Top bond manager Mohamed A. El-Erian will oversee the University’s $25.9 billion war chest, Harvard announced Friday, concluding its extended search for a new custodian of the largest endowment in higher education.

The appointment of El-Erian, 47, will bring Harvard one of the most visible names in the field of emerging markets. He hails from Pacific Investment Management Company (PIMCO), where he leads the emerging market portfolio team and manages over $28 billion in emerging market debt.

El-Erian will fill the CEO slot at Harvard Management Company (HMC), a position left vacant since the departure two weeks ago of former chief Jack R. Meyer. Meyer exited after 15 years at Harvard with a team of top HMC executives to form a new hedge fund, Convexity Capital Management.

HMC board member Peter A. Nadosy ’68, who has been managing the endowment in the interim, will continue his oversight until El-Erian starts work early next year.

A Harvard outsider, El-Erian said in an interview that he was drawn by the chance to manage funds in an academic setting, interact with the University community, and work with HMC staff—a group with which he met on Friday.

“You can think of me as an admiring observer of Harvard and I’m now thrilled to be part of the community,” he said.

Situated across the river in Boston in the Federal Reserve Building, HMC has traditionally operated at a degree of distance from that community.

But El-Erian expressed eagerness to forge closer ties. In hopes of “connecting the pipes” between HMC and the Harvard community, El-Erian will join the faculty of Harvard Business School.

Past interaction between HMC and the outside world has sometimes been less than tranquil. The firm has attracted intense scrutiny over issues such as the compensation of Harvard’s fund managers.

El-Erian said he is well aware of the visibility attached to the CEO position, which has historically served as the firm’s spokesman and has often become a lightning rod for criticism of HMC.

“I’ve come in with full recognition that this is part of the job,” he said.

He also faces the challenge of recruiting first-rate managers to work at HMC. Meyer and four senior colleagues are only the latest to leave the firm and start their own funds, a career move that can bring less visibility and higher pay.

Harvard has invested hefty sums in several firms founded by outgoing HMC managers and says it plans to invest about $500 million in Convexity. The investments have shifted the endowment from 80 percent internal management when Meyer took over HMC in 1990 to about 50 percent today.

El-Erian’s to-do list will almost certainly include striking a balance between internal and external money management.

University President Lawrence H. Summers defended the firm’s compensation plan when asked about HMC’s ability to attract top talent in an interview Friday. HMC compensates its managers based on their portfolio’s performance relative to a benchmark that measures market performance.

“The board has discussed this issue, and the board is completely committed to continuing to provide compensation for outstanding performance at HMC at levels that will enable us to attract the most talented people,” Summers said.

Some members of the Harvard community, including a group of alumni from the Class of 1969, have criticized the pay of Harvard’s fund managers. In 2003, star bond managers Maurice Samuels and David R. Mittleman were paid $35 million and $34 million, respectively.

“The question of compensation should be fully open and discussed by the University community,” one of the alumni, William A. Strauss ’69, said in an interview Friday.

El-Erian comes to the job well-equipped for such a discussion. Communication is one of his major strengths, said Benjamin J. Heller ’94, managing director at HBK Investments and also a Crimson editor.

Heller, who recently joined El-Erian on a panel in Washington, said his monthly PIMCO commentaries on emerging markets are closely watched due to their entertaining writing and insight.

“It was something that both people inside the industry, and outside the industry would read,” Heller said.

El-Erian’s appointment could bring a more public face to HMC if he applies a similar style at Harvard.

FROM SPECTATOR TO PLAYER

In an interview Friday, El-Erian recalled memories of watching Harvard football games in a freezing stadium as a young boy in the late 1960s.

But his academic path took him to Cambridge University, where he earned first class honors in economics, and then to Oxford University, where he was awarded master’s and doctorate degrees.

El-Erian worked at the International Monetary Fund (IMF) for nearly 15 years before leading the emerging markets research outfit at investment bank Salomon Smith Barney in London. In 1999, he moved to PIMCO, a leading bond manager in Newport Beach, Calif. with a strong emerging markets business.

During the Brazilian financial crisis of 2002, El-Erian bucked conventional wisdom in contending that the country would improve its financial state and avoid defaulting on its loans, Heller recalled. He was proven right, leading to a big payoff for PIMCO—and boosting his prominence even higher.

“He’s probably the most high-profile emerging markets investor in the world, right now,” Heller said. “If there’s somebody who’s the public face of the emerging markets asset class, it’s Mohamed.”

El-Erian was seen as a likely successor for PIMCO Chief Investment Officer William H. Gross, who is in his 60s.

“He’s certainly in a position where he’s clearly in the line to be the chief investment officer,” Gross told Bloomberg News in November 2004.

While he is a superstar in the bond field, in taking the reins of HMC from Meyer—who led the firm through record returns—El-Erian will inherit a portfolio containing a wide range of assets.

Emerging markets investments account for 5 percent of Harvard’s holdings and bonds comprise another 22 percent. The University’s diverse holdings range from traditional stocks to timber.

El-Erian said he’s confident that he’s up to the task and expects to draw upon his own experience as well as the talents of the HMC staff.

“You don’t expect the quarterback to play every position,” he said.

CALLING OFF THE SEARCH

For Harvard, the appointment of a permanent CEO, first reported Friday in the Boston Globe, concludes a protracted search that stretched over 10 months.

El-Erian said Harvard first contacted him about taking the position in June.

Harvard also offered the job to Bain Capital Managing Director Mark Nunnelly this summer, the Globe reported. Nunnelly did not return a call seeking comment.

With no chief named upon Meyer’s departure two weeks ago, Nadosy, a former president of Morgan Stanley Asset Management, was named interim chief investment officer.

El-Erian will now wind down his work at PIMCO as he prepares to serve a new master—John Harvard.

According to University Treasurer James R. Rothenberg ’68, El-Erian explained to the HMC staff on Friday that he will wear “two hats” during the transition in the coming months.

As time passes, “the Harvard hat will begin to get bigger and the PIMCO hat will begin to get smaller,” Rothenberg said.

Meanwhile, Meyer and four of his outgoing colleagues will remain as advisors to HMC until they launch Convexity next year.

“They will be a continuing partnership as Harvard invests in their new fund,” University President Lawrence H. Summers said Friday. “This has been a very, very cooperative transition.”

—Staff writer Nicholas M. Ciarelli can be reached at ciarelli@fas.harvard.edu.

—Staff writer Alexander H. Greeley can be reached at agreeley@fas.harvard.edu.