Harvard's Endowment Said to Anchor Ex-Apollo Partner Fund

  • Bet is made on distressed energy in push to boost returns
  • In annual report, CEO cited plan to increase private equity

Harvard University’s endowment, in backing a distressed energy fund started by former Apollo Global Management LLC executive Sam Oh, is following through on a plan to invest more in private equity as part of an overhaul under its new chief executive officer.

Harvard is an anchor investor in the fund, which is seeking $500 million to $1 billion, according to two people with knowledge of the matter. The new firm, Mountain Capital Management, will invest in distressed oil and natural gas production and exploration companies that need restructuring and recapitalization, said the people, who asked not to be named because the information is private.

Stephen Blyth
Stephen Blyth
Source: Harvard

Stephen Blyth, 48, who put together a turnaround plan after being named CEO of Harvard Management Co. in January 2015, is opening the door to bigger bets across the $37.6 billion portfolio by replacing a strict asset allocation with ranges. Private equity and hedge funds could see the biggest increases, with new upper targets of more than 20 percent each, according to scenarios laid out in his first annual report in September.

Taking Risk

“Harvard has become an underperformer and they can’t turn that around by buying Treasuries,” said Erik Gordon, a professor at University of Michigan’s business school. “To outperform, you have to take on some risk.”

Harvard’s private equity portfolio returned 11.8 percent in fiscal 2015, Blyth wrote in the annual report. A “key driver” was the strong performance of 29.6 percent by venture capital investments, particularly in the technology and biotech sectors, he said. The endowment posted a 5.8 percent gain in the fiscal year, lagging the Ivy League average by 2 percentage points.

Private equity returned an average 9.3 percent for endowments in the year ended June 30, the third best performing asset class after venture capital and private equity real estate, according to a survey by the National Association of College and University Business Officers and investment manager Commonfund.

Jeff Neal, a spokesman for Cambridge, Massachusetts-based Harvard, declined to comment on the endowment’s investments. Kara Goodloe, chief operating officer of Mountain Capital, declined to comment.

Missed Out

Blyth’s predecessor Jane Mendillo raised cash during the financial crisis by selling more than $1 billion of prized private equity stakes at a discount. She dialed back risk, slashing commitments to less liquid buyout and venture capital funds that before the crisis had been the endowment’s top performing assets. Some critics say she missed out not investing at the lower prices.

Oh, who was a founding member of Apollo’s natural-resources group, is relying on a small group of large backers so his firm can spend time investing rather than raising capital in a year it anticipates will be profitable for the strategy. Oil and production companies have faced financial troubles amid a precipitous drop in commodity prices. The U.S. shale boom has created a supply glut, which has put pressure on prices.

While at Apollo, Oh helped manage investments for the firm’s natural resources group, which makes long-term bets on metals, mining and energy prices. He was on the board of oil and gas production company EP Energy Corp. and sat on the board of Athlon Energy Inc., which was sold to Encana Corp., handing Apollo a $2.2 billion profit. He also led the takeover of Parallel Petroleum Corp., in 2009, which was sold two years later for $772 million.

While Apollo’s natural resources team invests globally across the energy spectrum, Mountain Capital will focus investments on small to mid-sized oil and gas businesses in North America, said the people familiar with the matter.

Oh, who joined Apollo from Morgan Stanley in 2008, left the firm at the end of 2014. At Morgan Stanley, he made investments in oil and gas, electricity generation and transmission, alternative energy, carbon and refineries.

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