Harvard alums criticize endowment pay

In a letter to Harvard University president Drew G. Faust, a group of alumni that has long been critical of high pay for the school’s endowment managers complains that the compensation levels have increased since the financial crisis.

In advance of their upcoming reunion, members of Harvard’s class of 1969 wrote in their letter, dated Aug. 20, that they were “astonished by what we have discovered.”

Total pay for the five highest-compensated managers at the world’s largest university investment fund rose to $28.8 million in 2013 from $25.2 million in 2009. In between, in 2011, pay for that group dipped to $18 million, the result of reduced three-year payouts after sharp losses during the financial crisis.


“We certainly think they should pay less,’’ David Kaiser, a historian and one of the authors of the report, said in an interview. “We think the relationship between performance and pay is not strict enough.”

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In fact, Harvard’s endowment was the worst performer among all Ivy League colleges, with a 1.7 percent average annual return over a five-year period ended in 2013, according to data compiled by Charles A. Skorina & Co., an executive search firm that serves the investment management business. Columbia University recorded the best five-year performance among the Ivy League schools, with a 6.8 percent annualized endowment return, the firm reported.

Harvard said the five-year average ending June 2014, when finalized, will be between 11 percent and 12 percent.

A handful of alumni from the class of 1969 have been vocal critics of executive compensation at Harvard Management over the past decade. The authors of the latest letter — nine Harvard graduates, including professors, a pastor, and a lawyer — do not delve into the fund’s performance in recent years but say executive pay has been rising faster than the size of the endowment.

The endowment had $32.7 billion in assets in the fiscal year ended June 30, 2013. It had topped its precrisis peak of nearly $37 billion, but ended the year below that mark because of large payments to support the university’s operations, Harvard said last year.


Kaiser said total annual compensation at the endowment, not including any subsequent pay adjustments, nearly doubled to $132.8 million in the five years ended in 2013. Part of that shift is the result of the endowment’s farming out fewer assets to hedge funds and instead managing the money internally.

Kaiser said he favored seeing the reported pay for employees, rather than not being able to determine the larger undisclosed fees paid to hedge funds.

Harvard spokeswoman Christine Heenan said in a statement that the endowment’s “unique hybrid model has saved the university more than $1.5 billion in management costs compared to what an equivalent external management strategy would have cost over the past decade.”

She said that the endowment had distributed about $11 billion to the university over the past five years, and that investment managers were subject to clawbacks if their performance lagged over time.

“This system encourages strong alignment of interest with the University and a longer-term view that discourages undue risk-taking,’’ she said in the statement.


Compensation of Harvard’s investment managers in recent years pales in comparison to the top pay in the 1990s. Still, Harvard’s financial statements show long-term compensation is on the rise, with estimated contingent bonuses and incentive bonuses budgeted at $43.5 million for 2013, up from $25 million in 2012.

The critics say executive pay has been rising faster than the size of the endowment.

The chief executive of the endowment, Jane Mendillo, recently said she will step down at the end of the year, after six years at the helm. She took over in July 2008, just before the crisis struck, and has spent her time since then trying to make the fund’s investment portfolio less risky.

People close to the endowment say Mendillo was not asked to leave. But critics in Boston’s investment community say she is leaving because of pressure to improve performance. The fund gained 11.3 percent last year but was outperformed by rival Yale University, at 12.5 percent, and the Massachusetts state pension fund, at 12.7 percent.

Beth Healy can be reached at Follow her on Twitter @HealyBeth.