter confirmed Meyer’s new company also would manage a portion of the endowment.

Source:
The Guardian, UK

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