LSV Asset Management Sued by Former Execs Over $100M in Lost Equity

LSV Asset Management is facing a suit filed by four former executives who claim they were deprived of more than $100 million when the investment firm forced them to sell their equity at a significantly reduced price.

The lawsuit also names as defendants Josef Lakonishok, LSV’s CEO, CIO and founder, along with current LSV executives Josh O’Donnell, Kevin Phelan and Menno Vermeulen. According to the company’s website, Phelan and O’Donnell are LSV’s chief operating officer and chief compliance officer, respectively, while Vermeulen is a portfolio manager and senior quantitative analyst.

The plaintiffs in the complaint, filed in the Circuit Court of Cook County, Illinois, are Han Qu, Bhaskaran Swaminathan, Peter Young and Simon Zhang. Young held the title of director of client portfolio services, Swaminathan formerly was director of research, Zhang was a senior quantitative analyst, and Qu was a senior quantitative analyst and one of LSV’s founding employees. According to the complaint, the four collectively worked at the firm for more than 90 years.

The four allege that during their tenure at LSV, they were pressured by management to acquire shares as a “sign of loyalty” and of “being a team player.” They ended up paying more than $25 million for equity in the firm, which they say was largely financed by bank debt and purportedly entitled them to millions of dollars in annual distributions. The lawsuit alleges LSV represented to the plaintiffs repeatedly throughout their employment that they would own the purchased shares outright when the bank debt was paid off.

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According to the complaint, the four plaintiffs invested more than $2 million in cash—which it said was difficult for many of them to cover—and incurred more than $22 million in bank debt. The complaint also alleges they were required to forego salaries and other pay raises during most of their careers in exchange for the purported benefits of buying equity shares in LSV. They also claim LSV encouraged them to incorporate the shares in their estate plans, which led the four to either resign or retire under the belief they would retain ownership and continue to receive distributions after they left.

“Plaintiffs would not have resigned or retired if they knew defendants intended to strip them of the purchased LSV shares the minute they left the company,” the complaint states.

“LSV utilized a web of agreements for the purpose of retaining control over LSV employee stock,” the plaintiffs’ lead attorney, Brian Procel, a partner at Procel Law PC, said in a statement. “And just like a yo-yo, LSV pulled the string at the time of its choosing, to deprive its own executives of the shares they worked for decades to acquire.” The plaintiff’s are also represented by Duggan Bertsch.

Tim Spreitzer, a spokesperson for LSV Asset Management, said in an emailed statement that the firm “believes the claims are rife with inaccuracies and without merit and intends to vigorously defend itself in any future proceedings,” adding that the lawsuit is not related to the firm’s investment management activities for its clients.

Publicly traded financial services company SEI Investments, which owns a 38.6% stake in LSV, declined to comment.

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Tags: Bhaskaran Swaminathan, breach of fiduciary duty, complaint, Fraud, Han Qu, Josef Lakonishok, Josh O’Donnell, Kevin Phelan, Lawsuits, LSV Asset Management, Menno Vermeulen, Peter Young, SEI, Simon Zhang

The endowment of Harvard University, managed by the Harvard Management Co., returned 9.6% in fiscal 2024, the university announced Thursday in its fiscal year financial report. With assets of $53.2 billion at the end of the fiscal year, Harvard maintains its spot as the largest university endowment in the world.

The endowment outperformed its target return of 8%, with the university aiming to reach a 5% return to account for distribution and another 3% to maintain purchasing power. The endowment has returned an annualized 9.3% over the past seven years, since HMC CEO Narv Narvekar joined the fund, according to the announcement.

In fiscal 2024, the HMC allocated approximately 39% of its portfolio to private equity, 32% to hedge funds, 14% to public equities, 5% to real estate, 5% to bonds/TIPs, 3% to other real assets—including natural resources—and 3% to cash.

The endowment returned 2.9% in fiscal 2023 and negative 1.8% in fiscal 2022. Harvard’s most recent fiscal year returns put it in the middle of the pack compared with its peers. Other Ivy League endowments that have announced returns include Columbia (11.5%), Brown (11.3%), Cornell (8.7%), Dartmouth (8.4%) and Penn (7.1%). Yale and Princeton have yet to report.

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These endowments, known for their large allocations to alternative investments (colloquially known as the Yale model pioneered by that endowment’s late CIO David Swensen), have had their returns under scrutiny the past couple of years. In fiscal 2022 and 2023, many of these endowments posted single-digit or negative returns due to muted returns in the private markets.

For most alternatives-heavy endowments, fiscal 2024 was a rebound year. While critics point out that these funds still underperformed a 60/40 or 70/30 portfolio, proponents of the Yale model argue that their portfolios provide outperformance over the long term.

“Public equity returns are often outpaced by private equity—both buyouts and venture capital,” Narvekar wrote in the report. “However, in FY24, for the second year in a row, private equity returns lagged those of public equity markets. Readers will recall that in FY22, private managers did not reduce the value of their investments in a manner consistent with declining public equity markets at the time. As presaged in that year’s letter, those private asset managers did not subsequently increase the value of their investments in the context of rising public equity markets in fiscal years 2023 and 2024.”

The percentage of the university’s budget derived from distributions from the endowment continues to climb, Narvekar noted in HMC’s report. In fiscal 2024, the endowment distributed $2.4 billion toward the university’s operating budget, approximately 37%, up from 31% 10 years ago and 21% 20 years ago.

“The ever-increasing reliance on this critical resource makes our work all the more important,” Narvekar wrote in the report. “We are motivated by the fact that our efforts directly support an institution that serves as a global leader in teaching, learning, research, and the groundbreaking advancements its community makes each day.”