Endowment Managers’ Pay Reported

The annual disclosure of compensation at Harvard Management Company

With the filing of its tax return for nonprofit organizations (Form 990) for 2009 in mid May, the University has also released information on the compensation paid to Jane L. Mendillo, president and chief executive officer of Harvard Management Company (HMC, which is responsible for investing the endowment) and its highest-paid portfolio managers. (As noted in May 2010, the basis for such reporting has changed, so the HMC information just released covers calendar year 2009, even though the University’s tax return and its annual report on HMC’s investing activities cover fiscal years, which end June 30—for this Form 990, the year ending June 30, 2010). Thus, the newly released compensation figures, reflecting annual incentive pay disbursed once each year, span the second half of fiscal 2009 (a year when the endowment, in the throes of the world financial crisis, suffered an investment return of negative 27.3 percent, and declined by some $11 billion in total value) and the first half of fiscal 2010 (a year when the rate of investment return was positive 11 percent, and the endowment as a whole appreciated by $1.4 billion, after distributions to support Harvard operations, to its reported value of $27.6 billion as of June 30, 2010).

For calendar 2009, HMC reported these total-compensation sums for Mendillo and the five most highly compensated portfolio managers:

Jane Mendillo, president and CEO: $3.5 million

Stephen Blyth, internal platform: $8.4 million

Steven Alperin, emerging markets equities: $6.8 million

Apoorva Koticha, fixed income: $4.5 million

Marc Seidner, fixed income: $2.9 million

Graig Fantuzzi, fixed income: $2.7 million

This is Mendillo’s first whole-year report; the figures covering calendar 2008 captured only her first six months at HMC’s helm, a role she assumed on July 1, 2008. Blyth appeared on the 2008 list ($6.36 million), as did Seidner ($6.30 million; he has since left for Pacific Investment Management Company) and Alperin ($4.36 million). The other portfolio managers are newcomers to the list. (See here for reports on fiscal 2010 and fiscal 2009 investment returns, and the performance of various parts of the endowment portfolio relative to market benchmarks; during fiscal 2010, HMC's managers performed strongly compared to market returns, reversing their relative underperformance during the tumultuous prior year.)

In a statement accompanying the release, Treasurer James F. Rothenberg, who chairs the HMC board of directors, noted that “Jane Mendillo has effectively strengthened HMC’s organization and repositioned the portfolio towards generating superior long-term returns for the University.” He observed that the hybrid investment model—involving both internally managed funds and those assigned to external management firms—“is extremely cost effective for the University” and had saved “over one billion dollars in management fees over the past decade.”

HMC portfolio managers’ compensation is overwhelmingly (in excess of 90 percent, HMC says) variable, and tied to their investment performance: to earn any variable compensation, their performance must exceed that of a market benchmark for the class of assets they oversee. In addition, performance-based incentive compensation is not paid immediately; a portion is paid at the end of the year in which it is earned, but the rest is kept in the endowment for possible future distribution, subject to continued outperformance. Hence, the compensation payments reported in any given year, including the figures above, reflect results over multiple years.

In addition, according to the release, Mendillo has instituted two further refinements in the pay system:

The holding period before incentive compensation is wholly paid out to internal portfolio managers has been extended, from two years to three years—effective as of some recent, but unspecified, date.

And as initially disclosed last May, compensation for HMC’s entire senior management team is now tied to the performance of the endowment portfolio overall (and caps have been put in place to reduce compensation to those personnel in any year when the endowment suffers a negative return).

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