BlackRock Inc. (BLK) hired Harvard Management Co.’s Mark McKenna to start an event-driven hedge fund as the world’s largest asset manager seeks to expand its alternative-investment business.
McKenna, 43, will be based in New York and lead a new team focused on global events including corporate takeovers, divestitures, and management changes to generate returns, according to a memo dated June 9 provided by the company. He is expected to start a new fund this year and will report to Carl Eifler in hedge-fund strategies.
“There are still many more opportunities for BlackRock in the hedge fund space, including access to uncorrelated alpha strategies like event-driven equity,” Eifler and the global co-heads of BlackRock Alternative Investors Andy Stewart and Matt Botein said in the memo. “Mark’s addition to BAI continues to demonstrate BlackRock’s commitment to growing and investing in our platform.”
BlackRock’s Chief Executive Officer Laurence D. Fink, who built the firm through a series of acquisitions, is seeking to expand non-traditional investments by appealing to investors who want returns that aren’t correlated with the stock and bond markets. McKenna’s departure is the second high-profile exit this week for Harvard Management, whose president and chief executive officer Jane Mendillo said in an interview yesterday she’s resigning at the end of this year to pursue personal interests.
Alternative investments accounted for about $115 billion, or less than 3 percent, of BlackRock’s $4.4 trillion in assets as of March 31. BlackRock’s hedge funds hold more than $30 billion in assets. Event-driven offerings led all hedge-fund strategies in growth last year as mergers and acquisitions and activist campaigns attracted investors, according to an April report by Chicago-based Hedge Fund Research Inc.
Private equity and hedge funds are more lucrative per dollar invested than offerings such as mutual funds and index products, with most firms charging 2 percent in management fees and about 20 percent of profits. Fees from exchange-traded funds, which account for more than 20 percent of BlackRock’s assets, are much lower. U.S. ETFs sold by BlackRock’s iShares unit, on average, charge an annual expense ratio of 0.39 percent, meaning clients pay $39 for every $10,000 invested, according to data compiled by Bloomberg.
BlackRock has expanded its alternatives business through acquisitions, adding private equity with its purchase of Merrill Lynch & Co.’s investment unit in 2006 and a hedge fund-of-funds business from Quellos Group LLC in 2007.
BlackRock exited the business of investing directly in private-equity deals last year as its clients increasingly sought a “solutions-oriented approach” through indirect investments as well as co-investments. That led to the departure of Nathan Thorne, George Bitar and Mandy Puri, former Merrill Lynch & Co. private-equity managers hired by BlackRock in 2011.
McKenna, a former lieutenant in the U.S. Navy’s nuclear submarine force, joined the world’s largest school endowment in 2009 and co-founded and managed the event-driven strategy. Before Harvard Management, McKenna worked for six years at Caxton Associates LLC, and prior to that was a vice president in mergers and acquisitions at Citigroup Inc.
Mendillo, who was named to run Harvard’s endowment in 2008, is resigning after helping it to recover from the financial crisis. In an interview yesterday, Mendillo said she wasn’t looking for a job in finance and wanted to instead pursue interests such as music, education and projects in the Boston community.
Harvard is still seeking to recoup losses after the endowment peaked at $36.9 billion in 2008. The university posted a one-year investment return last year of 11.3 percent, the lowest among the Ivies. Its five-year annual average gain of 1.7 percent is also the worst of the eight schools, according to data compiled by Charles Skorina, founder of San Francisco-based executive search firm Charles Skorina & Co.
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