Taking Stock / Bah. Only $7.2 Million a Year

What do you think about the following job description?

The pay is $7.2 million a year. That should be enough to get you through the month.

It's basically an office job. You spend most of the day there, at your computer, occasionally venturing outside for brief meetings.

The respect you get is as copious as the salary. Your employer is one of the most distinguished organizations in the world, with a unique international brand name. Wherever you go people will be impressed when you whip out your business card. Actually, the job is so clearly defined and the organization so renowned that you may not need a business card at all.

But that's just the beginning. Your job is creative. You can do it yourself or outsource it to other managers.

Yourself - well, to be precise, you'd hire talent. It shouldn't be too difficult: two of the young bloods working for the same organization earned $25 million in pay, each, last year. Apparently, motivating the workers won't be too much of a challenge.

Convinced? Yes? You want the job? Hmm, that may indicate you aren't the man for it. Why? Because most of the people worthy of it have turned it down, saying the pay is not adequate compensation for the effort and risk.

It's a true story. Eight months have passed since Jack R. Meyer left his position as investment manager of the Harvard Management Company, and according to The New York Times, nobody's stepping up to the plate.

Why can't Harvard find anybody for a job as banal as investment manager? Simple: anybody capable of managing a giant investment fund such as Harvard's and delivering the goods wouldn't dream of working for such a pittance.

Here are the figures. With $23 billion in assets, Harvard's is the second biggest donations fund in the world, second only to the Bill and Melinda Gates fund.

In the decade ending in June 2004, Meyer and his team averaged dollar yields of 15.9 percent, which is 5.7 percent above the average yield of U.S. investment funds with more than a billion dollars in assets.

But investment superstars who outperform the rivals don't want the job. They would rather run a hedge fund, which not only pays a management fee of 2 percent of the assets each year, but also 20 percent of profits.

What is the average pay of a star investment manager who sets up his own hedge fund? According to the New York Times, something around $250 million a year. It's hard for Harvard to compete with that.

Oh, there's another problem, too. Anybody taking the job will constantly be in the spotlight. The academic world will constantly be asking why a hired manager should be paid so much, while the investment world will constantly be examining the yields.

We should all have such problems: Harvard's drowning in cash that nobody wants to manage and high-flying investment managers scorn its offered pay. What has all that to do with our gray little lives in Tel Aviv?

Not much by and large; Boston is a long way away, in distance, in wealth, in standards of living and salary. But there are two Israeli contexts to this story.

First of all, look at that yield: the Harvard fund generated 15.9 percent; that looks impressive to people who don't know much about investments. To people who do know, it's outright astounding.

A yield of 15.9 percent a year translates into 10-year compound interest of 337 percent. In a decade, $100,000 turns into $437,000.

Now look how much your provident fund, management insurance policy, training fund or whatever did in the last year. At best it achieved a third of that yield, but it probably did about a fifth.

True, the Harvard fund benefited from the boom on the American financial markets throughout most of the period in question, but there was also a bust in the middle.

Now consider whether our natural inclination to invest most of our short-term and long-term savings in the Tel Aviv Stock Exchange is logical. In case it escaped your notice, there's no tax protection for Israeli investments any more.

We also have good news for you, O ye talented investment managers: Your wages and opportunities are about to dramatically improve, in the years to come.

The Bachar reforms have many ramifications. A major one is that the public's financial assets will be streaming rapidly to bodies that outperformed for their clients.

The result will be a spike in demand for talented investment managers, and also, there will be more of them. We wouldn't be surprised if five years down the line, they become some of the best-remunerated figures in the business sector.

No, they won't be making $250 million, not in Israel, or even $25 million or even that scorned figure of $7.2 million a year. For that, we're going to have to continue reading The New York Times.