Harvard Defends Millions in Bonuses

Harvard University’s treasurer Thursday defended an “extraordinary” $101-million payout in fiscal 2003 to the school’s top five money managers, calling it a fortunate problem.

“We should remember ... that we are -- in a very real sense -- fortunate to have to confront this problem,” Harvard Treasurer Ronald Daniel wrote in a letter to alumni. “The extraordinary bonuses in question would not exist if not for extraordinary investment performance.”

Maurice Samuels and David Mittelman, two senior portfolio managers, collected an eye-popping $35.1 million and $34.1 million, respectively, during the fiscal year that ended June 30. The two men work for Harvard Management Co., an internal investment firm that manages the university’s endowment.

The three other best-paid portfolio managers received a total of $31.4 million, Harvard said.

Compensation paid out in a single year is based on performance over a several-year period, Harvard said. All five portfolio managers generated returns that trounced their benchmarks.

“Managers do not receive bonuses simply because the markets went up,” Harvard Management said in a statement.

The five managers generated $2.5 billion of value-added performance in their portfolios, or gains above their relative benchmarks over a five-year period, Harvard said.

A portfolio of foreign fixed-income investments, for example, posted a five-year annualized return of 20.5%, compared with a relative benchmark return of 6%, Harvard said.

Harvard Management said the full cost of managing the assets over the last decade has been less than 50% of what it would have cost to get an equivalent performance from an outside hedge fund.

Harvard said managers receive a modest base salary that is less than $400,000 a year.

They also can receive a “neutral” bonus if their performance matches a benchmark.