HMC May Sell $1.5 Billion in Illiquid Assets

Harvard may sell $1.5 billion in private equity assets, as the Harvard Management Company continues its efforts to reduce the University’s illiquid holdings.

HMC, which is responsible for investing the University’s $32 billion endowment, will offer $1 billion of holdings in various U.S. private equity firms through UBS, according to Bloomberg News, which first reported the sale. HMC is also selling $500 million of its energy investment portfolio through Cogent Partners, a firm that specializes in private equity sales.

Since her appointment in 2008, HMC CEO and President Jane L. Mendillo has focused on selling private equity assets to increase liquidity.

This is the same approach she took when she was in charge of Wellesley’s investment office.

After the financial crisis in 2008, HMC has taken steps to increase the University’s access to liquid assets. Private equity is an illiquid asset class and typically delivers a return on a three-to-five-year timeline.

As the crisis worsened, Mendillo sold portions of Harvard’s private equity holdings in secondary markets, selling the holdings at lower rates as supply in the market bubbled up, in order to increase Harvard’s  access to cash.

“Literally the first day after I joined, I had a meeting on selling some private equity assets,” Mendillo said in an interview last spring.

When Mendillo started selling HMC’s private equity assets in 2008, some critics accused her of making quick-fire sales. But according to HMC executives, the strategy to increase immediate liquidity—the ability to convert investments quickly into cash—and to take advantage of arbitrage opportunities of overpriced private equity.

In 2008, Harvard even issued $2.5 billion in bonds to further increase the University’s liquidity.

Last May, the University bought back about $300 million of those bonds sold in an effort to increase flexibility in making future investments.

Recent filings showed that HMC holdings in U.S.-traded equities fell by 24 percent in the last quarter, from $1.2 billion to $921 million, through a combination of HMC sales and a bear market.

—Staff writer Gautam S. Kumar can be reached at gkumar@college.harvard.edu.

—Staff writer Zoe A. Y. Weinberg can be reached at zoe.weinberg@college.harvard.edu.

This article has been revised to reflect the following correction.

CORRECTION: NOV. 16, 2011

The Nov. 16 article "HMC May Sell $1.5 Billion in Illiquid Assets" incorreclty stated that Harvard will sell $1.5 billion in assets. While the University is considering the sale, it has not been finalized.

Tags