With the help of Wall Street research, 15 HMC analysts decide how to invest Harvard's billions. Corporate histories, product break-downs, and earning estimates compiled by investment brokers plus 10 calls a day link the analysts to the researchers.

"We look to Wall Street for fact-gathering," says Cabot. "Our people spend most of their time assessing the reliablitiy of fact-gathering, the value of stocks and overall management of certain companies. Our value added is interpreting the facts."

Cabot adds that his desk is now piled with information from Wall Street.

After the analysts wade through the research and determine which securites to add to the investment portfolio, the Wall Street-HMC connection moves to the trading floor. Traders buy and sell securities via direct lines to brokerage houses, making between 50 and 75 calls each day and fielding more than 100 calls.

"It's a lot easier to push a direct line button than make a phone call," says one equity HMC trader. "Speed is of essence when you try to sell or buy stocks,"

"All we do is hit a button, and we're directly into Goldman Sachs," says Cabot. "A direct line gives time, speed, convenience, and not much more than that."

The direct hook-ups to Wall Street brokers are "so much a part of day to day operation, it's just like you going to the library and getting books out," Cabot says.

Besides using direct lines for stock transactions, traders "exchange information" over the phone, says an HMC equity trader. "Someone might call up to ask the firm's stance on the market in general and ask "What do you think about the market today and why?" she says.

HMC also calls on Wall Street when Harvard needs to make its own contribution to the market. The University issues bonds to pay for renovation costs and hires brokers to act as intermediaries in selling the bonds. "In that case they're a client of ours," says Cabot. "If IBM wanted to go out and sell stock, they would have to go to one of these firms. We act like they do in selling debt."

Yet most of the time, HMC is Wall Street's client. Wall Street firms executing transactions for HMC collect a commission on each trade, and the firms compete for HMC business. "Every [Wall Street firm] tries to get as much business out of Harvard or more," says Hilzenrath. In addition to HMC initiating a trade, Hilzenrath says that Morgan Stanley will try to drum up some business for themselves by suggesting investments.

GETTING ATTENTION

"We treat Harvard like a very important client which makes Harvard think well of [our firm]," says another top Wall Street executive. Although Harvard has a medium-sized account in comparison with the larger mutual funds, Cabot says the endowment garners sufficient Wall Street attention. "Obviously we're a large enough account so that it's worth their while." The bulk of HMC business on Wall Street deals with 30 firms.

The business HMC generates for Wall Street firms is quite different from their dealings with most other universities, who leave their entire endowments to the brokers' bidding. Last year HMC spent about $2 million on investment-related services, but if instead of handling its own management decisions Harvard put the entire endowment in the hands of outside investors, costs would run between $8 and $35 million a year, according to a Wall Street businessman.

Cabot says that for Harvard it is "a lot cheaper" to run its own money management firm. He said that putting the endowment in outside management would cost between .5 and .8 percent of total assets, while running the portfolio internally costs less than .2 percent.

Yet when HMC charged Harvard $9.7 million for total operational costs last year, it drained about .35 percent of endowment assets. According to an investment manager in a major Wall Street firm, Harvard could hire an external money manager at the same rate. Yale's cost for having outside management control its $1.1 billion equity portfolio is "certainly lower" than the .5 percent Cabot suggested, says David Swenson, director of investments at Yale.