On Sept. 11, Mohamed El-Erian, president and CEO of the Harvard Management Company, announced that he will leave Harvard to rejoin the Pacific Investment Management Company, citing family reasons for his decision.
After a highly successful but short-lived two-year tenure as the head of Harvard's endowment, El-Erian will return to PIMCO in January 2008 as managing director and the company's first co-CEO and co-CIO, a position that has been created for him, the California-based investment firm said in a Sept. 11 press release.
"Everybody feels that we would have preferred that he stayed longer, but he left HMC in great shape," Harvard spokesperson John Longbrake said.
El-Erian replaced Jack Meyer at HMC after Meyer left Harvard to start a new hedge fund, Convexity Capital Management, amid public outcry over his and other managers' compensation packages.
During his 15 years at the helm of HMC, Meyer was responsible for growing the endowment from $4.7 billion to $22.6 billion, and in his departure, he took over 30 people - mostly bond managers - with him to Convexity Capital.
Along with Meyer's legacy, El-Erian had to replace nearly one-third of HMC's team when he was hired by then-Harvard President Lawrence Summers in September 2005.
"Jack Meyer took 30-plus people with him, and Mohamed was able to rebuild after him and had very strong returns," Longbrake said.
As a managing director at PIMCO before joining HMC, El-Erian oversaw $28 billion in bonds held by developing nations and their companies.
While president of HMC, El-Erian diversified the university's portfolio, which invested heavily in bonds under Meyer.
According to a Barrons report, El-Erian's strategy was to draw upon the pool of talent already existing in Harvard's economics and statistics departments.
"By reaching out, we can be smarter investors," El-Erian said at a June seminar organized by Harvard's statistics department.
During his tenure at HMC, El-Erian saw record-breaking success. Harvard's endowment grew from approximately $23 billion to $34.9 billion, according to the university's July fiscal year reports.
In the 2007 fiscal year, HMC produced "its best overall performance in seven years" with an investment return of 23 percent as the endowment grew from $29.2 billion to $34.9 billion, according to the Sept. 11 Harvard Gazette statement.
Nevertheless, since the end of the fiscal year and the onset of the credit crunch later in the summer, there have been some concerns about the recent performance of the endowment. In August, the endowment lost $350 million when Sowood Capital Management, a hedge fund founded by former HMC manager Jeffrey Larson, collapsed.
When El-Erian returns to PIMCO in January he will be responsible for $693 billion in assets under management compared with Harvard's $34.9 billion.
He is also expected to become PIMCO's CEO, although, according to CEO Bill Thompson, "neither (Managing Director) Bill Gross nor I at this time have any plans to step down, and in fact, have just been elected by PIMCO's managing directors for 5-year terms in our respective roles," according to the PIMCO press release.
El-Erian will continue to help Harvard in the interim period while HMC looks for a new president.
"I plan on remaining in touch with the Harvard community, especially with HMC colleagues and with President Faust. ... I will do all I can to contribute to the best possible transition at HMC during these next few months," El-Erian said in the Gazette release.
No names have been officially mentioned to succeed El-Erian, but according to Longbrake, "We're launching a search immediately." "I suspect down the road we will make an announcement about a search committee," he said.
