Harvard's endowment chief stepping down

The president of Harvard Management Co., who came to Boston less than two years ago to take over the world's largest university endowment, will leave the job unexpectedly and return to the investment firm where he formerly worked.

Mohamed El-Erian, 49, said family considerations prompted his planned return to California at the end of the year, but he also landed a big promotion at his old firm. El-Erian will become cochief executive officer and cochief investment officer at Pacific Investment Management Co., commonly known as Pimco.

"In returning to Southern California to be closer to our family, I will miss my daily interactions with this special Harvard community," El-Erian said.

The news caught people in university and money management circles by surprise yesterday. It came just weeks after Harvard Management reported that the university's endowment had grown to $34.9 billion in the fiscal year ended June 30, thanks mostly to an investment portfolio that earned 23 percent. It was the endowment's best investment performance in seven years.

El-Erian had been hired to succeed Jack Meyer, the longtime president of Harvard Management who resigned along with dozens of managers and traders to launch new hedge funds. El-Erian spent much of his tenure building a new team of senior managers.

"Harvard has been fortunate to have someone as skilled and effective as Mo hamed El-Erian responsible for the management of our endowment," said Drew Faust, president of Harvard University. "He has done an excellent job leading and rebuilding HMC."

El-Erian formally told the Harvard Corporation, the body that oversees the university, about his decision to leave on Monday and disclosed his plans to the Harvard Management staff yesterday. Harvard officials said they would launch a search for a new president immediately.

"Mohamed has done an impressive job guiding and reorganizing Harvard Management Company, and we will miss his leadership," said James Rothenberg, treasurer of Harvard University and chairman of Harvard Management. "In addition to achieving excellent investment returns, he has led ambitious efforts to rebuild HMC."

The laborious executive search that finally landed El-Erian showed how difficult it could be to find a new executive to run the university's endowment. Harvard had offered the job to Bain Capital executive Mark Nunnelly in the summer of 2005, but he eventually declined.

El-Erian had arrived at Harvard Management in the midst of a contentious debate over how much the university was paying investment managers who helped the endowment grow by billions of dollars. Under a performance-based plan employed by Meyer, the highest-paid Harvard Management executives earned as much as $35 million in their best years.

Critics bristled at that kind of competition, and several Harvard Management executives left to start their own hedge funds, with the university endowment as a big client when they opened their doors. Eventually Meyer, who had served 15 years as Harvard Management's president, took the same route himself and took two of the endowment's biggest investment stars with him.

Jeffrey Larson was another Harvard Management executive who resigned to start his own hedge fund, Sowood Capital Management, which collapsed over the summer and lost more than half its $3 billion under management. Harvard Management said it lost about $350 million in Sowood's demise, but made up the decline with investments that benefited from market conditions that hurt the hedge fund.

Compensation for Harvard Management's top executives in the most recent fiscal year, the first under El-Erian's leadership, will be disclosed in December.

El-Erian was a managing director at Pimco when he left for Harvard, investing about $28 billion in emerging market funds. He returns as part of a "power triangle" that will lead the Newport Beach, Calif., firm that manages $692 billion.

"We welcome him home as a proven leader, an exceptional investor, and one of the most respected names in the investment world," said Pimco chief executive Bill Thompson.

Though El-Erian's role appeared to put him in line to run the company, Thompson said that wouldn't be the case anytime soon. He and Pimco founder Bill Gross, who is the firm's chief investment officer, have no plans to step down "at this time," Thompson said. Pimco's managing directors recently elected Thompson and Gross to new five-year terms in their current roles.

Steven Syre can be reached at syre@globe.com.