Emails Show Credit Default Swaps Led to Harvard Loss, Goldman Gain

(April 30, 2010) — According to emails released by a Senate committee, credit default swaps with Goldman Sachs were part of the Harvard Management Company’s investment strategy in 2007 that exposed the University to losses.

Harvard entered the $500 million credit default swap with Goldman paying about 100 basis points, or $5 million, per year for protection against defaults, the university newspaper, The Harvard Crimson, reported. As the real estate market tumbled, credit default swap rates increased to 200 basis points. While Harvard suffered losses, Goldman Sachs positioned itself to profit.

This trade was part of an investment strategy that is “no longer pursued” at Harvard Management Company, which invests the University’s endowment, said university spokesman John D. Longbrake, according to the article. It is unclear the amount Harvard lost.

The emails released follow the Securities and Exchange Commission’s fraud suit against Goldman Sachs. The government has accused the Wall Street giant of failing to disclose conflicts in mortgage securities, which cost investors more than $1 billion and fueled the worst financial crisis since the Great Depression. Goldman profited by betting against the mortgage investments it marketed to its customers while the housing market crumbed. Goldman has denied wrongdoing.

For more stories like this, sign up for the CIO Alert newsletter. 

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

A new study by Mercer shows manager searches have recovered to pre-crisis levels, with Australia, UK and Continental Europe seeing the most significant increases.

(April 29, 2010) — According to a study by Mercer, institutional investors regained confidence last year. European pension funds hired more fund managers in 2009 compared to previous years to take advantage of bargains in assets hit during the financial crisis.

In the UK, manager searches reached 245 worth $41.9 billion, from 189 in 2008 and 242 in 2007, recovering to pre-crisis levels, the consultancy’s 2009 Global Manager Search Trends report showed. Almost 830 investment manager searches were conducted worldwide by more than 400 companies. Value of assets placed through Mercer’s manager search activity totaled $97.2 billion in 2009, up from $93 billion.

“Although there are regional variations, we do sense a greater investor appetite for taking advantage of dislocation and low valuations than in previous market down-turns,” said Andy Barber, global head of manager research at Mercer, in a statement. “Looking forward, we expect a growing interest in liability driven investment (LDI) as defined benefit pension clients seek to manage their assets with closer reference to their liabilities.”

The biggest jumps in 2009 were seen in Australia, where the number of searches doubled compared with the previous year. In both the UK and Europe, search activity also rose considerably. However, in North America the increases were relatively small in comparison. In Asia, searches decreased by a third.

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news. 

European pension funds are increasingly moving toward a broader investment strategy that encompasses investments in alternative assets, such as property and hedge funds, in addition to more traditional assets like equity and bonds. The study showed that global fixed income increased the most, with manager searches skyrocketing to 45 from two in 2008, with real estate becoming an attractive option, as searches for property increased fourfold.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742