Harvard Stock Under Scrutiny

University denies purchase of President Bush’s Harken shares

The company that manages Harvard’s endowment owned more than $28 million worth of stock in Harken Energy Corporation in 1990, leading some to speculate that the University is the unknown buyer of President Bush’s shares in the Texas-based oil and gas company, though Harvard Management Company (HMC) officials deny the purchase.

At the time of the sale, two top Harvard investment managers also served on Harken’s executive board and held personal stakes in the company, creating further questions about Harvard’s involvement with the company, which has come under scrutiny in recent weeks.

In June 1990, Bush sold 212,140 shares of Harken—about two-thirds of his holdings in the company—for $848,560. Bush, who at the time was serving as a director of Harken, used the proceeds from the sale to pay off loans that helped him purchase a minority stake in the Texas Rangers baseball franchise.

The Crimson reported in 1991 that Harvard owned $28 million worth of Harken common stock and contributed about $64 million worth of oil and gas properties to a limited partnership run by a Harken subsidiary.

The holdings have led some to speculate that Harvard University was the buyer of the future U.S. president’s stock.

The Center for Public Integrity, a Washington D.C.-based nonpartisan watchdog group, says that evidence points to Harvard as the likely buyer.

According to The Buying of the President 2000, a book written by Charles Lewis and published by the center, one document obtained from the Securities and Exchange Commission (SEC) connects Harvard to those involved with the deal.

A spreadsheet used by Ralph D. Smith, the Los Angeles broker who handled the sale for Bush, included the phone number of HMC, as well as the name of Michael R. Eisenson, a top investment manager for the University at the time.

Smith told The New York Times last week that “an institutional investor” purchased the stock, but he would not divulge the specific purchaser of Bush’s shares.

Jack Meyer, the current president of HMC, dismissed claims that Harvard obtained Bush’s shares.

“We didn’t buy George Bush’s stock,” said Meyer, who took over HMC about two months after Bush’s sale.

Bush, who has criticized corporate wrongdoing by companies such as WorldCom and Enron, has recently had to answer questions about his own actions while serving on Harken’s board of directors.

Bush sold his shares in Harken only two months before the corporation announced a $23 million loss. He also delayed for nearly eight months before filing legally required reports of his Harken stock transaction with the SEC.

The delay, along with the timing of the deal, led the SEC to launch an insider trading investigation the following year scrutinizing the deal. The SEC was unable to conclude that Bush was guilty of wrongdoing, though the agency also said that the lack of findings did not exonerate Bush.

White House Communications Director Dan Bartlett told The Times that Bush never knew the identity of the stock buyer.

Bartlett told the Washington Post that Harken’s executive committee—which did not include Bush—knew about the size of Harken’s $20 million worth of losses, which the company announced in August 1990, two months after Bush sold the bulk of his Harken holdings.

Holding Their Own

Ties between Eisenson and another HMC manager with Harken raise questions about conflicts of interest related to Harvard’s overall investment in a small, high-risk company.

Eisenson and fellow HMC partner Donald D. Beane sat on Harken’s board of directors and also owned personal stakes in the company.

Eisenson was a vice president of Aeneas Venture Corporation, a division of the Harvard endowment which funds venture capital projects. Beane was a vice president of Aeneas and the chief operating officer of HMC until September 1990.

The Crimson reported in April 1991 that both were Harken directors along with Bush and that both owned 10,000 shares of common stock in the company, worth more than $25,000 at the time.

Meyer would not comment this week on the holdings of the two investment managers.

But he told The Crimson in 1991 that the holdings and positions of Eisenson and Beane could be problematic.

“There is the possibility of a conflict,” Meyer said. “There is that potential.”

A spokesperson for Charlesbank Capital Partners—the firm where Eisenson is currently managing director and CEO, and which now handles some University investments—said that HMC encouraged such behavior.

“At the time, it was definitely encouraged for investment managers to invest in the companies” in which the University invested, said spokesperson Maura M. Turner, speaking on Eisenson’s behalf.

“It was sort of an alignment of incentives,” she said.

Turner said that Eisenson—who was managing HMC’s Harken holdings—sat on Harken’s executive committee since 1986, meaning he would have had advance knowledge about Harken’s financial status, including huge impending losses.

According to Turner, Eisenson sold his Harken shares some time after 1991 to avoid a conflict of interest.

As of last May, though, Harvard still owned shares of Harken, according to federal filings obtained by the Boston Globe.

A Large Interest

When Meyer became president of HMC in 1990, the endowment’s performance was inconsistent and economic forecasts were unpromising.

Internal Revenue Service documents acquired by The Crimson in 1991 indicated that some of HMC’s investment managers—including Eisenson—had salaries that reached seven figures in 1989, but their struggling portfolios limited their earning bonuses and severely reduced their salaries the following year.

But soon after his arrival, Meyer had moved toward greater oversight of the company’s money managers, who had previously been afforded much latitude in deciding how to invest the University’s endowment.

“The type of portfolio we run here has to line up with Harvard’s growth objectives, its risk tolerance and its spending objectives,” Meyer said in October 1990. “I don’t think that link has been made very closely in the past.”

Meyer said in an interview this week, however, that Harken may have fit the bill of HMC’s portfolio at the time of the initial investment in October 1986.

“Typically, we invest in assets that we think are a little bit undervalued,” he said. “We continue to invest in commodities and venture capital, and I would characterize those as high-risk.”

HMC insiders differ on whether holding 30 percent of one company was typical for HMC.

Bing Sung ’66, who was a member of HMC’s board of directors until the end of 1985, said that such large holdings were not the norm.

“It was not typical,” said Sung, explaining that such an investment would have required filing legally required SEC forms disclosing ownership.

But Turner provided a different assessment.

“In reality, it was very typical,” she said.

And despite Harken’s financial ups and downs, Harvard has said that the company was a profitable investment.

“We didn’t lose money on Harken. We made money on Harken,” said Meyer, who has seen the endowment grow from $5 billion to $18 billion during his time at HMC.

According to an article from The Crimson in 1992, HMC reported an overall 11.8 percent rate of return on Harvard’s endowment investments for the preceding fiscal year.

But in commodities investments, which include volatile oil and gas holdings such as Harken, Harvard showed a negative rate of return of 33.5 percent—the only category in which HMC’s internal benchmarks were not met—for a loss of nearly $200 million.

Meyer said that much of the commodities losses were in real estate investments, which The Crimson reported in 1991 were down between $80 and $100 million.

“We wrote off some commodities in real estate,” Meyer said, leaving half the losses attributable to other commodities investments.

Meyer declined to comment on specific holdings that caused the overall decline in commodities, saying that such details would put HMC at a competitive disadvantage.

“If we talk about investments, there are people out there who’ll set up against us,” he said.

Staff writer Alexander J. Blenkinsopp can be reached at blenkins@fas.harvard.edu.