There's a conference room on the sixth floor at 70 Federal Street in the heart of Boston's financial district where a dozen investment specialists gather at 10:45 every morning. It looks just like those corporate board-rooms you've seen in countless movies, except the rectangular table isn't as big as you remember, the chairs aren't as tall.

"There's pressure to buy a larger table," says Walter M. Cabot '55, the man who--as president of Harvard Management Co.--runs those daily meetings. "I'm resisting that pressure. I feel that if you get a larger table, then you're going to want to put more people around it."

"We've always had the philosophy that the Management Co. should not be so large that everyone couldn't sit around the same table," says George Putnam, the Harvard treasurer who fathered the University's system of managing its own investments.

"When the company was founded, I felt it was important to keep the number of people small--it's cheap, effective, and lets you focus on the major issues," Cabot says. "The great joy and benefit Harvard has is one account for one group of people around a table."

University and financial leaders say this compactness has allowed Harvard Management to hold on to the talented investment managers who have given the company such a successful record so far. James N. Bailey, managing director of Cambridge Associates--which evaluates the investment performance of Harvard and other universities--says HMC has consistently beaten the market average by 10 to 25 per cent.

The 12 professionals who decide where to invest Harvard's $1.4 billion endowment bring to their conference table information culled from corporate annual reports, investment journals, personal visits to companies, visits to foreign firms, even conversations with Harvard faculty members who know something about economics.

"I don't think you can consider one stock without understanding the industry involved, the national economy, and the world economy," Cabot says. Each HMC partner covers the field or market he knows the most about, and keeps the others up to date at the daily meetings.

The "guts" of these meetings, Cabot says, is a lengthy debate about one company, one industry, or the "asset mix"--the portfolio's ratio of stocks to bonds. One partner will present the case. "Quite often there's an adversary role, just to make sure we get everything out on the table. There's a lot of debate; I think people should be challenged in this business," Cabot says. But, he adds, "You don't have to repeat things. This group has been sitting around this table every day for five years, and a sort of shorthand develops."

After the meetings, partners break for business lunches with company representatives, other investment managers, faculty members, and other sources. "We do a lot of traveling," Cabot says. "We never invest in a company that we haven't first called on, and talked to the senior management and the competitors."

HMC is only six years old. Until 1974, State Street Research and Management did Harvard's investing. The University treasurer at the time, George F. Bennett '33, was also president of State Street. "With the uprisings of the '60s, some felt there was something incestuous about the Harvard treasurer using his own firm to manage Harvard's endowment," Putnam says. Furthermore, since the treasurer both managed Harvard's investments and reported to the Corporation on how those investments were faring, he couldn't distance himself enough to judge the quality of the management. "The treasurer was in the situation of defending his own performance to the Corporation," Putnam says.

Putnam and the Corporation investigated different techniques of managing investments, and decided on an independent, private management company devoting its entire attention to Harvard--if they could attract the investment talent they wanted. They could, partly because 1974 was not a banner year for the financial community, "partly because Harvard is Harvard, and partly because managers could get out of the cut-throat Wall Street world and work for an institution that they find morally and socially uplifting," Putnam says.

The University has also found it cheaper to run Harvard Management than to pay outside managers, Putnam adds. This year's HMC annual report says its salaries are "comparable with other first-line institutions," but goes on to say the cost of running the company is one-third of the average in the field.

HMC attracted and held onto an above-average group of investment specialists because it gave them a chance to spend all their time making specific decisions on which account, Harvard's $1.4 billion endowment. They don't spend much time on internal administration because the company is so small, and they don't spend any time on attracting more business or customers because the Corporation won't permit it. "They get to spend 90 or more per cent of their time on the fun part of it," Putnam says. In other investment firms, "as you move up in this field, you normally end up doing more administration and marketing and less day-to-day investing," he adds.

When Harvard Management began, five independent managers took over 10 per cent of the endowment to give the Corporation a means to judge HMC's performance, and so HMC itself could take advantage of the know-how of larger outside firms. Only three of those five firms still handle any Harvard money, though; one merged, and another wasn't doing the job right, according to Putnam. Today HMC uses outside talent mostly in specialized areas--for example, in its decision to commit money in venture capital (loans from an investor to a new business in hopes of a high return). "We didn't want to do it in-house, so we went out and gave the five best venture capital managers a portion of Harvard's money to manage," Cabot says.

HMC works within broad guidelines set by the Corporation, but there's almost no Corporation interference in HMC's day-to-day decisions. Putnam gives the Corporation a list of HMC's transactions every week. "I try to be able to answer questions, but there are very few questions," he says. If HMC's performance began to decline, he adds, the Corporation would not try to interfere in specific investment choices. "We would rather make personnel changes, switch some people around," he says.