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Alumni Call for Lower HMC Pay

By Peter F. Zhu, Crimson Staff Writer

A small group of alumni from the Harvard Class of 1969 renewed its criticism of compensation paid to University endowment managers in a letter sent to President Drew G. Faust yesterday, citing the nearly 30 percent investment loss sustained this past year.

“This unprecedented loss is treated as a rather small blip on a generally upward curve, giving us little confidence that Harvard is addressing the scope and nature of the current problems,” the nine alumni wrote. They said that the University’s annual financial report, which was released on Friday, “fail[ed] to acknowledge any fundamental mistakes or to suggest any major changes in the way the endowment is managed.”

The group, which has long condemned Harvard Management Company for paying what it says are exorbitant bonuses, called on Harvard to report how much of that money has been retracted after the endowment’s recent underperformance. According to HMC’s policies, which emphasize sustained, long-term growth, internal investment managers are awarded bonuses if they grow the value of the endowment above benchmarks set by the HMC Board, but those bonuses can be retracted in later years if the fund underperforms benchmarks.

A “substantial number” of portfolio managers had bonuses “clawed back” last year, Harvard’s financial report noted, but a small group of managers retained bonuses and even earned additional compensation.

University spokesman John D. Longbrake declined to provide further details on the compensation retractions.

In 2008, compensation for HMC’s president and top five officials totaled $26.8 million. In 2003, when managers were paid $107.5 million, many of the same alumni issued sharp protestations—which reportedly disgruntled many HMC managers and motivated them to leave Harvard to found private firms.

David Kaiser ’69, who signed the letter to Faust, emphasized in an interview with The Crimson that the global financial crisis has exposed fundamental flaws in the aggressive strategies used by investors around the world. He acknowledged that HMC has for years delivered spectacular endowment growth, but said that the drastic budget cutbacks now plaguing the University illustrated the need for “slower but more sustainable rates of growth.”

Harvard, which currently manages 30 percent of its funds internally and uses external investors to oversee the rest, says that its investment model allows it to achieve extraordinary growth at a fraction of the cost of hiring comparable outside managers. Nevertheless, Kaiser emphasized the need for lower compensation—even if it means that Harvard is forced to abandon the successful but arguably risky investment strategies that have served it well in the past.

“The managers of the Harvard Endowment...shared—indeed, led the way—in many of the practices that have brought us all to this pass,” the alumni letter said. “We think Harvard University can now take the lead in finding a way out, if it chooses to do so.”

—Staff writer Peter F. Zhu can be reached at

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