Harvard Endowment Soars as Its Head Plans to Leave

The Beatles insisted that money can’t buy you love. Apparently it can do a lot of other things, like lure top-flight talent from one high-profile, well-paying job to another high-profile, better-paying job.

On Wednesday, Harvard announced that Mohamed A. El-Erian, the head of its $35 billion endowment, would return to the Pacific Investment Management Company after a year and a half in Cambridge.

Many were stunned. Harvard rests at the heart of more concentric circles of power than any other institution. Its endowment, the largest in the country, is also one of the most successful, continuing its winning streak with a 23 percent return for the year that ended June 30.

Mr. El-Erian is leaving to take the newly created job of co-chief executive and co-chief investment officer at Pimco, joining two other prominent executives who insist they are not leaving. He cited family reasons for his decision. (He declined to comment for this column.)

His move might seem odd. If investing is your passion, managing a money pot like Harvard’s would seem to be the best job in the world. Mr. El-Erian could make a good living, make a difference and have the kind of power wealthy Wall Street financiers so assiduously, and often fruitlessly, seek.

Yet retaining endowment chiefs, at Harvard and elsewhere, is notoriously challenging. And according to veterans, the job is no walk in the park.

“Being the chief investment officer of an endowment is one of the hardest jobs in the investment business because there are so many constituencies involved,” said Verne O. Sedlacek, president and chief executive of Commonfund and a former chief financial officer at Harvard Management Company. “In my job, I have 1,800 clients with one objective — investment performance. An endowment has one client with 1,800 objectives.”

Consider the constituencies: students who may want you to shed your holdings in companies that do business in Sudan because of the genocide in Darfur, or professors who do not make a lot of money and happen to have very specific expertise in just about everything. It is a clash of civilizations; liberal academia meets cold, crass capitalism.

“I’ve never been called names worse than those I was called by professors and others on campus,” one former endowment head said. “It gets personal very quickly.”

And don’t forget the endowment boards, often packed with passionate and well-heeled alumni who did not make their fortunes by simply rubber-stamping investment decisions.

“You are subject to the vagaries of the board, and they come and go and they are different people,” said Alice Handy, who ran the University of Virginia’s endowment for 29 years before starting a business in 2003 advising small endowments. “It can be like déjà vu. You come back to the same issues over and over again.”

Nationally, more than 40 percent of the top investment executives within universities and endowments left in 2005 and 2006, according to a 2007 compensation survey by Mercer Human Resource Consulting (now Mercer) that excluded Harvard and Yale. The number is high even for Wall Street, which tends to chew people up at impressive rates.

“It’s tough to keep these CIO’s in place,” said Robert Boldt, the former head of the University of Texas Investment Management Company who is a partner at Perella Weinberg Partners. “It’s a problem that is ongoing.”

Money is obviously one reason. A lot of these people are talented at what they do, and in case you just landed here from outer space, hedge funds have been snapping up people to manage money, giving them a lot of freedom and the possibility of eye-popping payouts.

“This pay-for-performance culture that works well on Wall Street is very hard to achieve in an academic setting,” said Stewart Massey, founding partner of Massey Quick, which customizes investment portfolios for small and midsize endowments and foundations.

Mr. El-Erian’s predecessor, Jack Meyer, left after controversy over how much he and some of his staff members were paid. He later started a $6 billion hedge fund, the biggest on record.

Clearly even the best-run endowments have trouble holding onto talent. Harvard produces presidents, chief executives, doctors, lawyers, politicians and money managers (the money managers that come from Harvard’s endowment are called the Crimson puppies). Brand Harvard is so hot that there is an independent magazine dedicated to it, whose title is simply the institution’s ZIP code. And yet it has lost two endowment managers in less than three years.

In the last few years, several longtime executives at endowments around the country have left to start investment businesses, consulting to endowments and universities, directly managing money for them or both.

These former endowment chiefs are looking to bridge that gap with different approaches. Makena has a one-size-fits-all model in which it, rather than the investment board, manages the money and its day-to-day allocation. Investure customizes investment portfolios for clients, working with the boards to develop an allocation profile and then introducing board members to managers who can work within their own parameters. Mr. Boldt is offering a hybrid of the two.

Politics aside, some longtime endowment executives had rather fond memories. “I think it’s the best job in the world,” Ms. Handy said. “You get to meet amazing investors, you meet fascinating people through your board, you are cutting edge and you do it for a cause you can believe in and identify with.”

Added Mr. Boldt: “The real psychic reward is feeling like you are doing something good and important about an organization you care about.”

Or not. If Mr. El-Erian had stayed at Harvard and the performance he delivered was good, he easily could have followed in Mr. Meyer’s footsteps, raising billions for his own hedge fund.

But he’s going west, back home, where word has it that his family was happier. Maybe Pimco gave him more love. Or maybe it was just more money.