In A Possible Sign of Recovery, Harvard Endowment Starts Hiring

The Harvard endowment has been lambasted by critics for an illiquid investment strategy and an overly ambitious infrastructure expansion plan, but in possible signs of a turnaround at the world’s largest university endowment, hiring has started once again.

(August 12) – The hiring of two investment managers at a university endowment might seem trivial in times such as these, but at Harvard – long looked to as both best-in-class and the bellwether of university investing – such moves, to many, may signal a change in strategy and a possible recovery for the world’s largest university endowment.

Emil Dabora, formerly of New Jersey-based Caxton Associates, has been hired as an equity portfolio manager at the Harvard Management Company (HMC), which manages Harvard’s endowment both internally and externally. At Caxton, Dabora “founded and led” an event-driven portfolio team, according to a release from the university. Also hired was Michele Toscani, formerly of the Fortress Investment Group’s Japanese arm. At Harvard, Toscani will manage an international fixed-income portfolio.

Toscani’s hiring might signal a return to form for the battered endowment. Although HMC had an intense and active fixed-income desk under former chief Jack Meyer and his two superstars Maurice Samuels and David Mittleman, its bond exposure was significantly decreased by Meyer’s successor Mohammed El-Erian. This was done, El-Erian has said, to reduce the reliance on any single team or strategy after Meyer departed acrimoniously in 2005 along with a large portion of the fixed-income division to start Boston-based Convexity Capital. However, as the financial collapse engulfed investors worldwide, Harvard’s decreased fixed-income exposure left it more exposed than it might have been just five years earlier.

At the very least, the move to hire more managers ends what has been an ongoing trend at HMC. Having fired upwards of 30 of its 150-member staff in the past year, the move will be seen by many as a sign that the endowment is once again on more stable footing. Because it has for so long been sui generis in its field, such moves will be watched with interest across the endowment – and, indeed, institutional – sphere.

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To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>

With European regulators looking to tighten the alternative investment collar, UK pension funds – who now, more than ever, need the excess returns that alternatives are purported to provide – have stepped into the battle.

(August 12) – With controversy swirling around proposed European rules that would see regulators curb leverage, raise capital requirements in case of redemptions, and significantly increase transparency for alternative investment managers, previously-quiet UK pension funds have now stepped into the fray, asserting that such rules will only cause harm to institutional investors.

While hedge fund lobbying groups have loudly and unsurprisingly proclaimed their opposition to such regulation – the Alternative Investment Management Association (AIMA), a global hedge fund group, has claimed that the draft directive issued by the European Commission will cost Europe’s pension fund industry up to US$35 billion a year – statements this past week by the United Kingdom-based Hermes Pension Fund Management (‘Hermes’) and the National Association of Pension Funds (NAPF) indicate that pension funds are now getting involved.

“There are unintended consequences from the structure of the directive which would lead us to have substantially smaller choice in terms of the investments we’re able to make,” said Hermes director Kathryn Graham, according to Reuters. “[It would] also, I would imagine… significantly increase costs to the investments we are able to make.” Hermes — the retirement fund management arm of communications-giant BT (and the largest corporate pension plan in Britain at US$50 billion) – fears that more stringent laws would drive some funds out of the European markets, lowering the number of funds to choose from and correspondingly raising the prices for such investments. Joanne Segars, the chief executive of the NAPF, has echoed these concerns.

The proposed regulations fail to garner complete support from elsewhere in Europe as well. Some Nordic countries, having seen outsized returns from private equity in years past, are lobbying to have such funds exempt from some of the more stringent regulation. Ireland, it has been reported by the Wall Street Journal, wants to protect its custodian industry, which would also be affected by the Directive.

European interest groups aren’t the only ones jumping into the fray, however. According to the Wall Street Journal, United States Treasury officials have also started to express displeasure with such a directive, which could, if implemented, shut out some US-based hedge funds from raising money in Europe. While the US is looking into requiring hedge funds to register with regulators, it has stopped short of any leverage limits or redemption requirements.

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To contact the <em>aiCIO</em> editor of this story: Kristopher McDaniel at <a href='mailto:kmcdaniel@assetinternational.com'>kmcdaniel@assetinternational.com</a>