At the Top of Their Game

Unfazed by critics, Harvard's endowment managers toast to another stellar year

Sarah M. J. welch

Jack R. Meyer, president of the Harvard Management Company, chats with a receptionist just inside the front door of the firm’s 16th-floor offices in the Federal Reserve Building in downtown Boston.

A vulture looms over the trading floor of the Harvard Management Company—a stuffed, toy vulture.

It first appeared atop an employee’s desk in 2002, amid a bitter dispute with an external fund manager who called the University a “vulture investor.”

But two years later, the predatory bird is still perched above the trading floor, an oddly iconic image for the guardians of Harvard’s $22.6 billion nest egg, the largest endowment in higher education.

As the University’s official investment firm, charged with maintaining the school’s greatest source of income, the management company is perhaps Harvard’s most vital and yet most controversial arm. While recent returns—21.1 percent last fiscal year—have drawn the envy of Wall Street, critics continue to assail Harvard’s aggressive investments, not to mention the multi-million-dollar salaries paid out each year to its top endowment managers.

But if the criticism has taken any toll on the firm’s 175 employees, it hardly shows.

“Everybody’s happy,” Jack R. Meyer, the management company president, said in an interview last month, prompting an incredulous grin from across the table. Everybody?

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“Well, yeah,” he said, “everybody.”

Several visits to the management company’s offices in Boston over the past two months appeared to confirm at least the thrust of Meyer’s assessment. The management company, however embattled, is still a world-class investment firm at the top of its game. And with a 10-year record essentially unparalleled among institutional investors, Harvard’s endowment managers clearly have cause for their contentment.

The mood was particularly jubilant this summer as the staff gathered on the trading floor—next to the vulture, no less—to celebrate another round of stellar returns at the management company’s “Fiscal New Year’s Party,” according to Meyer’s accont. Feasting on tubs of ice cream, they turned to their boss, who as a surprisingly short man for such a financial giant, stood atop a desk to lavish what has become annual praise upon his managers.

For the third time in 10 years, every portfolio managed by the firm—from domestic equity to emerging market bonds—had outperformed its benchmark. That would mean more money for the University, of course, as well as more money for Meyer and his top endowment managers, with seven- and eight-figure bonuses for many at the top of the firm’s payroll.

But under Meyer’s performance-based compensation system, which he first instituted upon his arrival in 1990, everyone at the management company—from accountants to secretaries—had reason to celebrate. They, too, would enjoy a modest bonus in honor of the University’s windfall.

On the 16th floor of downtown Boston’s soaring Federal Reserve Building, the staff of the Harvard Management Company, ice cream in hand and checks in the mail, toasted to a job well done.

THE 16th FLOOR

The management company’s trading floor, a methodical array of flat-panel monitors and mini televisions tuned to CNBC, is largely dormant on typical trading days. Though the firm is responsible for roughly 250,000 transactions a year, according to Meyer, work on the floor is conducted in library voices—even whispers, when a reporter is present—a far cry from the popular image of frantic traders hollering orders and scrambling for phones.

“We require a lot of good thinking,” explains Meyer, “and a lot of yelling and shouting isn’t conducive to that sort of thinking.”

When the management company renovated its trading floor in 1998, Meyer sought to construct a room which would appear “light and cheerful but not opulent,” a curious distinction for the home of one of the richest endowments in the country.