Harvard and Yale Endowments

Harvard University sits atop the academic world with a staggering $25.9 billion endowment fund, nearly twice the size of the next biggest endowment at Yale University. This war chest has accumulated over the years on the basis of donations and the stellar returns recorded by the investment management arm of the endowment, Harvard Management Company (HMC). From 1983 through year-end 2004, HMC has realized returns of approximately 16% per year for the endowment vs. approximately 14.11% for the S&P500.

The star investment manager, Jack Meyer, managed the fund for the previous 15 years and oversaw growth in assets from $4.7 billion to $26 billion – including outperformance equal to an extra $12.2 billion over the typical large institutional fund. Last year he was ousted over a row over excessive compensation. The top six managers of HMC routinely received salary and bonus packages that totaled upwards of $70 – $100 million, and there were many vocal critics within the Harvard administration.

Meyer defended the compensation packages by arguing that they are in line with industry norms. He states, “This compensation deal is a good deal for Harvard. If we had used external managers and gotten the same results, it would have cost twice as much.” Meyer has since set a record with the largest hedge fund launch ever at $6 billion, and convinced 30 former HMC employees to join him at to the new firm. HMC has since tapped PIMCO’s emerging markets bond fund manager El-Erian to run HMC.

The average investor could never hope to compete with a staff of 30 researchers and access to the brightest minds in the business – or could he?