Yale’s top earners defended

The University’s highest paid employees deserve their salaries and more, according to financial experts and Yale faculty.

A recent, controversial article in Bloomberg argued the opposite, claiming that many selective universities overpay their endowment managers. During the most recent reported year, 2011-’12, Chief Investment Officer David Swensen GRD ’80 and his second-in-command, Dean Takahashi ’80 SOM ’83 were the two highest paid employees at Yale, making a total sum of $2.9 million and $2.1 million respectively. Former University President Richard Levin came in third, with over $1.6 million in salary and benefits.

Still, faculty members and financial experts interviewed said the benefits these investment officers bring to the University far outweigh their levels of compensation.

“I would give them my money to manage,” said Andrew Lo ’80, a finance professor at the Massachusetts Institute of Technology. “I actually think Yale should thank its lucky stars that it has David Swensen and Takahashi.”

Though Yale’s investment managers are paid more than University President Peter Salovey, the ratio of compensation is justified, said School of Management professor Andrew Metrick ’89 GRD ’89. He added that their University salaries are much lower than what similar positions in the private sector would provide.

Since 2008, Swensen’s bonuses — payments that are tied to the long-term performance of the University endowment — have fluctuated between $2.9 million and $1.5 million, while his base compensation has stayed fairly constant at $770,000, according to Internal Revenue Service forms.

Lo applauded the endowment’s long-term returns. Over the past 20 years, Yale’s endowment generated returns of 13.5 percent per annum and added $18.4 billion in incremental value, according a Sept. 2013 press release from the Yale Investments Office.

“I think David Swensen is the most underpaid person at Yale,” Metrick said. “He could leave Yale tomorrow and multiply his salary by 10 without trying. I strongly believe that the level of contribution to the University that has been made by Swensen and Takahashi so far exceeds what they actually get paid.”

School of Management Professor Zhiwu Chen GRD ’90 said university investments offices often compete with the investment management industry for the best talent, so endowment managers’ salaries should ideally rival those in the private sector. In the long-run, Yale will have to increase Swensen’s and Takahashi’s salaries, he said.

Still, financial journalist Matthew Klein ’09 — the author of last week’s Bloomberg article — feels that many institutions are wasting their money on endowment managers. Over the past five years, both Harvard and Yale have underperformed stock market index funds, he said in an email. While Yale has historically found success with top-performing hedge funds and private equity firms, recent performance from those asset classes has been slow.

“The aggregate data from NACUBO-Commonfund show that many schools aren’t getting good value from their ‘alternative investments’ after considering the fees and the illiquidity,” he said. “That means they are wasting money when they pay people to find those investments.”

Klein added that large endowments were heavily hurt by the most recent financial crisis and that the typical endowment lost as much or more than the S&P 500 — a stock market index based on 500 large companies — during the crisis.

During the 2008-’09 academic year, Swensen’s salary and benefits totaled $5.3 million and Takahashi took home $3.4 million, according to a 2009 IRS tax filing.

But professors and independent analysts interviewed defended the Yale Investments team. Lo said he takes his hat off for the work Swensen did in managing recovery after the Yale endowment lost nearly a quarter of its value. As of June 30, 2013, the endowment was valued at $20.8 billion.

“There are certain current money managers who are overpaid,” Metrick said. “There are people like that out there. But God, not Swensen. I think that’s really the key point.”

At Yale, large salaries are not just limited to investment officers. In the 2011-’12 academic year, Dean of the Yale School of Medicine Robert Alpern received nearly $810,000 in total compensation. He said many of Yale’s clinical professors take home a smaller salary than they would if they were in private practice.

When Swensen took office in 1985, the Yale endowment was valued at $1.3 billion — 6 percent of its current value.

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