Big man on campus

Mohamed El-Erian, the newly appointed head of Harvard Management Company, brings serious credentials as an emerging markets investor to the influential endowment.

In the insular world of the nation’s most prestigious universities, Mohamed El-Erian, the newly appointed president and chief executive officer of Harvard Management Company, is something of an anomaly. Unlike his predecessor Jack Meyer or his counterparts David Swensen at Yale and Michael McCaffery at Stanford, El-Erian did not actually attend the university whose endowment he manages.

Harvard alumni need not take to the streets, however. Not only is El-Erian one of the most powerful and respected investors in the international arena, he also spent his undergraduate days at Cambridge University, the same alma mater of a certain 17th century benefactor named John Harvard.

Of course, Harvard alumni are not known for keeping quiet. It was the complaints of a vocal minority over compensation issues at HMC that precipitated the departure of Meyer, the wildly successful manager who oversaw the university’s endowment for the past 15 years. Under Meyer’s leadership, HMC posted annual returns of approximately 16 percent and Harvard’s assets grew to approximately $25.9 billion (€21.5 billion), making it the largest university endowment in the US.

Though Meyer’s shadow would loom large over any successor, El-Erian, 47,

I’m going to build on something that works very well.

Mohamed El-Erian

brings his own sizable reputation to the Ivy League institution. A 15-year veteran of the International Monetary Fund, El-Erian has spent the past six years running the highly influential emerging-markets bond fund at Pacific Investment Management Co (PIMCO).  With approximately $28 billion under his command, El-Erian is regarded as one of the world’s most powerful – and successful – emerging markets investors. Over the past six years, El-Erian has reportedly been able to generate returns of approximately twenty percent, buoyed by a well-timed exit from Argentina and substantial investments in Brazil.

El-Erian’s success has been recognised well beyond Harvard’s ivy-covered walls. In 2003, Fortune named him one of the world’s top 50 investors. And last year, LatinFinance ranked El-Erian as one of the 15 most important people in Latin America, below Pope John Paul II and Fidel Castro, but ahead of Venezuelan president Hugo Chavez.

El-Erian: Almost as influential as Castro

His affiliation with world leaders, however, runs deeper than mere rankings. During El-Erian’s tenure at the IMF, where he held several posts including deputy director of the Middle Eastern Department, he was actively involved in negotiations with finance ministers and government officials around the world. It was a network of contacts he utilized during his time in the private sector. A Wall Street Journal article last year described El-Erian’s level of access and influence – a last minute phone call to Ukraine’s finance minister led to an interest rate increase on the country’s $500 million bond sale.

Despite El-Erian’s reputation and wide-ranging authority, his career has not been without some blemishes. Last year, he was a finalist for the top job at the IMF, but eventually lost to former Spanish finance minister Rodrigo Rato. Critics have also labeled him a bully who utilized PIMCO’s size to dole out favors or take revenge on those who disagreed with him – he once dumped more than $100 million worth of Columbian bonds when the government ignored his advice on the timing of a new bond offering.

His detractors also point to El-Erian’s relatively limited tenure in the direct investment arena as well as his restricted focus on fixed income securities, which constitute less than a quarter of Harvard’s endowment. Private equity, for example, one of the cornerstones of Harvard’s recent success, is an unfamiliar asset class for El-Erian. Nevertheless, Harvard’s performance makes it unlikely that a new leader will seek dramatic changes to the endowment’s investment strategy – for the fiscal year ended June 30, Harvard’s endowment returned 19.2 percent, driven by a strong performance in private equity. And though Meyer took a significant number of HMC employees with him to his new firm, much of the private equity investment team remains intact.

“I’m going to build on something that works very well,” El-Erian recently told the Los Angeles Times.

He’s also going to have his hands full. In addition to his roles at HMC, El-Erian will serve as deputy treasurer of the university and as a faculty member of Harvard Business School. El-Erian has said that part of the appeal of joining Harvard was the mixing of money management and academics. No doubt HBS students could learn a lot from El-Erian. He, in turn, would do wise to learn a few lessons from his predecessor.