Tuesday, February 3, 2009
An editorial in today's Harvard Crimson discusses the compensation received by Harvard's in-house investment managers, and opines that the large salaries are necessary to maintain the quality of advice for investing Harvard's substantial endowment. Ten members of Harvard's Class of 1969 recently called for reduced pay for the investment managers. The editorial responds, arguing that the managers are worth what they're paid.
For fiscal year ending June 30, 2008, the top six officials at Harvard Management Corporation were paid, collectively, $26.8 million. In the four months following the end of the fiscal year, the endowment lost about $8 billion dollars, 22% of the value of the endowment. The students point to past returns: from 1995 to 2005 the annualized return was no less than 15.9%. It's hard to know what that means, given that the timeframe includes both the significant bull market and the downturn around 2000, without comparing it with returns earned by other endowments. Perhaps Harvard's endowment fared better than others. And perhaps Harvard is paying its managers at "market rate." A salary of $4-5 million probably isn't out of line, especially given the excesses of recent years. The fact that investment managers are worth so much more than faculty members and university administrators still rankles, but as the students write, outsourcing investment advice may also be expensive. The market is always the the reason given for salaries so high that they are unfathomable to mere mortals, but the market may be changing.