Faculty Voices Endowment Concerns

Faculty members who met last week with Harvard Management Company (HMC) President Jack R. Meyer are expressing concern over the below average performance of the University's endowment.

Secretary to the Faculty Council John B. Fox '59 called the meeting a "spirited" discussion, saying that it focused on the endowment's recent rate of return as well as on the six-figure salaries regularly paid to top HMC officials.

"People were anxious," Fox said yesterday. "there was more concern and more interest because relatively small changes in the performance of the endowment have quite a significant effect on the Faculty's financial well-being."

The meeting came in the wake of reports last November that Harvard's endowment was outperformed by 71 percent of the nation's colleges and universities in fiscal 1992 and by 95 percent in fiscal 1991.

The rate of return on Harvard's $5.1 billion endowment has fallen below the national average since 1989. Harvard's performance has been sur. passed by at least 30 percent of universities nationally since 1987.

"The most recent financial report was a cause for concern," Fox said. "If we have another year [of below average performance], not just faculty members will be anxious."

Contacted by telephone at HMC's offices in downtown Boston last night, Meyer declined to comment on last week's hour-long meeting.

But according to Professor of Sociology Theda Skocpol, faculty members used the opportunity to solicit an explanation of HMC's investment practices from Meyer.

"Rigorous questions were asked and Mr. Meyer, an articulate and able fellow,gave us detailed answers," Skocpol said.

According to Senior Lecturer in MathematicsDaniel L. Goroff '78, who attended last week'smeeting, members of the faculty council reviewedcopies of HMC's annual report as well as a HarvardBusiness School case study examining HMC's policyportfolio.

The portfolio, established by Meyer after hebecame the management company's president in late1990, is a plan for HMC's long-term investmentstrategies.

Portfolio Diversity Blamed

Meyer has attributed HMC's recentunderperformance to the portfolio's diversity,including its relative emphasis on foreignsecurities and private placements, like realestate investments.

But Meyer has also said that the diversity willultimately prove beneficial.

"I think over time our policy portfolio willslightly outperform the average universityendowment, and I think that we will succeed inmodestly outperforming the policy portfolio,"Meyer said in an interview with The Crimson latelast year.

Fox said that Meyer's explanations allayed someof the council's concerns, adding, however, thatthe endowment's future performance remains thecritical issue.

"The proof is in the pudding, and there hasn'tbeen a vast surface of pudding," he said. "That'sgoing to be the ultimate determinant."

Salary Differences Discussed

In addition to investment performance, Fox saidthat council members discussed with Meyer salarydifferences between HMC officials and Harvardprofessors.

In fiscal 1991, the last year for which HMC hasfiled its tax returns, Meyer earned $575,000.

In the past, several Harvard money managersearned six-figure bonuses that pushed their totalcompensation over $1 million.

According to the most recent figures, a fullprofessor at Harvard earns an average of $92,200.

"Mr. Meyer gave us a detailed and fascinatingexplanation of the system of salary determinantsthat is used for investment managers," Skocpolsaid.

"I suggested at the end of the meeting that wemight want to consider a similar system ofreimbursements for Harvard professors."

Fox said several professors wondered whetherHarvard could retain qualified investment managersat lower compensation levels.

"Faculty are willing to work at HarvardUniversity knowing that their skills could getmore if they worked for a pharmaceutical companyor on Wall Street," Fox said. "Aren't there[investment managers]...who are willing to do thistoo?"

In-House System Debated

In addition, Fox said, the faculty membersdiscussed the reasons for maintaining an internalmanagement company at Harvard, instead ofretaining independent management firms.

"[Council members asked] how many otheruniversities do it this way," Fox said.

In the past, President Neil L. Rudenstine hassaid that Harvard is committed to the internalmanagement organization.

But Fox said that some council members areconcerned about the merits of the in-house system.

"The care of the endowment is in the forefrontof [the Faculty's] minds," Fox said.

"This is where the Faculty's patience isshorter than the Corporation's," he added,referring to the seven-member senior governingbody that includes Rudenstine

According to Senior Lecturer in MathematicsDaniel L. Goroff '78, who attended last week'smeeting, members of the faculty council reviewedcopies of HMC's annual report as well as a HarvardBusiness School case study examining HMC's policyportfolio.

The portfolio, established by Meyer after hebecame the management company's president in late1990, is a plan for HMC's long-term investmentstrategies.

Portfolio Diversity Blamed

Meyer has attributed HMC's recentunderperformance to the portfolio's diversity,including its relative emphasis on foreignsecurities and private placements, like realestate investments.

But Meyer has also said that the diversity willultimately prove beneficial.

"I think over time our policy portfolio willslightly outperform the average universityendowment, and I think that we will succeed inmodestly outperforming the policy portfolio,"Meyer said in an interview with The Crimson latelast year.

Fox said that Meyer's explanations allayed someof the council's concerns, adding, however, thatthe endowment's future performance remains thecritical issue.

"The proof is in the pudding, and there hasn'tbeen a vast surface of pudding," he said. "That'sgoing to be the ultimate determinant."

Salary Differences Discussed

In addition to investment performance, Fox saidthat council members discussed with Meyer salarydifferences between HMC officials and Harvardprofessors.

In fiscal 1991, the last year for which HMC hasfiled its tax returns, Meyer earned $575,000.

In the past, several Harvard money managersearned six-figure bonuses that pushed their totalcompensation over $1 million.

According to the most recent figures, a fullprofessor at Harvard earns an average of $92,200.

"Mr. Meyer gave us a detailed and fascinatingexplanation of the system of salary determinantsthat is used for investment managers," Skocpolsaid.

"I suggested at the end of the meeting that wemight want to consider a similar system ofreimbursements for Harvard professors."

Fox said several professors wondered whetherHarvard could retain qualified investment managersat lower compensation levels.

"Faculty are willing to work at HarvardUniversity knowing that their skills could getmore if they worked for a pharmaceutical companyor on Wall Street," Fox said. "Aren't there[investment managers]...who are willing to do thistoo?"

In-House System Debated

In addition, Fox said, the faculty membersdiscussed the reasons for maintaining an internalmanagement company at Harvard, instead ofretaining independent management firms.

"[Council members asked] how many otheruniversities do it this way," Fox said.

In the past, President Neil L. Rudenstine hassaid that Harvard is committed to the internalmanagement organization.

But Fox said that some council members areconcerned about the merits of the in-house system.

"The care of the endowment is in the forefrontof [the Faculty's] minds," Fox said.

"This is where the Faculty's patience isshorter than the Corporation's," he added,referring to the seven-member senior governingbody that includes Rudenstine