A review of Harvard's website shows some facts worth noting: 1. Pug joined the board of Harvard Management Company in 1995. Harvard Management manages the Harvard Endowment. That means he was on the Endowment management board when NHP did their IPO in 1995, when the investigation was started in 1996, and when NHP was sold to AIMCO and HUD cancelled Hamilton's contract in 1997. (Again, Pug was Chairman and through Capricorn approximately a 40% investor in Dyncorp until mid 1997, when he sold all but what looks to be about 5% and moved out of the Chairmanship, staying on the board as Chairman of the Compensation Committee---the group that determines the Chair/CEO and senior management salaries). 2. Harvard Endowment has one of its best capital gains years in 1997, the year that NHP was sold to AIMCO...22.1%. The Private Equity portfolio reported gains of 23% that year. This means that the change in policies that included the targeting of Hamilton were important in terms of the Private Equity portfolio's performance. The article notes that their performance was 6% ahead of the market averages. My trading partner at Dillon Dick Bianco used to use outperforming the market as potential indicators of insider trading or fraud. He would always investigate with....."SO...tell me how come I'm so lucky?" 3. An article about compensation to another Harvard Management portfolio manager gives a sense of how Eisenson's compensation may have been improved from a strong portfolio performance from the sale of NHP in 1997. After 1997, the private equity group spun out into a separate group so I am assuming that their compensation from the sale of WMF would be less likely to be announced then if through Harvard Management directly. 4. With the sale of WMF done, I should be able to estimate the total profits to Harvard and Capricorn of the NHP and WMF investments. ============================================================================ ===================================== September 23, 1999 SEARCH THE GAZETTE Harvard Endowment Returns 12.2 Percent Harvard University's owment has increased to about $14.4 billion, a 12.2 percent investment return for the 1998-99 fiscal year. Harvard's owment is the result of gifts to the University over time as well as investment income from those gifts. owment income provides critical long-term financial stability for Harvard's academic programs. Between 4 percent and 5 percent of the owment is typically spent annually on Harvard programs. owment income makes up about $500 million of Harvard's roughly $1.8 billion yearly operating budget. That money helps pay for many expenses across the University, including those in the nine teaching faculties that educate more than 18,000 students annually. In fiscal 1999, the owment continued its strong performance in domestic stocks, increasing 25.8 percent against a benchmark of 21.3 percent. owment investments also beat benchmarks in foreign stocks and in foreign and domestic bonds. Performance fell short of benchmarks in several areas, however, such as emerging markets, private equities, commodities, and real estate. "Fiscal 1999 was a mixed year in terms of performance," said Jack R. Meyer, president and chief executive officer of the Harvard Management Company, adding that venture capital was a significant area of difficulty. "Due to strong competition from other institutional investors, we have been unable to place as much money as we would like with top venture capital funds. The result was we were underweighted in a year when venture capital returns soared." Among other things, owment income supports Harvard's generous student financial aid programs, which permit the University to admit qualified students regardless of their ability to pay. Last December, the University announced a major increase in the payout from the owment � $95 million � to finance increased undergraduate and graduate student financial aid, reduce class size, recruit faculty, and invest in new technology. The owment is not a single fund, but more than 8,600 individual funds, many of them restricted to specific uses � such as support of a research center or the creation of a professorship in a specific subject. The funds are invested by the University-owned Harvard Management Company (HMC), established in 1974 to oversee the University's owment, its pension and trust funds, and other investments. Each School within the University uses a combination of income from investments, gifts from fundraising efforts, and tuition to cover the cost of educating students. Tuition from Harvard College, for instance, covers only about two-thirds of the total cost of a Harvard education. Harvard's reliance on support from its owment has increased in recent years. Ten years ago, the owment provided 17 percent of Harvard's operating budget; today that figure