Harvard fund making a change

Endowment seeks to cut holdings in private equities

NEW YORK - Harvard University's $36.9 billion endowment is in talks to reduce its private-equity holdings as the financial crisis makes leveraged buyouts less profitable, a person familiar with the situation said.

Harvard officials are in preliminary discussions to sell some of its stakes in private-equity funds, said the person, who asked not to be named because the negotiations are private. The Wall Street Journal reported yesterday that the school is seeking to drop about $1.5 billion in partnerships managed by companies including Boston-based Bain Capital LLC.

Endowments such as Harvard's, the world's largest university fund, and pension-plan managers pumped a record $1.01 billion into buyout firms in 2006 and 2007 as they chased returns that exceeded those available from public stocks and bonds. They are scaling back as the credit shortage makes it almost impossible for buyout firms to acquire and sell companies, crimping investment profits.

Commitments to private-equity pools fell to a 3 1/2-year low of $82.3 billion in the third quarter, according to Private Equity Intelligence Ltd. in London.

A Harvard official declined to comment.

The private-equity portion of Harvard's endowment returned 9.3 percent in the year ended June 30, compared with an overall return of 8.6 percent, according to a Sept. 12 letter from Harvard Management Co., which oversees the fund.

Private equity had a 10-year annualized average return of 28.3 percent, beating the endowment's 13.8 percent average annual return, Harvard said in the letter. Harvard Management has been led since July by chief executive Jane Mendillo, who formerly oversaw the endowment of Wellesley College.

Harvard's policy portfolio, a benchmark model against which it measures the fund's performance, calls for 13 percent of the holdings to be allocated to private equity in the current fiscal year, an increase from 11 percent in the year ended June 30, the management company said in the letter.

Investors are seeking buyers in secondary markets for private-equity, real-estate, and hedge-fund interests so they can limit their stakes in those asset classes. A drop in the value of public equities has pushed the percentage of assets allocated to private-equity funds too high for some managers.