El-Erian will rejoin his former company, Pacific Investment Management Co., in the newly created positions of co-chief executive officer and co-chief investment officer, according to a statement from the university.

El-Erian, 49, said in the statement that he wants to return to southern California to be closer to family.

But he is also likely to vastly increase his salary. El-Erian earned $2.3 million at Harvard in 2006, university spokesman John Longbrake said. His compensation for 2007 will not be determined until December, but it is likely to be higher because it will be based on a full calendar year and because of the endowment's performance.

In comparison, top hedge fund managers on Wall Street earn 2 percent of the assets they manage, as well as 20 percent of performance.

El-Erian took over as president and chief executive officer of Harvard Management Co., the quasi-independent body that manages the investments of the world's wealthiest university, in February 2006.

The endowment grew to $34.9 billion by the end of the fiscal year that ended June 30, a 23 percent return from when El-Erian took over. The endowment lost at least 1 percent of its value following market turbulence in July and August.

El-Erian replaced longtime CEO Jack Meyer, who oversaw the growth of the endowment from $5 billion in 1990 to nearly $26 billion in 2005.

But some alumni criticized the university, particularly late in Meyer's tenure, for paying management salaries and bonuses worth as much as $35 million.

Harvard defended the salaries by saying managers earned their pay for consistently beating benchmarks and that they could potentially earn more working on Wall Street.

El-Erian helped Harvard's endowment grow at a time of transition at Harvard Management Co. When Meyer left, he also took nearly three dozen managers with him, forcing El-Erian to rebuild the institution.

"In addition to achieving excellent investment returns, he has led ambitious efforts to rebuild HMC during his time as CEO, and those efforts will leave us with a strong organizational foundation going forward," Harvard treasurer James Rothenberg said in a statement.

Harvard increasingly depends on its endowment for its annual expenses. The university financed nearly a third of its $1.1 billion 2007 operating budget from the endowment, up from about 21 percent in 1997.

Distributions from the endowment fund student financial aid, faculty salaries and building maintenance.

A search for El-Erian's replacement will begin immediately, Rothenberg said.

El-Erian, who has a bachelor's degree in economics from Cambridge University and master's and doctoral degrees in economics from Oxford University, worked for seven years at Newport Beach, Calif.-based Pacific Investment Management before joining Harvard. Prior to that, he spent 15 years with the International Monetary Fund.

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