Meyer said the lead of 8.4 percentage points over other big investors was the largest in HMC’s 22-year history.

At this point, Meyer says HMC began a discussion about whether the endowment had outgrown HMC and whether parts of the endowment should be outsourced. There was even discussion of breaking up HMC entirely in separate smaller firms.

But ultimately Harvard’s directors decided that the endowment benefited from the internal management.

“With HMC, Harvard gets better results with lower costs,” Daniel says.

“When we manage assets internally, we have a much better sense of our risk. We know exactly where all of our positions are at all times,” Meyer says.

In fact, Harvard officials estimate that HMC is only about half as expensive as hiring outside money managers.

“We’re confident that over the last five years, it has cost Harvard half of what it would have cost had we used external managers and achieved identical results,” Meyer says.

But despite HMC’s stellar performance, conflict has arisen over compensation packages paid to HMC’s top investors—last year HMC’s highest paid investor earned $16.7 million, while Harvard President Neil L. Rudenstine earned a mere $350,000.

But Harvard officials and industry experts say such compensation is necessary if Harvard continues with HMC.

“If you’re going to invest internally, you want to make sure you have the best investors you can get. You’re competing in their business not yours,” says Eve Guernsey, J.P. Morgan’s managing director of institutional investing.

And because of its size, Harvard can afford to pay its money managers competitive industry salaries, a critical element to maintaining the best managers.

“A place like Harvard has the ability to offer compensation levels that are comparable to regular investment firms,” Sperling says.

Harvard’s compensation packages are more demanding than the average Wall Street package, officials say, since performance is based on only growth above HMC’s benchmarks, not overall growth.

Partly because they are more rigorous, the compensation packages are lower overall than those in the private sector. When Sperling departed in 1994 for the Thomas H. Lee investment firm; he cited compensation as an “important element” in his decision to leave HMC.

The controversy surrounding HMC’s compensation levels has mostly dried up, though, as HMC’s results have continued to skyrocket.