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HMC Gain Should Benefit Students

Harvard may have dropped to number three in the U.S. News rankings this year, but in one category we're doing better than ever. Thanks to the consistent "outperformance" of the University's diverse portfolio, returns on the Harvard endowment were up 9.4 percent over fiscal year 1995, to 26 percent in fiscal year 1996. Kudos go to Harvard's money managers, who, not incidentally, are being amply rewarded for their efforts. We hope students as well will benefit from their hard work.

With an endowment of $8.6 billion, the record returns mean an additional windfall of $60 million to the College and the graduate schools, according to Jack R. Meyer, president of the private Harvard Management Company. These gains are substantial even given the sound American economy in which the stock market has gained more than 14 percent this year and the Dow Jones Industrial Average has surpassed 6,000 points. Harvard's investments, under the management of HMC, outpaced this strong investment market by 13.7 percent, Meyer noted.

For this successful work, four of HMC's managers earned between $1 million and $3.7 million in salary and bonuses for fiscal year 1995. A fifth employee, Jonathon S. Jacobson, raked in $6.1 million for managing approximately one-tenth of Harvard's $8 billion endowment. This high level of compensation is warranted if they are necessary to maximize the return on the University's investments. President Neil L. Rudenstine, who often seems to know more about monetary affairs than any other aspect of Harvard life, defends HMC as "very cost-effective."

While this year's returns are above par, HMC's past performance has been mixed. From 1974, when HMC was started as a wholly-owned Harvard subsidiary, to 1986, HMC turned a $1.1 billion endowment into $4.6 billion--not too shabby. HMC avoided the 1987 stock market crash, but missed the boom which followed it as well. Over the period from June 1985 to June 1995, Harvard's annual return was only 13 percent. The Wall Street Journal has commented, "Any schmo could easily have beaten that simply plunking cash down into a lowcost mutual fund that mimics the behavior of Standard & Poor's 500-stock index." Moreover, for fiscal year 1995, the endowment returned 16.8 percent, a fairly paltry rate compared to the S&P;'s return of 26.1 percent.

With undergraduate tuition, room and board leaping toward $30,000 per year, the administration should direct a good portion of the new revenues either to halting the rapid rise in student costs or to dramatically increasing the quality of student life and education. Sixty million dollars could be used to hire more teaching fellows and train them better, to thoroughly renovate the MAC or to hire new professors. Harvard's really in the money now. Let's hope that students reap the rewards of HMC's Wall Street magic.

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