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Harvard Endowment Investors Earn Record Payouts

HMC salaries up $16 million from last year

By James Y.stern, CRIMSON STAFF WRITER

Harvard's top five investors raked in a record $43.5 million in bonuses and salary last year, $16 million more than the bear before, according to a report released yesterday by the Harvard Management Company (HMC), which invests Harvard's endowment.

The bulk of the sum came from bonuses, which HMC's fund managers receive if they exceed the company's benchmarks-its internal investing standards-over a three-year period on the different areas they manage.

1997 marked the third consecutive year HMC increases the University's endowment by more than 20 percent. Recent bonuses had been held down by lower endowment growth earlier in the decade.

We always had a year in there that was maybe good but not extraordinary", three year period".

Last year's 20.5 percent return on the endowment, which brought it to a record high of $13 billion, was not as large as the increase in money paid to investors. This Year investors received 59 percent more in compensation than last year.

Jonathon S. Jacobson, who topped the list, was paid more than $10 million. The other four investors earned between $5 million and $9.7 million, and Meyer made $1.8 million. Meyer also made most of his money in bonus, which are based on the success of the endowment as a whole.

Only those who have contributed significantly to the growth of the endowment receive bonuses.

While Jacobson's salary and bonus come to more than 35 times what President Neil L. Rudenstine made last year, the HMC report claimed that managing the endowment internally is half as expensive as management by an outside firm would be.

"I do not think we will be able to sustain this performance level", Meyer said. "Compensation will come down from these levels".

Meyer added that if HMC fails to meet its benchmark this year-"a realistic possibility"-investor compensation would drop "dramatically".

The endowment lost roughly 10 percent of its value over the summer as tremors shook markets around the world. HMC investments in emerging market in Russia and domestic funds akin to hedge funds were hit especially hard.

This year's compensation swelled as result of the accumulated success of HMC in prior years. The company uses a "clawback" system where some bonuses are withheld, in case an investment loses its value.

For Maurice Samuels, an HMC fund manager who invests in foreign fixed-income, this policy led to an especially high bonus this year.

Samuels managed a 3.6 percent return this year, beating the 2.2 percent benchmark set for him-"not particularly remarkable" in Meyer's words.

But the year before, Samuels came up with a 16.9 percent return, well over his 2.6 benchmark. Much of his bonus from that year was "clawed-back" in case Samuels lost that gain in the year to come.

The bottom line: Samuels didn't lose any money this year and became one of the top five with nearly $6 million in compensation for work he did in 1996 and 1997.

As for Jacobson, Harvard's most successful investor for six of the last eight years, HMC will no longer be giving him top dollar. He announced this spring that he was leaving HMC to start his own firm, Highfields Capital.

"We miss Jon", Meyer said. "He added tremendous value for Harvard".

In April, HMC invested $500 million in Highfields and is now cultivating Jacobson's "No. 2", in an attempt to keep up the winning track record.

Jon's No.2 is managing a portfolio in the same style that Jon did and seems to be doing pretty well", Meyer said.

The bottom line: Samuels didn't lose any money this year and became one of the top five with nearly $6 million in compensation for work he did in 1996 and 1997.

As for Jacobson, Harvard's most successful investor for six of the last eight years, HMC will no longer be giving him top dollar. He announced this spring that he was leaving HMC to start his own firm, Highfields Capital.

"We miss Jon", Meyer said. "He added tremendous value for Harvard".

In April, HMC invested $500 million in Highfields and is now cultivating Jacobson's "No. 2", in an attempt to keep up the winning track record.

Jon's No.2 is managing a portfolio in the same style that Jon did and seems to be doing pretty well", Meyer said.

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