To the editors:

Your editorial “Running all the way to the Bank” (Feb. 10), in which you defend Harvard’s compensation of its investment managers, reveals not just your misplaced priorities, but also your total lack of understanding of the investment management business. Just yesterday, you published an article in which Dave Swenson, Yale’s chief investment officer, roundly criticized Harvard’s compensation plan as excessive and dangerous to the fabric of the University (“Yale’s Chief Investor Says HMC Overpays,” news, Feb. 9). Yale’s endowment has significantly outperformed Harvard’s; according to your own statistics, Yale’s fund has outperformed Harvard’s by 1.2 percent annually for the last twenty years. Swenson is well-paid; he earns around $1 million each year. But compared to Harvard’s managers he is a virtual pauper.

The Crimson argues that Harvard has to pay its managers as much as $18 million per year in order to achieve decent investment results. Why, then, can Yale achieve superior results with far lower compensation? Surely, Swenson could earn far more money if he left Yale. Similarly, Larry Summers could earn far more money if he left Harvard for the private sector, but Harvard does not, and should not, pay him tens of millions of dollars to retain his services.

Furthermore, the statement that Harvard pays its managers “approximately under 10 percent” of the market value for their services is patently absurd. Even with today’s enormous salaries for investment management, very, very few investors manage to earn more than $18 million per year. The idea that an in-house manager of a $2 billion bond fund would be paid at least $180 million annually for even exceptional returns is totally out of proportion to the reality of Wall Street compensation. Even $18 million would be an exceptionally high rate of compensation for that work.

Harvard is a not-for-profit educational institution. Surely it understands that people who choose to work at a university should earn less than their counterparts at for-profit corporations. Harvard should follow Yale’s lead. If Dave Swenson earns $1 million each year for the truly superior work he does, Harvard should be truly ashamed of paying any in-house manager eighteen times what Swenson makes.

DAVID B. ORR ’01
New York City, N.Y.
February 10, 2006