is more than 25 percent. Though the owment's fiscal 1999 performance did fall short of the 20.5 percent return in FY 98, it still beat inflation by 10 percentage points and beat by a point the typical large investment fund's performance, represented by the Trust Universe Comparison Service, which measures 99 funds with assets over $1 billion. Five-year performance reflected the higher returns of recent years, averaging 20.1 percent and beating both internal and external benchmarks in most investment areas. Copyright 1999 President and Fellows of Harvard College http://vpf-web.harvard.edu/factbook/98-99/page39.htm Historical Endowment Performance: FY1979 - FY1999 Dollar Value and Percentage Beginning Value Per Unit Fiscal Year Unit Value at Beginning of the Year(1) Income Capital Gain Total Return(2) Actual Distribution Per Unit (3) Spending Rate (4) 1979 119.09 8.10 6.8% 5.78 4.9% 13.88 11.7% 6.57 5.52% 1980 124.87 8.72 7.0% 10.23 8.2% 18.95 15.2% 6.77 5.42% 1981 135.10 9.52 7.0% 5.40 4.0% 14.92 11.0% 6.97 5.16% 1982 140.50 12.34 8.8% -12.46 -8.9% -0.12 -0.1% 7.18 5.11% 1983 128.04 10.83 8.5% 43.01 33.6% 53.84 42.0% 7.40 5.78% 1984 171.05 10.71 6.3% -16.92 -9.9% -6.21 -3.6% 7.40 4.33% 1985 154.13 11.52 7.5% 28.34 18.4% 39.86 25.9% 7.58 4.92% 1986 182.47 12.53 6.9% 42.28 23.2% 54.81 30.0% 7.86 4.31% 1987 224.75 11.16 5.0% 32.03 14.3% 43.19 19.2% 8.09 3.60% 1988 256.78 10.41 4.1% 3.57 1.4% 13.98 5.4% 8.49 3.31% 1989 260.35 13.94 5.4% 18.27 7.0% 32.21 12.4% 10.16 3.90% 1990 278.62 14.57 5.2% 6.04 2.2% 20.61 7.4% 10.65 3.82% 1991 284.66 12.75 4.5% -9.72 -3.4% 3.03 1.1% 11.96 4.20% 1992 274.94 11.87 4.3% 20.26 7.4% 32.13 11.7% 12.44 4.52% 1993 295.20 11.70 4.0% 36.68 12.4% 48.38 16.4% 14.08 4.77% 1994 331.88 13.19 4.0% 19.05 5.7% 32.24 9.7% 15.01 4.52% 1995 350.93 11.90 3.4% 45.87 13.1% 57.77 16.5% 16.07 4.58% 1996 396.80 15.23 3.8% 86.03 21.7% 101.26 25.5% 17.20 4.33% 1997 482.83 14.60 3.0% 106.53 22.1% 121.13 25.1% 19.84(5) 4.11% 1998 589.36 10.64 1.8% 108.45 18.4% 119.09 20.2% 21.90 3.72% 1999 697.81 * * * * * * 23.14 3.32% Average Annual Growth Rate FY1979 - FY1999 Unit Value at Beginning of the Year Actual Distribution Per Unit 20 YEAR 9.2% 6.5% 10 YEAR 10.4% 8.6% 5 YEAR 16.0% 9.0% 1 YEAR 18.4% 5.7% (1) Harvard's endowment comprises over 8,300 separate funds. Each fund has been unitized and the separate funds hold "units of the endowment" as their value. Column one shows the value of units as of July 1. (Back to data) (2) The total return percentage reported by the Harvard Management Company is slightly higher than the one listed above as it is calculated based on reinvestment of all earnings on a monthly basis. (Back to data) (3) As of July 1, from income earned the previous fiscal year. (Back to data) (4) Distribution per unit (actual or effective) divided by beginning of year unit value (actual or effective). (Back to data) (5) Net of the $1.28 per unit fringe supplement, the FY97 payout is $18.56, and the spending rate is 3.84%. (Back to data) * Value determined at fiscal year end. SOURCE: INTERNAL ENDOWMENT REPORTS Updated 5/20/99 Back to top Main Menu � Search �Current Issue �Contact �Archives �Centennial �Letters to the Editor �FAQs "We Have to Be Ambitious" Portrait - Lewis Surdam Visions of Veritas Aftermath of a Drug Bust Entente Ahead? Six-Million-Dollar Man People in the News The Undergraduate -Tying the Knot Brevia Famous Friends Sports Word that Harvard Management Company (HMC), the University's endowment-investment arm, paid one of its portfolio managers $6.1 million last year made headlines in the Wall Street Journal and Boston Globe in July. The compensation accrued to Jonathon S. Jacobson, M.B.A. '87. As the Crimson noted, he "took home more than 20 times what President Neil L. Rudenstine did." Not that Rudenstine would be surprised by the news; he, other University officials, and outside money managers who serve on the HMC board of directors approve all bonus payments to its employees. According to HMC president Jack Meyer, Jacobson's compensation largely represents performance-based pay for his results over the five years ending June 30, 1995. During that time, Jacobson managed the Mercury portfolio (domestic stocks) now totaling about $800 million; co-managed a three-year-old emerging markets fund now totaling about $300 million; and managed two smaller portfolios. Mercury earned an annualized return of 24.9 percent-more than twice the Standard & Poor's 500 stock index-and the emerging markets portfolio earned 38.3 percent compounded annually, trouncing the 16.1 percent return of its benchmark. Those results, Meyer said, yielded Harvard "hundreds of millions of dollars" more than investments that only matched the market over that period-making Jacobson, in effect, the largest benefactor in University history. Meyer noted that HMC's bonuses are not paid