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Statement Urges Liquidation of Fund

By Nicholas M. Ciarelli, Crimson Staff Writer

Harvard, displeased with the performance of a fund in which it invests, will call upon fellow shareholders to vote that the fund be cut off from its current management and liquidated.

In a preliminary proxy statement filed on May 25 with the Securities and Exchange Commission (SEC), Harvard asked the shareholders of Korea Equity Fund, Inc., to reject the fund’s nominees to its board of directors and vote to terminate the fund’s agreement with its investment manager, Nomura Asset Management U.S.A., Inc.

The Korea Equity Fund invests mostly in Korean securities and has $61 million in net assets, including holdings in Samsung, Hyundai Motor, and LG Electronics, according to figures provided at Nomura’s website.

Harvard owned 2,441,200 shares in the fund on March 31, according to SEC filings. If it holds the same number of shares today, its stake would be worth $16.4 million, making it the fund’s largest institutional shareholder.

The preliminary proxy statement was submitted by Sowood Capital Management, an outside firm that invests part of the University’s $22.6 billion endowment.

Sowood General Counsel Megan Kelleher said the filing is Harvard’s first proxy statement concerning Korea Equity Fund. The filing is now subject to SEC review.

Proxy statements are documents sent to shareholders urging them to cast specific votes in advance of a company’s annual meeting. Investors typically submit proxy cards with their votes on nominees to the company’s board of directors and issues to be considered by the board.

Shareholders usually receive proxy statements from a company’s board of directors or management asking them to support its slate of nominees, but Harvard’s opposing statement offers the University’s own proposition.

“We believe that you and we have not received the treatment we deserve as shareholders,” said Sowood Managing Director Jeffrey B. Larson in a letter prefacing the statement. “After years of inaction by the Fund and its investment adviser...we now believe that it is up to shareholders to take the necessary steps to maximize shareholder value.”

In the filing, Harvard argues that the Korea Equity Fund’s performance has lagged behind that of the Korea Composite Stock Price Index since the fund’s establishment in 1993. Harvard blames the fund’s custodian, Nomura, calling the investment manager “ineffectual and self-serving” and arguing that it has been rewarded as the fund has dropped in value.

While the fund’s performance has improved in recent years, Harvard attributes the rise to broad market factors and activism by the fund’s shareholders.

Along with asking investors to demand that the fund’s management agreement with Nomura be revoked, Harvard is seeking their support for its proposal that the fund be liquidated by its board of directors and the value of its assets returned to shareholders.

“We believe that the only real beneficiaries of the Fund’s continued existence are Nomura and the Fund’s Board,” the filing says.

In the statement, Harvard argues that more open Korean markets provide today’s investor with more opportunities—such as American Depositary Receipts—for investment in equities there. Harvard also says the fund’s small size and expenses make it “no longer a viable vehicle for long-term investors.”

The statement asks shareholders to vote against reelection of the board’s two nominees for directors—Yasushi Suzuki and Chor Weng Tan. And Harvard also opposes the ratification of the appointment of the fund’s independent accountants, Ernst & Young, so that “shareholders will send a message to the Board that they do not accept the Board’s ‘business as usual’ approach, but will only accept substantial change in the management of the fund.”

The votes of shareholders will be submitted at the company’s annual meeting, which will be held August 10 at its offices in New York.

Neil Daniele, Nomura’s secretary, declined to comment on Harvard’s preliminary filing.

—Staff writer Nicholas M. Ciarelli can be reached at

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