Just as the Bulldogs and Cantabs plot different plays leading up to The Game, Yale and Harvard follow separate paths with their Wall Street players — especially leading up to payday.
Although Yale’s base investment returns consistently ranked higher than Harvard’s over the past decade, the top five investment officers at Harvard last year each earned salaries ranging from $6.9 million to $35.1 million, as much as 38 times the $910,937 salary Yale Chief Investment Officer David Swensen took home last year, according to records from both universities.
Harvard’s investment officer salaries have caused a stir recently among the school’s alumni, some of whom have petitioned Harvard President Lawrence Summers to lower the cap on investment manager salaries. At Yale, Swensen’s earnings — the only investment officer whose salary is made public by the University — have not caused any notable uproar.
The marked disparity in investment manager salaries at the two rival schools is primarily a result of differences in administrative investment management, said John Griswold ’67, executive director of the Commonfund Institute, the educational arm of a group which provides fund management and investment advice to many universities.
Since 1974, Harvard’s endowment has been run by the Harvard Management Corporation, which is separate from but owned by the university. This gives HMC managers the autonomy to set their own compensation rates. Yale, however, maintains complete control over its investment office. As such, Yale investment managers must have their compensation rates approved by University committees.
“Yale hires external managers through their Investments Office, but the management corporation is the Harvard model,” Griswold said. “They use internal management primarily — though it’s still a mixture of internal and external — that gives them the ability to remain somewhat independent from the university and compensate their employees as they wish.”
Griswold said most large universities, like Yale, outsource the majority of their investment management decisions.
“Yale manages some of its bonds internally, but it’s a fairly small piece of the overall portfolio,” Griswold said.
Yale’s average base investment returns of 16 percent rank the University first among the nation’s private universities over the 10-year period ending June 30, 2003, while Harvard’s average returns rank third at 14.7 percent, according to the HMC.
But while Swensen earned $910,937 for the fiscal year that ended June 30, 2003, according to Yale tax returns, HMC President Jack Meyer earned $6.9 million over the same period. Four members of Meyer’s investments staff earned considerably more than he did during the 2003 fiscal year, according to a HMC report.
Last year, three HMC senior vice presidents earned $35.1 million, $34.1 million and $17.3 million while a HMC manager took home $7.6 million, according to HMC figures.
Both Meyer and a spokesman from Yale’s Investments Office declined to comment on the salary figures.
Harvard officials said the HMC managed 57 percent of endowment assets internally and 43 percent through outside investment firms during the fiscal year 2003, and said the university’s consistent ranking in the top one percent of university investment returns proves the HMC has been successful in this approach.
“Its purpose was to maximize profits while gaining improved oversight regarding the management of our funds, and it has done that,” a Harvard spokesman said.
But some Harvard alumni complained that the university’s compensation of its investment managers is indefensible. William Strauss, one of seven Harvard Class of 1969 alumni who have petitioned the university to lower its cap on investment manager wages, said Harvard’s money managers should not be paid salaries so high that they are on par with those of professional athletes and Hollywood stars.
“Why people who manage Harvard’s money should be in a position to earn $35 million a year is beyond our understanding,” Strauss said. “It should shock the conscience of a university.”
Duke University, Stanford University, the University of Texas system and the University of North Carolina-Chapel Hill also use management corporations to direct much of their investments. But Griswold said neither Harvard nor Yale’s investment management program is inherently better than the other.
“I suppose once an endowment gets very large, it might get more efficient to manage things internally, but certainly the management must be ready to set up quite an experienced and skilled staff, and that could be a problem because non-profits tend not to pay market rates,” Griswold said.
Strauss said he thinks an investment manager’s salary should never exceed that of the university president, as is the case at both Yale and Harvard. During fiscal year 2003, Yale President Richard Levin earned $654,452 while Harvard’s Summers earned $681,735.
But Griswold said Swensen is well worth Yale’s investment.
“Considering what others in his field have made, he’s certainly a bargain,” Griswold said. “He could probably go to Wall Street and make far more than that in his first year, if he so chose. He’s a great asset to the University, and I would hope to keep him happy and keep him where he is. It’s hard to attract top guys unless you’re willing to pay Wall Street prices.”