out immediately, but are banked and subject to "clawback" in case of poor future performance. (The Mercury fund beat its benchmark by 8.8 percent in its worst year.) Those banked funds are invested in the general endowment account, providing an additional performance incentive. As a result, Meyer wrote in a memorandum to his directors, "No one receives a large bonus at HMC who has not made a lot of money for Harvard." The cost of managing Harvard's investments internally, he continued, "is less than 60 percent of what it would cost for equivalent asset allocation and equivalently good performance achieved through external management." How common are incentive payments on this scale? According to William J. Poorvu, M.B.A. '58, a Business School adjunct professor, "It's not unusual that someone would get 10 to 20 percent of the profit above a Treasury-rate benchmark" for certain kinds of assets. Poorvu is a director of the Massachusetts Financial Services mutual funds and a member of the investment committee at Yale University, which primarily uses external managers. He gives this example: the manager of a $200 million portfolio earns a return 12 percentage points higher than her benchmark-and so receives a performance bonus of $4.8 million (20 percent of the extra return). Samuel L. Hayes III, D.B.A. '66, Schiff professor of investment banking at the Business School, serves on Swarthmore College's investment committee. There, 11 outside managers handle $650 million in assets, all on a straight fee basis. Those fees are described by a private money manager interviewed by this magazine as totaling .55-.85 percent of assets, depending on the investment strategy, for an institutional client's billion-dollar equity portfolio-$5.5 million to $8.5 million per year. Even on that basis, says Hayes, "It's a reflection of how lucrative this industry is that many of the largest donors to eleemosynary institutions are money managers." While HMC overall fell slightly short of its benchmark in the 1995 fiscal year, when total investment return was 16.8 percent, over the past five years its results have exceeded those of comparable funds by more than 2 percent annually. That puts HMC in the top 5 percent of its competitive universe, if still-painful point-a smidgen behind Yale. For Meyer, the bottom line is that "HMC is an investment firm, not an academic institution," so the "relevant compensation standardsare those of other investment firms with equivalent performance." As Poorvu puts it, "Whether English teachers should be making this much less than investment managers is a societal issue." On that societal issue, one might consult another Harvard expert, president emeritus Derek Bok. His 1993 book, The Cost of Talent: How Executives and Professionals Are Paid and How It Affects America, explores relative pay, its effect on allocating talent among occupations, and motivation. It ends with the "ultimate question" about compensation, "whether a preoccupation with material gain can produce either a deeply satisfying existence or a life that we look back upon with pride." Bok concludes that in pondering the matter, "we should remember that a long, almost unbroken tradition of secular and religious thought informs us that the answer is no." Main Menu � Search �Current Issue �Contact �Archives �Centennial �Letters to the Editor �FAQs Main Menu � Search � Current Issue � Contact � Archives � Centennial � Letters to the Editor � FAQs In this issue's John Harvard's Journal: For Apolitical Times, Many Politicians - Honoris Causa - Commencement Confetti - Phi Beta Kappa Oration: The Coherence of Knowledge - Law School Class Day Address: "Each One, Teach One" - Commencement Address: The Nature of the Humanities - Commencement Address: "Modern Slavery" - Radcliffe Quandary - Surging Yield - Home Stretch - University Challenges - Two More Years - One for the Books - Updike Regnant - Museums Ponder Missing Link - Handling Harassment - The Skin of the Tasty - People in the News - Beren Will Be Better Than Ever - Exodus - Crimson Has a Happy 125th - Harvard Oscars: The "Parade of Stars" - Brevia - The Undergraduate: "What Are You?" - Sports Exodus Following the departure of equity manager Jonathon S. Jacobson, M.B.A. '87 ("Brevia," May-June, page 84), Harvard Management Company's Private Capital Group is also decamping. Michael Eisenson, head of the group, and about 30 colleagues will form a separate firm, an arrangement HMC president Jack Meyer calls "amicable and mutual." The private-capital professionals manage about $1.5 billion of Harvard funds invested in private equity and real-estate portfolios, and will continue to do so. HMC has also committed to invest at least $550 million more with the group in coming years. In fiscal year 1997, HMC's real-estate investments returned 23.6 percent, about twice