Harvard Endowment First in Pay Raises, Last in Ivy Performance

September 8, 2015 | Bloomberg Business

Harvard University’s endowment, the largest in the world, had the worst performance of any of the eight Ivy League schools in 2013. Its chief executive officer at the time, Jane Mendillo, got the biggest raise.

That’s in keeping with the findings of a Bloomberg survey of 62 U.S. college endowments that found compensation often doesn’t square with investment performance. Only half of the managers in the top quartile for pay achieved returns for the three years ending in 2013 that were also in the top 25 percent.

At the University of Texas, Bruce Zimmerman, the highest-paid head of a public university endowment, got a 27 percent bump that year, bringing his pay to $2.5 million. His three-year performance of 9.2 percent ranks in the bottom quarter. Part of his compensation included a bonus deferred from 2012, when the $20.4 billion fund lost money. State lawmakers criticized the endowment for awarding bonuses when returns plummeted in 2009.

“It’s alarming,” said Ge Bai, an accounting professor at Washington and Lee University in Lexington, Virginia, who studies compensation. “It doesn’t make sense to pay someone multimillion dollars when their returns are trailing their peers.”

Colleges are paying their endowment managers more because of the increasing complexity of the job and the need to attract talent from the even richer precincts of Wall Street, according to consultants who help institutions set pay. Nineteen endowment chiefs made $1 million or more in 2013, the Bloomberg survey found, and their raises averaged 14 percent. Eleven collected more than $2 million.

Talent Competition

“You want to attract top talent, and you have to pay for it,” said Jeffrey Tenenbaum, who runs the nonprofit group at law firm Venable LLP in Washington. “It’s probably the only area in higher education apart from Division I football coaches, where you compete directly against the for-profit world for talent.”

Harvard doubled compensation for Mendillo to $9.6 million in 2013, almost nine times what it paid its president, Drew Faust. It was the biggest paycheck and the biggest increase at any of the 62 endowments that employed a chief investment officer for at least part of the year and disclosed compensation data. Her $8.3 million performance bonus was also by far the largest, amounting to about 90 percent of her pay.

The Harvard fund returned 11.3 percent in 2013, last in the Ivy League. Its three-year average, which endowments often use to determine bonuses, was 10.5 percent, ranking 31st among the schools surveyed. In its 2013 annual report, Harvard said the return that year “exceeded our benchmark by a healthy 223 basis points,” or more than 2 percent.

‘Substandard Benchmarks’

“It simply stumps me,” said Charles Skorina, an executive recruiter in San Francisco who specializes in endowments and foundations. “Any board that sets substandard benchmarks ought to take a hard look at their investment goals.”

Paul Andrew, a Harvard spokesman, declined to discuss compensation. Mendillo, who left Harvard Management Co. at the end of last year, declined to comment through Andrew.

Texas surpassed Yale last year to become the second biggest endowment, with $25.4 billion in assets, after Harvard’s $36.4 billion. The pool grew as the state funneled more than $5 billion in revenue from oil and gas wells it owns into the system’s fund over the past 10 years. Zimmerman, who ranks No. 6 in pay among endowment chiefs, also manages some of Texas A&M University’s money.

Zimmerman said his 2013 pay was the result of an “extraordinary event,” the decision to defer his entire 2012 bonus because of a loss that year. He also said the fund’s performance was weighed down by a decision to have less equity exposure than other universities to reduce risk.

Superior Returns

Some top-paid managers had superior returns. Notre Dame, which had an 11.9 percent gain over three years, ranking 13th among those surveyed, gave Scott Malpass a 10 percent raise to $3.9 million, second-highest in the survey. Columbia, which had a three-year average return of 12.1 percent, ninth best, boosted Nirmal Narvekar’s pay 9 percent to $3.7 million, according to tax filings. He was No. 3 in the pay ranking.

Narvekar, a former equity-derivatives trader at JPMorgan Chase & Co., was hired by Columbia from the University of Pennsylvania in 2002.

“His compensation reflects a level of endowment performance that is at the top of our peer group over the past decade,” Scott Schell, a Columbia spokesman, said in an e-mail.

Swensen Raise

To find the highest-paid endowment managers, Bloomberg made public-records requests to state universities and examined tax filings of dozens of the largest college endowments for 2013, the latest data available. Bloomberg corrected for inflated figures in Internal Revenue Service filings by subtracting previously reported deferred compensation.

David Swensen, Yale University’s investment chief since 1985 who is credited with transforming how schools manage money, got a 15 percent increase in compensation to $3.6 million. The fund generated one of the top three-year returns at 12.8 percent. Swensen declined to comment.

“These guys make a lot of money, but they are responsible for a lot of assets,” said James Schroeder, executive vice president at DHR International in Chicago, a recruiter in the finance industry. “This just didn’t happen overnight -- the market has driven compensation to this level.”

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