Running the Endowment at an Arm's Length

From his comfortable 15th floor office in the Federal Reserve Building, Walter M. Cabot '55 looks down onto a prime view of Boston's financial district.

Looking westward from his desk to Financial Plaza, the president of Harvard Management Company (HMC) can see the skyline rising sharply over the Charles River. But his view of Cambridge and the College he once attended has long been obstructed by the sprouting city core.

Cabot says this is the way he had hoped HMC would be when he was chosen to be its founder 17 years ago.

"At an arm's length" was the key phrase when the plans were set down for the first independent firm owned by a university with the sole task of managing its endowment. And as he prepares to step down as president of the company he created in 1974, Cabot says it "is running as well now as it ever has."

But while there seems to be general approval of Cabot's term in office among members of the Harvard community, outside observers have tried to peg the recent announcement of Cabot's resignation to Harvard's hopes for redirecting HMC.

Financial pundits at The Boston Globe and The Wall Street Journal have suggested that HMC's search for a new head is a result of Harvard's displeasure with its long-time endowment manager.

The Globe intimated in a January article that Cabot may have been forced out because of poor relative performance in 1989 and the possible loss of $45 million when a company in which Harvard had invested declared bankruptcy in September.

The Journal questioned the terms under which Cabot was leaving HMC, and rapped his knuckles for not having groomed a successor from the inside.

But Cabot, 57, who suffered a severe heart attack last spring, says he decided to leave after coming to the conclusion then that "17 years is long enough for anybody to run one organization."

"The Globe wanted to show short-term performance was the problem, but that's a joke because in January we built it all back up, and besides, you don't judge somebody on six months versus 17 years," Cabot says. "If I hadn't had a heart attack, I don't think they'd be out searching."

HMC partner Verne Sedlacek agrees with Cabot, saying that during the January downturn on Wall Street "being underinvested in the stock market has helped us. The Globe article was a complete misinterpretation."

And Robert H. Scott, Harvard's vice-president for finance, says reports circulating since the announcement that Cabot was going to step down have been "misinformed."

"We're only looking for a change in the sense that we need to find a replacement for Walter Cabot," Scott says. "Walter played a big part in the company and in developing our investment strategies. I think we've been very fortunate to have had someone as successful as Walter."

Under Cabot's reign, the endowment of the University has grown from $1.3 billion to what is currently just under $5 billion.

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