Harvard Ditches Hedge Fund Run by Harvard GradBy
Manager, who gave $15 million for aid, faced redemption notice
University reexamines its holdings from real estate to timber
Eric Mindich has been good to Harvard, and, until recently, Harvard has been good to him.
Mindich, class of 1988, landed a coveted seat on Harvard’s endowment board after he become a partner at Goldman Sachs in the 1990s. In the 2000s, when he left the firm to start a hedge fund, the university invested $500 million. Later, Mindich returned the favor, donating $15 million for scholarships.
But now hard financial reality has distanced Harvard and this Harvard man -- along with others who once made lucrative careers investing for the college. Earlier this year, the endowment said it was withdrawing some of its money from Mindich’s investment firm, Eton Park Capital Management, because of 2016 losses, according to people familiar with the matter. In March, Mindich said he was closing his fund.
The redemption illustrates Harvard’s commitment to an overhaul of its $35.7 billion endowment, the largest in higher education. Like many of its rivals, Harvard has long sought to reap rewards from its gold-plated Rolodex, including the money managers among its directors, employees and donors. Yet, for all its connections, its returns have been lackluster.
Harvard’s pullback from Mindich also underscores the shakeout to come as an outsider seeks to overhaul the fund. Harvard’s board has instructed its new endowment chief, N.P. ‘Narv’ Narvekar, to rebuild the organization and its portfolio. In his first six months, Narvekar has sought to unload a number of investments, from private equity to real estate to natural resources.
“This is where it’s to Harvard’s advantage to bring in a new broom to sweep clean,” said David Salem, chief investment officer of Windhorse Capital Management in Boston. “It shouldn’t matter what relationship a money manager has to the university.”
The 11-member board overseeing Harvard’s endowment is pushing the new CEO to act quickly, according to a person familiar with the matter. Narvekar, who started in December after more than a decade running Columbia University’s top-performing fund, plans to slash Harvard’s 230-person staff in half by the end of this year and shift more assets to outside fund managers. Harvard declined to comment.
Narvekar installed a new team, hiring three people who worked for him at Columbia’s endowment and a chief investment officer he knows from his days at the University of Pennsylvania. The outsiders, working with staffers who survived the purge, have been scouring the portfolio, looking for funds they don’t like, as well as discovering new ones that look more promising, according to people close to the endowment.
Under Narvekar, Columbia often sought out esoteric quantitative strategies. By contrast, Harvard built its hedge fund strategy around star portfolio managers, many of whom had worked for the endowment in the 1990s.
One of the best known was Jack Meyer, who had left Harvard in 2005 after racking up a stellar record over 15 years. Meyer, like Mindich, recently lost out on Harvard’s business. Even before Narvekar’s arrival, Harvard redeemed its holdings in Meyer’s Boston-based Convexity Capital Management, according to people familiar with the decision.
At the same time, Harvard is trying to sell about $2.5 billion in private equity, real estate and venture-capital funds. Harvard’s stake in Kleiner Perkins Caufield & Byers has been on a list distributed to potential buyers, and Harvard is asking those interested for commitments by the end of its fiscal year on June 30, according to a person close to the endowment. Harvard has invested in New York hedge fund Element Capital Management, according to a person familiar with the matter.
Harvard is also looking to prune its $4 billion of timberland and other natural resource holdings, which are owned directly. Private-equity firm KKR & Co. is close to buying about 8,500 acres of dairy farms and 5,500 cows in New Zealand for more than $70 million, pending regulatory approval, according to a person familiar with the matter. The deal isn’t expected to close for months, according to the person. KKR declined to comment.
The Wall Street Journal reported earlier Tuesday the possible sale of interests in Kleiner Perkins, KKR’s pending offer and the Element investment.
Harvard has already started liquidating its internally run portfolio of stock-and-bond hedge funds that was supervised by managing director Rene Canezin, a former Barclays Capital and Lehman Brothers high-yield bond trader.
Narvekar is still trying to pick some Harvard-related winners. He is committing $400 million to TPRV Capital, a hedge fund formed by two departing endowment managers, Graig Fantuzzi and Michele Toscani, according to a document obtained by Bloomberg News.
The endowment’s new CEO is also looking to strike a deal with its top-performing real-estate team, led by Managing Director Dan Cummings, to manage money outside the fund, according to a person familiar with the matter.
In the early aughts, Mindich looked to be just the kind of connection Harvard needed to exploit. He graduated summa cum laude and Phi Beta Kappa from Harvard in 1988 with a degree in economics and then took a job at Goldman Sachs Group Inc., where he had interned as a student. There, he worked on the famed risk arbitrage desk of another Harvard grad, Robert Rubin, who later became U.S. Treasury secretary under President Bill Clinton.
In 1994, at age 27, Mindich became the youngest person ever named a Goldman partner. Mindich was then tapped for a prestigious post on the board of Harvard Management Co., which oversees the endowment from offices overlooking Boston Harbor. In 2004, when he started his own company, he resigned his board seat because the endowment decided to invest in his startup, according to a person familiar with the matter.
Harvard’s initial stake helped Mindich raise $3.5 billion in 2004, the biggest hedge fund startup ever at the time. Its early investment performance helped the fund grow to $14 billion in 2011. That year, however, losses prompted investors to start redeeming their money.
Last year was a disaster. While the Standard & Poor’s 500 stock index returned almost 12 percent, Mindich’s flagship fund lost 9.4 percent, in part from a wrong-way bet on Japanese equities, according to people familiar with the matter. As the market surged this year, the fund remained flat. Assets under management slipped to around $7 billion. A spokesman for Mindich declined to comment.
In January, the Harvard endowment sent its redemption notice, according to people familiar with the matter. They didn’t say how much money Harvard pulled but said the school retained a stake. Harvard had been considering the move even before the arrival of Narvekar, according to one of these people. On March 23, Mindich announced he was shutting down and returning capital to the remaining investors.
Laurence Siegel, former head of research at the Ford Foundation, said the rise and fall of Mindich’s fund shows that Harvard needs to establish more distance from those connected to the university.
Over the long term, Siegel said, “These special relationships haven’t really paid off.”
— With assistance by Katherine Burton