Oct. 22 (Bloomberg) -- Stanford University’s stakes in buyout funds, energy companies and distressed securities make up the largest portion of assets the school is offering in the biggest private-equity auction since stocks rallied in March.

The California university, the nation’s fourth wealthiest, set an Oct. 27 deadline for bids on its $6.2 billion of endowment investments in 304 funds, according to a transaction summary obtained by Bloomberg News from a potential investor who didn’t want to be identified. It may sell as much as $1 billion of the investments, or 8 percent of the $12.6 billion fund, depending on the offers submitted.

Stanford is seeking to capitalize on rising private-equity values tied to the more than 50 percent increase in stock prices since March. The auction comes almost a year after Harvard University couldn’t get acceptable offers for the $1.5 billion of private- equity holdings it tried to sell amid the worst financial crisis since the Great Depression.

“Buyers are willing to pay more for Stanford’s funds, mostly due to improved secondary private-market conditions,” said Laurence Allen, managing member of Nyppex LLC in Greenwich, Connecticut. The median bid on private-equity funds increased 29 percent to almost 52 cents on the dollar in the third quarter, according to Nyppex, which matches buyers with sellers of private funds and advises endowments on the market.

While Harvard sought to offload funds it no longer wanted, Stanford is soliciting bids for portions of its fund holdings to free up cash to “take advantage of attractive near-term investment opportunities,” according to the transaction document, which is titled “Project Train.”

Oil and Gas

Stanford, located in Silicon Valley, was the third- wealthiest school in the U.S. behind Harvard and Yale University in New Haven, Connecticut, as of June 2008, according to the National Association of College and University Business Officers in Washington. The University of Texas System, whose endowment was valued at $15.2 billion as of Aug. 31, has since overtaken Stanford, whose endowment is tied with Princeton University’s $12.6 billion fund.

Stanford’s buyout funds comprise a quarter of the portfolio’s value, including future commitments, according to the document. Private-equity funds that invest in oil and gas account for 17 percent and firms that buy distressed securities constitute 14 percent.

The university, adjacent to Palo Alto, California, is seeking offers of at least $50 million, based on March 31 asset values, according to the document, which was prepared by Cogent Partners, the Dallas-based firm handling the sale. The Stanford funds also invest in venture capital and real estate.’

‘Great Roster’

“We’re not forced sellers,” John Powers, chief executive officer of Stanford Management Co., which oversees the endowment, said in an interview. He declined to comment on the offering document, the school’s fund managers or Harvard’s experience trying to sell private-equity assets. “We plan to do it in a broad strip that will prevent any one manager from being cherry-picked in or out. That is an indication of our desire to do this in a way that keeps in mind Stanford’s interests and the interests of the general partners with whom we work.”

Cogent had asked investors to indicate their interest by Sept. 22. It said the school doesn’t want bids for a single fund or all the funds of one manager. Stanford will keep at least 80 percent of its stake in a fund, Powers said.

“If we don’t get pricing we think represents the value of the assets we’re offering, we’ll be happy to not do the sale,” Powers said, declining to discuss pricing specifics. “We have a great roster of managers. We want to preserve our exposure and commitment to them.”

Harvard Sale

Investors that focus on secondary private-equity transactions include Coller Capital Ltd. in London, HarbourVest Partners LLC in Boston and Lexington Partners Inc. in New York, while Goldman Sachs Group Inc. in New York and Zurich-based Credit Suisse Group AG, and Neuberger Berman LLC in New York run funds dedicated to buying stakes from a fund’s original investors. Pension managers and sovereign wealth funds also hold the investments.

Officials at Goldman, Credit Suisse, HarbourVest and Neuberger declined to comment, while Cogent, Coller, and Lexington didn’t return calls and e-mails seeking comment.

Harvard, the wealthiest U.S. school, with an endowment valued at $26 billion, started shopping its private-equity holdings after its new fund chief Jane Mendillo arrived in July 2008. As global capital markets recorded their biggest losses since the Great Depression and Harvard received bids it considered too low, the offering was pulled. The Cambridge, Massachusetts, school eventually sold parts of the portfolio, according to a person familiar with the sale. Mendillo, Harvard Management Co.’s chief executive officer, declined comment through Christine Heenan, a school spokeswoman.

Bonds

Stanford, founded in 1891, sold $1 billion of bonds in April and fired more than 400 nonfaculty employees this year as it reduced the endowment’s budget contribution by 10 percent. About $200 million of the sale was used to pay down debt, while the rest is untouched, Powers said. President John Hennessy said that month it may take the fund more than 15 years to return to its August 2008 peak of $17.2 billion after a 27 percent decline in the past year.

The school, which raised about $400 million from previous secondary sales in late 2007 and early 2008, decided to speed up its efforts over the past two months as stocks rallied, Powers said.

The school’s illiquid investments offer “immediate access to a mature and diversified portfolio of funds ready to be harvested, as well as exposure to 2008 and 2009 vintage funds with significant capital to deploy in a very attractive investment environment,” the Cogent document says. The stakes also carry $4.92 billion in future commitments to the managers.

Bain Capital

Stanford’s biggest investments include $490 million across eight funds managed by private-equity company Bain Capital LLC in Boston; $429 million in five funds run by Dallas-based Merit Energy Co., a closely held operator of oil and gas wells with more than $4 billion under management; and $396 million in six funds run by Kern Partners Ltd., a Calgary, Alberta-based energy firm that oversees more than $1 billion.

The university also has $349 million managed by private- equity firm Golden Gate Capital of San Francisco; $114 million overseen by San Francisco buyout group Hellman & Friedman LLC; $101 million at Fortress Investment Group LLC, a New York-based manager of private-equity and hedge funds; $85 million with Sequoia Capital, the Menlo Park, California-based backer of Google Inc. and Yahoo! Inc.; and $62 million managed by Madison Dearborn Partners LLC, a buyout firm in Chicago.

Potential buyers of stakes on the secondary market have grappled with obtaining values of private holdings, which lag behind those of public markets, the ability of investment managers to block ownership transfers and the cost of bidding for assets that might ultimately not be sold.

“The Harvard and Stanford approaches are high-risk strategies for getting deals done,” Allen said. “Some buyers will question whether these offerings will be a productive use of their time.”

To contact the reporter on this story: Gillian Wee in New York at gwee3@bloomberg.net.

Last Updated: October 22, 2009 00:01 EDT