University Reviewing HMC's Ties to Harvard

Harvard Management Co. (HMC), the group responsible for managing Harvard's multi-million dollar endowment, is undergoing an inter review and investigating options which could weaken its ties to the University.

The review comes on the heels of reports this summer, first published in The Crimson and then in The Wall Street Journal, of the ballooning salary and compensation packages given the HMC managers, including Jonathon Jacobson, who earned $6.1 million last year.

The Boston Globe reported yesterday that Harvard is considering moving to external management of the endowment, a plan which would sell HMC to its executives or vastly change the system by which it compensates its money managers.

The University does not directly control HMC, but President Neil L. Rudenstine and Harvard Corporation member D. Ronald Daniel, Robert Stone and Richard Smith are on the HMC board, as are Vice President for Finance Elizabeth C. "Beppie" Huidekoper and Robinson Professor of Business Administration Jay O. Light.

"It's hard to make a distinction between the board and the University," HMC President Jack R. Meyer said.

Meyer confirmed yesterday that those options are being considered, although he said he does not expect any change to be made.

"I do not think it is in Harvard's economic interest to make a change," Meyer said.

University officials, however, said the review is routine and is being handled by the HMC board, not by the University.

"This is something the management company reviewed as recently as a couple of years ago," said Vice President of Government, Community and Public Affairs James H. Rowe III '73. "Once again, it is the board reviewing the performancce of the company and looking at its structure."

Meyer said, however, that the reports of high salaries this year were the immediate impetus for this review.

"While these reviews have occurred in the past and will in the future, it would be disingenuous for me to say that the fact that a portfolio manager earned $6 million last year was not a factor," Meyer said.

While alumni and professors have expressed dissatisfaction with the salaries paid to top HMC managers, Rudenstine said in an interview this summer that the compensation fol- lows industry standards.

Jacobson's pay for this year represents bonuses complied from several years of "exemplary" performance, Rudenstine said.

Rudenstine defended the compensation system, saying that Harvard's internal management of HMC saves the University significantly over what it would cost for outside management.

In order to get comparable results from external managers, Harvard would have to pay about twice as much, Meyer said.

Harvard is pleased with the performance of HMC this year--the company made returns of 26 percent this year, nearly 10 percent better than the average for comparable funds, Rowe said.

"The issue is not performance, ...the issue is not expenses," Meyer said. "The issue is individual compensation."

Due to the performance of certain fund managers, they have achieved salary and bonus packages that are normal in the finance community but "startling" in the academic community, Meyar said.

"The questions is: Can you run a first-class investment firm under the umbrella of an academic institution?" Meyer said.

Any recommendations made by the board would then be taken up by the University, Rowe said.

Both Rudenstine and Provost Albert Carnesale do not have any comment at this time about the review, Rowe said

Jacobson's pay for this year represents bonuses complied from several years of "exemplary" performance, Rudenstine said.

Rudenstine defended the compensation system, saying that Harvard's internal management of HMC saves the University significantly over what it would cost for outside management.

In order to get comparable results from external managers, Harvard would have to pay about twice as much, Meyer said.

Harvard is pleased with the performance of HMC this year--the company made returns of 26 percent this year, nearly 10 percent better than the average for comparable funds, Rowe said.

"The issue is not performance, ...the issue is not expenses," Meyer said. "The issue is individual compensation."

Due to the performance of certain fund managers, they have achieved salary and bonus packages that are normal in the finance community but "startling" in the academic community, Meyar said.

"The questions is: Can you run a first-class investment firm under the umbrella of an academic institution?" Meyer said.

Any recommendations made by the board would then be taken up by the University, Rowe said.

Both Rudenstine and Provost Albert Carnesale do not have any comment at this time about the review, Rowe said