Harvard has been looking to unload billions of its private equity and real estate assets as part of a new investment strategy pioneered by N.P. Narvekar, the University’s new endowment chief. According to Bloomberg, the University may have found a buyer.
Harvard Management Company—the firm managing Harvard’s $35.7 billion endowment—is nearing the final stage in talks to sell over $2 billion in private equity and real estate assets to Lexington Partners, a manager of over $35 billion in secondary private equity and other funds, Bloomberg reported Thursday. Secondary funds are existing investor commitments that can be bought and sold.
Private equity comprised 20 percent—a plurality—of Harvard’s investment portfolio in fiscal year 2016. Over the past decade, the asset class’s returns have performed poorly, often trailing internal benchmarks. In fiscal year 2016, private equity recovered slightly to outperform internal benchmarks, returning 2.6 percent to an expected 2.2 percent.
HMC is also close to selling interests in real estate funds to Landmark Partners, according to the Bloomberg report, and possibly more to other unnamed buyers. It is pushing to finalize those transactions by the close of the fiscal year on Friday June 30.
These sales may not originate from a position of strength.
In a repeat of 2008—a year when HMC shedded $1 billion in private equity at a loss in order to reduce its pre-crisis exposure to risky and illiquid assets—Harvard will likely have to sell those fund stakes at a discount because they date back nearly a decade and are projected to have relatively low returns.
Emily Guadignoli, a spokesperson for HMC, declined to comment on the sales.
June 30 will mark the closing bell for the first fiscal year of Narvekar’s tenure at the helm of Harvard’s investment arm. In January, Narvekar announced that he would cut the firm’s staff of 230 by nearly half and shift the management of most of its assets to external managers—a break from the firm’s long-held model of managing nearly all its funds internally.
He has also looked to sell private equity and real estate assets since at least May as part of this shift in strategy. It’s unclear whether he has closed a deal with the private equity firm KKR that would see the University unload $70 million in natural resources assets, including cows and farmland.
The entirety of HMC’s natural resources portfolio will be “refined”—likely meaning it will sell off assets—over the next few years, the firm said in November. Its head of natural resources said in April that he plans to “pause” fossil fuel investments though a spokesperson later clarified that his comments did not reflect an official change in firm investment policy.
Returns for fiscal year 2017 will likely be released in September, but in a January letter, Narvekar wrote that the effects of these changes aren’t likely to be felt in earnest for at least five years.
—Staff writer Brandon J. Dixon can be reached at email@example.com. Follow him on Twitter @BrandonJoDixon.
Risky Assets May Be Sold OffHarvard Management Company—the group in charge of investing the University’s $36.9 billion endowment—may be trying to unload a large portion
Amid Volatility, Experts Say Management Company Should Hold Course
With Narvekar’s Appointment, Seeds of Change at HMC
Three Investment Managers To Depart HMC to Form Hedge FundsWeeks after the Harvard Management Company announced its intent to lay off nearly half of its 230-person staff, three of the firm’s investment managers will leave the company to form their own hedge funds, according to Bloomberg.
HMC Aims to Sell $2.5 Billion in Endowment Assets