Before Divesting, Harvard Juggled PetroChina Shares

In the three months before Harvard divested from PetroChina, the University’s portfolio managers were juggling at least $7.2 million in shares of the company, a far higher figure than ever previously disclosed, the president of the Harvard Management Company said yesterday.

With multi-million-dollar holdings of PetroChina on stock exchanges in New York and Hong Kong, the University sharply reduced its stake in the company at the start of this year, according to new documents filed Wednesday with the Securities and Exchange Commission (SEC).

And by the time the Harvard Corporation voted to divest on April 4, the University’s portfolio mangers had already dumped Harvard’s entire $3.6 million holding in PetroChina on the New York Stock Exchange, the filings reveal.

But the University continued to hold a large stake in PetroChina on the Hong Kong Stock Exchange—larger than its former holdings in New York—when the Corporation made its decision to divest, according to Jack R. Meyer, the management company president.

All told, Harvard once held at least $7.2 million—and potentially much more—in Chinese and American shares of PetroChina, the Beijing oil firm under fire for conducting business with the Sudanese government.

“Now we know that what we thought was a very small amount of money was in fact much larger, which means that [the divestment] may in fact have a more tangible effect,” Manav K. Bhatnagar ’06, who helped lead the movement to divest, said in an interview yesterday.

The University is only required to reveal its holdings on American stock exchanges and has in the past declined to comment on the extent of its foreign investment in PetroChina. But by the time the Corporation voted to divest, after more than five months of pressure from activists on campus, Harvard’s stake in PetroChina rested entirely in Hong Kong, disappearing altogether from its filings with the SEC.

Meyer said yesterday the sell-off of PetroChina shares in New York was part of a broader investment strategy and was unrelated to the University’s then-ongoing divestment discussions.

“We actually reduced our exposure to emerging market equities during that quarter,” Meyer said.

Indeed, Harvard’s SEC filing for the first quarter of 2005, which was made public Wednesday, appears to show a decline in holdings from the previous quarter in emerging markets ranging from China to Brazil.

In the same period that Harvard unloaded its 67,200 shares of PetroChina on the New York Stock Exchange, it also sold all 67,200 American shares it owned of Banco Bradesco, a Brazilian banking and insurance firm. And Harvard also sharply reduced its holdings of Huaneng Power International, a Chinese electric company.

The decision to sell Harvard’s stateside stake in PetroChina—traded in the form of American Depository Receipts (ADRs)—rather than the shares listed in Hong Kong was likely a pricing issue, according to Meyer.

“I suspect the portfolio manager decided that selling the ADRs was less expensive than the local shares,” Meyer said.

Jonathan W. Lewellen, an associate professor of finance at the MIT Sloan School of Management, said in an interview yesterday that while ADR and local shares generally fluctuate in harmony, it is “conceivable” that the shares in Hong Kong were more cost effective.

PetroChina has fallen nearly five percent on the New York Stock Exchange since the Corporation voted to divest. The share price climbed roughly 50 percent from the time Harvard picked up its first 60,000 shares in the third quarter of 2003 until April 4, 2005, when the divestment decision was announced.

And while the shares in New York were already sold by then, Harvard quickly unloaded its PetroChina holdings in Hong Kong soon after the announcement, Meyer said.

—Daniel J. Hemel contributed to the reporting of this story. —Staff writer Zachary M. Seward can be reached at seward@fas.harvard.edu.