Jeff Larson left the US fund in March with 14 colleagues to start Sowood Capital. He could earn fees of $170m a year, against his salary last year of $17m.
Endowments are becoming concerned about the loss of talent to hedge funds. Larson is the third senior member of a US endowment to make the move this year.
Jack Meyer, chief executive of the Harvard Management Company, which manages the $23bn endowment fund, said: 'I wish these people would stop leaving. Top of Jeff's list of reasons to leave was the excitement of setting up his own firm but compensation was also on that list.'
Larson left Harvard just as the university's alumni became enraged at the remuneration paid to the endowment's fund managers. He generated returns averaging 7% a year for the previous 10 years, twice as high as his benchmark.
As Sowood Capital's sole principal, Larson could expect performance-related remuneration of up to $170m a year if he replicates his previous performance. The Harvard endowment's foreign equity portfolio generated a return of more than 36% in the year to June.
A substantial portion of Sowood's fee income will be paid by Harvard. The endowment said it has committed $700m to the market neutral hedge fund and commodity portfolio. Investors confirmed Sowood had raised a total of $2.4bn.
Other US endowment funds that have faced a talent drain include the University of North Carolina Management Company, where Mark Yusko recently resigned to manage a $150m fund of hedge funds, and Smith College, Massachusetts, which lost Jay Yoder as director of investments to a fund of hedge funds.