With good news often comes bad news, and even Harvard can’t escape that fact. With the pleasure of tremendous returns at the university inevitably comes the sticky point of manager bonuses. Although Harvard’s managers actually received a pay cut this year – the top six managers only made $78.4 million in bonuses in FY2004 compared to $107.5 million in FY2003 – the numbers will likely still arouse vocal criticism.
Faculty, alumni, and students have all expressed concern in the past regarding such large bonuses while the school cuts back on some lower-level staff (See Running the Fund: Crimson Blues ). They certainly will not stay quiet this year when they learn, for example, that managers Maurice Samuels and David Mittelman, Harvard’s perennial cash-cows, each earned bonuses of around $25 million.
In a statement, Harvard defended the pay levels as normal in the community of hedge-fund managers with which the Harvard Management Corporation (HMC) competes for talent, according to the Wall Street Journal (WSJ). HMC President Jack Meyer has repeatedly stressed that Harvard, through its unique in-house money managing system, is actually saving money despite paying such bonuses to its managers. Meyer believes that to stay competitive, he must reimburse his managers in such a fashion so that there is no mass exodus into the world of hedge funds.
The bonus system has failed to completely stem the tide of managers leaving for other positions, however. Multiple managers have left in past years to start their own hedge funds or other alternative investment vehicles, including Jonathon Jacobson of Highfields and Timothy Peterson of Regiment.