At first blush, Mohamed el-Erian may seem an unlikely choice to replace the famed Jack Meyer as Harvard University's investments chief. After all, el-Erian is a fixed-income specialist who has spent the past six years running $28 billion in emerging-markets portfolios at bond fund giant Pimco. Harvard Management Co., which oversees the university's $25.9 billion endowment, prides itself on its groundbreaking asset-class diversification.
El-Erian's investing experience may be narrower than Meyer's, but his track record has been astounding. During his tenure as portfolio manager, Pimco's flagship, $2.9 billion Emerging Markets Bond Fund delivered an annualized net return of 20.1 percent. The composite performance of Pimco's emerging-markets funds was 19.8 percent per year on average. Harvard hopes el-Erian, 47, will be able to generate similar numbers for its portfolio, which has realized a 16.1 percent annualized net return over the past decade under Meyer.
"I'm so aware of the responsibility," says el-Erian, who plans to move from Newport Beach, California, to Cambridge, Massachusetts, with his wife, two-year-old daughter and pet boxer sometime in the next few months. (He'll be transitioning into his new job, with Meyer retaining some responsibilities as a subadviser, over the next three to six months.) "I know what a 1 percent difference in the endowment return makes in terms of the Harvard community's ability to maintain its excellence."
Beating the market isn't the only challenge el-Erian faces. The new president and CEO will also have to withstand intense scrutiny of HMC's compensation structure, which, when salaries and bonuses are revealed every spring, inevitably results in a fusillade of criticism from Harvard alumni offended by HMC's multimillion-dollar payouts to top-producing portfolio managers. Meyer, who earned $7.2 million in fiscal 2004, admitted last winter that he was looking forward to leaving those arguments behind after returning to the private sector. This month he's launching a hedge fund firm, Convexity Capital Management.
El-Erian harbors no illusions about the political aspects of his new job. "I'm used to living in a world where I have such scrutiny," he says. "Pimco is such a large player in emerging-market bonds that everything we do -- and even many things that we don't do -- attracts attention. I recognize that this is part of the job at Harvard, and I'm going in with my eyes wide open."
Beyond his expertise with emerging markets, el-Erian -- who has an undergraduate degree from Cambridge and a master's and a Ph.D. in economics from Oxford -- also brings considerable management skills to his new role. Before joining Pimco he spent 15 years as an economist and senior personnel manager for the International Monetary Fund, with responsibility for a staff of 90. That experience should come in handy at HMC, which has bled talent in recent years as top officials have left to start hedge funds.