the market benchmark, and private equities 24.7 percent, more than 6 points ahead of the market. Meyer attributes Jacobson's departure to his desire to run his own firm. In the case of the private-capital managers, he says HMC offers neither long-term contracts matching the long-term nature of the investments under management, nor compensation tied to capital gains realized. With an increasing portion of Harvard funds managed externally, rather than within HMC, Meyer notes, the issue arising is whether HMC could retain its staff by overseeing outside assets. At present, it is prohibited from doing so, he says, but it is conceivable that some hybrid organization could be created. Home � Archives � Search About Us � Current Issue Letters to the Editor � N.E. Regional Edition � Class Notes � Classifieds Obituaries � Change of Address � Advertise � Subscribe February 10, 2000 SEARCH THE GAZETTE Harper, Winokur to Join Harvard Corporation Conrad K. Harper and Herbert S. Winokur Jr. were named on Monday to join the seven-member Harvard Corporation. Both will assume their positions as Fellows of Harvard College by the start of the 2000-01 academic year. "Harvard is very fortunate that two individuals of such extraordinary caliber have agreed to serve the University in these vital roles," said President Neil L. Rudenstine. "Conrad Harper is an outstanding lawyer and a devoted humanist with significant government and international experience as well as deep interests in scholarly pursuits ranging well beyond the law. Herbert Winokur is a broad-gauged and highly respected business executive whose varied career has kept him in close contact with Harvard and higher education, and who has a strong sense of the nature of universities and the human dynamics of complex organizations. Both are persons of remarkable intelligence, wisdom, and scope, and each will bring a valuable perspective to the Corporation's deliberations." Harper, a 1965 graduate of Harvard Law School, is a partner in the New York law firm of Simpson Thacher & Bartlett and former legal adviser of the U.S. State Department. "My joy today is exceeded only by my sense of duty to be of service to Harvard," Harper said. "I very much look forward to joining President Rudenstine, the other members of the Corporation, and the Overseers in our work on behalf of the entire Harvard community." Winokur, who did his undergraduate work and his doctoral work in applied mathematics at Harvard, is the chairman and chief executive officer of the investment firm Capricorn Holdings Inc., based in Greenwich, Conn. "Harvard's faculty and students continue to have a major influence on the world, from basic research to education and policy-making," Winokur said. "It is a great privilege to be invited to join the Corporation. I have enjoyed my long involvement with Harvard, going back to undergraduate and graduate days, and look forward to working with the administration and faculty in the years to come." The Harvard Corporation, formally known as the President and Fellows of Harvard College, is the University's executive governing board. It is the smaller of Harvard's two boards, the other being the Board of Overseers. The appointments mark the culmination of a search for successors to two current Fellows of Harvard College, Judith Richards Hope and Richard A. Smith, both of whom have announced their intentions to conclude their Corporation service by the end of this academic year. Other members of the Corporation include President Rudenstine, Treasurer D. Ronald Daniel, and Fellows Hanna Holborn Gray, James R. Houghton, and Robert G. Stone Jr. Conrad K. Harper A native of Detroit, Harper received his bachelor's degree in 1962 from Howard University, before graduating from Harvard Law School in 1965. He spent the first five years of his legal career as an attorney with the NAACP Legal Defense and Educational Fund, the noted civil rights law organization. He went on to serve as an associate (1971-74) and then partner (1974-93) at Simpson Thacher & Bartlett, one of New York's preeminent law firms. In 1993, he accepted an appointment in Washington as legal adviser of the U.S. Department of State and in that capacity served for three years as the department's senior legal officer. In 1996, he returned to Simpson Thacher, where he remains a partner active in litigation and in international arbitration and mediation, in areas that include commercial contract disputes, securities, product liability, environmental law, and insurance defense. The first African-American to serve as president of the Association of the Bar of the City of New York (1990-92), Harper is a fellow of the American College of Trial Lawyers, a council member and second vice president of the American Law Institute, a member of the executive committee of the American Arbitration