Money Managers' Ethics Questioned

From their offices on the 26th floor of the Federal Reserve Building in downtown Boston, Scott Sperling and Mike Eisenson sit atop the financial nerve center of New England.

Beyong the wide expanse of pane glass windows, beyond the cluster of skyscrapers that house the headquarters of some of the area's biggest banks, beyond the gold dome of the State House glittering in the late afternoon sun, the Charles River meanders by in the distance.

Way off on the horizon--not so far away, really, but far enough that you can't see them from these lofty heights--on the other side of the river's banks, stand the historic, ivied walls of Harvard Yard.

Harvard and the Federal Reserve Building are two very different places. But they are linked by Jack R. Meyer, recently appointed president of the Harvard Management Corporation (HMC) and manager of the University's $5 billion plus endowment.

And Sperling and Eisenson--a pair of thirtysomething yuppies with MBA's--work for Meyer as managing partners of the Aeneas Group incorporated, charged with running HMC's private placement portfolio.


That portfolio--which includes some of HMC's riskiest holdings--is spread among investments in real estate, energy commodities and venture capital. And it is a portfolio that, within the last decade, has grown from aninitial value of $140 million when Sperling andEisenson first took charge, to more than #1.2billion.

According to its stewards, Aeneas is now one ofthe largest private investment companies in thecountry. Its rapid development and burgeoningpocketbook have earned the almost universaladmiration of industry experts. Having watched itperform, other universities, once reluctant tomake high risk investments with their endowments,have abandoned their fears and followed HMC'slead.

But Aeneas has its critics as well. Sperlingand Eisenson in particular have been the focus ofincreased scrutiny since earning 1989 performancebonuses in the high sex figures that placed theirsalaries to over $1 million dollars each--thehighest of any Harvard official, and more than sixtimes what then-President Derek C. Bok earned inthe same year.

Less than two years later, HMC wrote downapproximately $200 million in Aeneas investments,a devaluation that amounted to more than one sixthof the portfolio's total worth.

The youthful duo's management style has alsobeen plagued by charges that it is too hands-off,at times even getting out of control. Personalityconflicts have reportedly led to the departure ofmore than one top Aeneas executive. Andallegations of ethical improprieties havedetracted from Aeneas' otherwise polished image.

Many, if not most of the charges have beenlevelled at the ruggedly handsome, slightlygraying Sperling--the younger of the two--anexecutive who would look more comfortable in a J.Crew catalog than a pin-stripe suit. Sources closeto HMC have asserted that the darker, more asceticEisenson is better regarded in the industry.

In an interview with The Crimson last week,Sperling and Eisenson readily acknowledged thatinvestment mistakes have been made at Aeneas. Butthey said such errors are to be expected withinthe context of the type of high-risk investmentsAeneas makes. And they denied that there have beenany serious problems ethical or otherwise, withinthe upper ranks of either Aeneas or HMC.

Sources familiar with HMC told a differentstory, however. Most frequently cited in theircomments was HMC's salary structure, which theyclaimed contributed to vast over-compensation forSperling and Eisenson in 1989.

HMC officials have confirmed that since Meyerbecame president of the corporation about one anda half years ago, its salary structure has beenchanged. According to sources close to thecompany, the previous structure allowed Sperlingand Esenson to collect large bonuses based onestimated profits that HMC had not actually earnedand on outdated investment valuations that weresignificantly inflated.

The old system of compensation might haveencouraged the two money managers to makeinvestments based solely on their short termperformance prospects, the sources alleged.Furthermore, according to the sources, it mighthave provided a considerable personal financialincentive for Sperling and Eisenson to ignore theovervaluation of their portfolio.

"Under the old compensation structure there wasmotivation for that sort of behavior," one sourcetold The Crimson. "The compensation incentive wasa short term one, an incentive to make investmentdecisions along those lines."