Risky Assets May Be Sold Off

In uncertain economic times, HMC may stabilize Harvard’s endowment

Harvard Management Company—the group in charge of investing the University’s $36.9 billion endowment—may be trying to unload a large portion of its riskiest assets, according to a recent article in the trade publication Private Equity Week.

The article reported that HMC has hired Cogent Investment Bank to sell approximately $1 billion of its private equity portfolio on the secondary market.

As of June 30, HMC’s planned allocation to private equity for 2009 was up to 13 percent of the University’s endowment, or just under $4.8 billion, meaning that the proposed sale would comprise nearly a quarter of its private equity assets.

HMC Director of Private Equity Peter Dolan could not be reached for comment, and University spokesman John D. Longbrake declined to confirm the sale due to Harvard’s standing policy not to “discuss investment strategies or individual investments.”

Several Boston-area hedge funds that received substantial initial investments from Harvard—including ex-HMC chief Jack R. Meyer’s Convexity Capital—all declined to comment on any action HMC may be taking to sell the investments it has with them.

“We have a policy of not talking about our investments or our business outside of our client base,” said Daniel S. Lehan III, who is listed as the chief operating officer of Adage Capital, a fund that opened in 2001 with a $1.8 billion investment from Harvard.

Dan Primack,who wrote the initial article about the potential sale, said that Harvard’s position is not desperate.

“What Harvard is doing is more like a yard sale than a fire sale,” Primack said. “A fire sale is when you get what you can and move on, whereas a yard sale means ‘we’ve got a lot of stuff in the garage and could use some extra space by getting rid of some of the old stuff.’”

Private equity has traditionally been one of the best-performing asset classes for Harvard’s endowment, earning an annualized return of 28.5 percent over the past 10 years.

This return has been lower in more recent years, though, coming in at 9.3 percent in fiscal year 2008, and the current economic distress may further drive down investment opportunities in the sector.

But Primack said that the deal, which would be one of the biggest private equity sales ever by an endowment, might not go through because HMC’s position is still comfortable enough that it would not have to accept a sale at a less-than-favorable price.

“No one’s done well lately, but in the private equity market, there are some desperate cases,” he said. “Harvard is not one of them.”

—Staff writer Wyatt P. Gleichauf can be reached at wgleich@fas.harvard.edu.

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