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Harvard Real Estate Deal with Chinese Fund Collapses

By Elias J. Groll and William N. White, Crimson Staff Writers

Harvard University will not sell a portion of its real estate holdings to China’s sovereign wealth fund after efforts to broker a deal collapsed, according to a person familiar with the situation. Media reports estimated that the deal would have been worth several hundred million dollars.

Harvard Management Company, which manages the University’s endowment, had been seeking to unload a portion of its real estate portfolio since February or before in order to improve liquidity, and the China Investment Corporation had been rumored as a potential buyer. The $300 billion state-owned fund has made several moves into the U.S. real estate market.

The University has declined to discuss the deal.

During the recent financial crisis, the endowment suffered losses of more than 50 percent on real estate in fiscal year 2009. That portion of the portfolio became difficult to convert to cash as many market players sought the security of more liquid investments.

But, with liquidity concerns largely addressed, Harvard endowment managers are now taking a second look at the sector and keeping holdings they once looked to sell.

While current investments in real estate have continued to perform poorly, HMC President and CEO Jane L. Mendillo wrote in a report released last Thursday that HMC had started to hire new staff to add to the company’s real estate expertise while properties remain undervalued.

“Real estate is one of the areas we find most interesting in terms of current and future opportunities,” Mendillo wrote.

While the deal with CIC would have bolstered the endowment’s broader move towards increased liquidity, Mendillo has made other adjustments to the University’s portfolio that worked towards that end.

She has decreased HMC’s uncalled capital commitments, the amount of money pledged to external managers in the future, from $11 billion to $6.5 billion, a change that further increases fund liquidity.

After heavy losses in the 2009 fiscal year, Harvard’s endowment grew in value by 11 percent during the last fiscal year, according to Thursday’s report. But its real estate portfolio underperformed its benchmark last year. “Real assets,” including both real estate and natural resources, declined 2.7 percent for 2010. HMC does not publish numbers for real estate alone.

—Staff writer Elias J. Groll can be reached at egroll@fas.harvard.edu.

—Staff writer William N. White can be reached at wwhite@fas.harvard.edu.

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EndowmentUniversity FinancesHarvard Management Co