Association, and a trustee and former co-chair of the Lawyers' Committee for Civil Rights Under Law. He also has been closely associated with a number of international law organizations, serving, for example, as a member of the Permanent Court of Arbitration at The Hague. Over the years, Harper has remained closely connected to the world of higher education. He has at various times served as a visiting lecturer at Yale Law School and at Rutgers Law School, as a member of the board of visitors at Fordham Law School and at the City University of New York, as a member of the board of the Institute of International Education, as a director of Phi Beta Kappa Associates, as a member of the board of managers of Yale's Lewis Walpole Library (18th-century British collections), and as a trustee of the William Nelson Cromwell Foundation (legal history). He is the author of scholarly articles about Charles Hamilton Houston and Thurgood Marshall, two seminal African-American figures in U.S. legal history. He has also jointly authored and delivered a paper to the Jane Austen Society of North America. A person of wide interests beyond the law, Harper has been a director of both the Academy of Political Science and the Academy of American Poets, and he is both a fellow of the American Academy of Arts and Sciences and a member of the Council on Foreign Relations. Before his government service in Washington, in the early 1990s he was a member of the board of managers of the Harvard Club of New York City. Harper's other civic and community involvements are numerous and diverse. Among these activities, he is a trustee of the Metropolitan Museum of Art, and he served in the early 1990s as chairman of the executive committee and vice chairman of the board of the New York Public Library. From 1987 to 1992 he was chancellor of the Episcopal Diocese of New York. Herbert S. Winokur Jr. Born in Columbus, Ga., Winokur holds three degrees from Harvard: A.B. '65 ('64), A.M. '65, and Ph.D. '67. His doctoral degree is in applied mathematics (decision and control theory). Since 1987, Winokur has been chairman and chief executive officer of the investment firm Capricorn Holdings Inc., based in Greenwich, Conn. He is also managing general partner of three affiliated limited partnerships, Capricorn Investors, L.P., I, II, and III. The portfolio investments encompass companies with revenues of more than $2 billion and having more than 20,000 employees. Winokur has maintained close ties to Harvard over the years. A member of the Committee on University Resources since 1989, he has also served since 1995 as a member of the board of directors of the Harvard Management Company. He serves on the advisory committee of Harvard's Mind/Brain/Behavior Initiative, as well as on the Technology and Education Planning Committee of the Faculty of Arts and Sciences. He is a member of the Committee to Visit the Weatherhead Center for International Affairs, and previously served on the FAS Planning Committee for Faculty Recruitment and Development. Co-chair of reunion fundraising efforts for the Class of 1965, he is a member of the New York Major Gifts Steering Committee. An active board member in both the nonprofit and for-profit worlds, Winokur is an honorary director of the UCLA Medical Center, a former trustee of the Greenwich Academy, and a former co-chair of the New York Historical Society. He is on the board of Second Stage Theatre and until recently served on the board of Project 180, an organization that facilitates the restructuring of nonprofit institutions. He is a member of both the Council on Foreign Relations and the Woodrow Wilson International Center for Scholars Council, and he chaired the search for the Center's current director. His present and past corporate directorships span a wide range of industries, including information technology, energy, water management, and commercial real estate finance. Before becoming chairman and CEO of Capricorn Holdings, Winokur served as senior executive vice president of the Penn Central Corp., and played a leading role in the corporation's major restructuring and cost reduction efforts. Previously, from 1974 to 1983, he held senior management positions at Pacific Holding Corp., Victor Palmieri and Co., and Pennsylvania Co., Penn Central's principal operating subsidiary. From 1969 into the early 1970s, Winokur was co-founder and chairman of the Inner City Fund (later ICF Kaiser International), a management consulting firm specializing in policy planning for senior government and business officials, and which also focused on stimulating minority entrepreneurship. For the two preceding years, following the receipt of his Ph.D., he served as an officer in the U.S. Army, assigned to the Office of the Secretary of Defense. Copyright 2000 President and Fellows of Harvard College
