Questions about Larry Summers & Harvard Endowment

Derivatives have many purposes. One is to quietly launder the profits out of one place into another without the niceties of legal authorizations and documents. Everything is hidden behind the pricing of powerfully complex and obscure arrangements.

Vanity Fair’s latest piece on Larry Summers,” Endless Summers” has me wondering about Harvard’s derivatives operation.

Is Harvard’s endowment really in trouble (“Harvard Ignored Warnings About Investments“) or were gains simply transferred to the wider network for safe keeping?

After Summers left Harvard, where as President he was actively involved in Endowment management, he landed a part-time job working one day a week for a D.E. Shaw, a Wall Street hedge fund known for the complexity of its trading operation. His annual compensation? $100,000 per day or $5.2 MM. And Goldman Sachs paid him $135,000 for one speech.

Was this compensation or, well…um, payback?

Excerpt from Endless Summers”:

There were also charges of betrayal from Iris Mack, a former derivatives specialist at the Harvard Management Company (responsible for investing Harvard’s endowment) and the second black woman to receive a doctorate in applied mathematics at Harvard. Mack claims that soon after she started working at Harvard Management, in early 2002—after a stint at Enron—she became uncomfortable with the lack of understanding she thought her colleagues had with the risky derivatives they were investing in. (She was proved correct in the past fiscal year, when the endowment dropped 27.3 percent.) On May 12, 2002, she wrote an e-mail to Summers, alerting him to her concerns: “As a proud Harvard alum I am deeply troubled and surprised by what I have been exposed to thus far at HMC, and the potential consequences for my alma mater’s endowment. In addition, I strongly believe that if my fellow alum[s] knew how the endowment is being managed and the caliber of some of the portfolio managers, they probably would not give another dime to our endowment.”

She asked Summers for a meeting and that he keep the correspondence between them confidential, “especially due to the fact that several individuals have been terminated from HMC when they raised concerns about such issues.” Nine days later, Mack got an e-mail from Marne Levine, Summers’s chief of staff at Harvard (and now his chief of staff at the National Economic Council), asking Mack to contact her and assuring her that the initial e-mail “remains confidential.”

But not for long. A month later, she was confronted by Jack Meyer, then head of H.M.C., who had copies of her correspondence with Summers and Levine. Meyer fired her the next day. She has since reached a confidential settlement with Harvard that she won’t discuss. But she is unequivocal about one thing. “I would say that there is 99.9999999999999999 percent probability that Summers had a hand in my departure,” she wrote me in an e-mail. (Summers replies he had nothing to do with her firing and could not, because she did not work for or report to him. “[Mack’s] allegations were the subject of thorough internal and external reviews and found to be without merit,” says a Harvard spokesman.)