Harvard Is Said to Seek Sale of $1.5 Billion of Holdings in Buyout Funds

Harvard University, the world’s richest college, is seeking to sell about $1.5 billion of holdings in private-equity funds as it further cuts investments that contributed to record losses three years ago.

Harvard Management Co., which oversees the school’s $32 billion endowment, plans to offer about $1 billion of stakes in predominantly U.S. buyout funds through UBS AG, and is already taking bids on about $500 million in energy investments through Cogent Partners, according to three people briefed on the deal, who declined to identified because the information is private.

Jane Mendillo, chief executive officer of Harvard Management, has been shrinking its private-equity and real estate investments almost since she took over in July 2008 to free up cash and exit funds the Cambridge, Massachusetts, school no longer wanted. Harvard’s commitments to buyout and real estate funds have dropped to $5 billion to $6 billion from $11 billion two years ago, she said in a September interview.

“They could get good pricing now,” said Jean-Marc Cuvilly, a New York-based managing partner at Triago SA, who advises limited partners looking to sell private-equity stakes. “If you have quality assets, there’s going to be a lot of groups that are trying to get their hands on them.”

Mendillo tried to sell $1.5 billion in holdings three years ago. Most of the stakes were pulled off the market as a flood of sellers pushed down prices. As values recovered, Harvard and other institutions, including public pensions, have used such secondary sales to prune their portfolios and invest with new managers.

Harvard has been preparing the private-equity stakes for sale over the past month, according to two of the people. The UBS sale will probably be formally introduced in December, while buyers are already looking at Harvard’s energy stakes, which include Natural Gas Partners LP and Limerock Group LLC.

2008 Sale

John Longbrake, a Harvard spokesman, declined to comment on the planned sale.

Pricing in today’s market is better than it was in 2008. In the first half of this year, buyers bid an average of 85 cents on the dollar in the first round of private-equity sales, more than double the 38 cents they bid almost three years ago, according to data from Cogent Partners, the Dallas-based firm that advises institutions on private-equity sales. In the six months of 2011, stakes of buyout firms and energy funds received bids of 87 cents on the dollar and 90 cents, respectively, Cogent said.

Prices, while stable, could deteriorate if economic uncertainty or market volatility increase, according to Andrew Sealey, managing partner at Campbell Lutyens & Co., a London- based adviser.

“The market during the early part of the year offered a very attractive environment for sellers, while markets are likely to be somewhat more challenging,” Sealey said.

Commitments Cut

Private equity, the endowment’s top-performing asset class in the decade through June 2008, gained 26 percent in the past fiscal year, falling short of targets. Over the decade ended June 2011, the endowment’s best performing asset class was fixed income.

Harvard’s investments gained 21 percent in the 12 months ended June 30, increasing for the second straight year. The university had been squeezed for cash following the Lehman Brothers Holdings Inc. (LEHMQ) bankruptcy in 2008, caused by losses on derivatives used to protect the school against rising interest rates. As investments tumbled a record 27 percent, Harvard sold $2.5 billion of bonds in December 2008, cut jobs and postponed building projects.

To contact the reporters on this story: Sabrina Willmer in New York at swillmer2@bloomberg.net; Gillian Wee in New York at gwee3@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.