Harvard's red-hot money manager a hard act to follow

BOSTON - Harvard University's endowment, the world's largest, grew 19.2 per cent in the 2005 financial year to US$25.9 billion ($37.98 billion).

The university said returns for the year to June 30 slightly lagged behind the 21.1 per cent gain in the previous financial year but still beat the 15.8 per cent median return of the 25 largest university endowments.

Harvard University's endowment fund has figured in some of New Zealand's biggest forestry deals this decade.

The Ivy League university also named Peter Nadosy, a board member of Harvard Management and a former president of Morgan Stanley Asset Management, as interim chief investment officer to replace its top investment manager, Jack Meyer, while finalising its search for a permanent successor.

Meyer starts a hedge fund this week after serving 15 years as chief executive officer of Harvard Management.

During his tenure, Meyer helped quadruple the endowment's size, but his managers' huge pay packages - US$25 million each for his two top managers in 2004 - prompted complaints from some alumni at a time when the university was facing budget constraints.

James Rothenberg, who heads Harvard Management's board, praised Meyer's work, calling the Harvard Business School graduate's tenure as top investment manager "impressive".

He wrote that the fixed-income group made an "important contribution to the value added to Harvard's endowment".

Translated into real dollars, Rothenberg wrote that Harvard would have US$14.4 billion less now if it had earned the same kind of returns that a group of 140 institutional funds with more than US$1 billion made in the past 10 years.

Harvard will stick with its star manager by letting Meyer manage some endowment money at his new firm, Convexity Capital.

Industry sources expect Meyer to raise about US$4 billion quickly as his fund ranks among the most highly anticipated new launches this year and many pension funds lined up long ago to put money with him.

While most US universities employ outside managers to invest their endowments, Harvard still manages about half of its portfolio in house. The rest is managed by various hedge funds, including firms managed by former Harvard empxloyees.

The endowment is managed in 10,840 individual funds.

Investments in private equities posted the year's highest return, at 34.7 per cent, while foreign bonds achieved the best performance relative to their benchmark, with a 20.3 per cent return against the benchmark's 7.9 per cent.

For years, the university has been top ranked among large university endowments.

In the 10 years to June 30, the endowment earned an annual return of 16.1 per cent and has seen only two years of losses. In 2001 the endowment lost 2.7 per cent and in 2002 it was off 0.5 per cent.

That kind of performance, however, makes it daunting for anyone else to take over from Meyer.

The university has spent nine months searching for a replacement and is now interviewing a handful of people to find a final candidate.

The endowment helps support financial aid programmes at the university.

Harvard spends about 5 per cent of its endowment every year on university programmes.

In 2005, endowment income provided 31 per cent of Harvard's total income.

- REUTERS