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HARVARD FAILS HEDGE FUNDS 101, LOSES $250M
By RODDY BOYD
August 1, 2007 -- Highly levered bets, poor hedges and a panicky bond market conspired to teach the managers of Harvard University's massive endowment fund a hard lesson about investing in hedge funds that they won't soon forget.
The sudden collapse of Sowood Capital Management has whittled down the $500 million invested by the managers of Harvard University's endowment - called the Harvard Management Co. - by more than half.
According to a letter to investors issued late Monday, the formerly $3 billion fund is now worth under $1.5 billion after completing the sale of its bond portfolio to Citadel Investment Group. A Harvard spokesman declined to comment.
The loss of at least $250 million appears to be the single biggest investment debacle in the recent history of the $29.2 billion Harvard endowment. Founded in March 2004, Sowood's general partner was Jeffrey Larson, long one of Harvard Management's star portfolio managers, who earned $17.3 million in 2004 running the endowment's international equities portfolio.
Larson's track record in foreign stocks was so good - averaging returns of 11.6 percent -that Harvard Management backed the launch of Sowood in March 2004 with a stake of $500 million. The endowment also invested $200 million in a Sowood commodity fund.
Sowood's losses appear to be the result of a combination of excessive leverage in its portfolio of corporate bonds, credit default swaps and loans - sectors where prices have come under severe pressure.
By RODDY BOYD
August 1, 2007 -- Highly levered bets, poor hedges and a panicky bond market conspired to teach the managers of Harvard University's massive endowment fund a hard lesson about investing in hedge funds that they won't soon forget.
The sudden collapse of Sowood Capital Management has whittled down the $500 million invested by the managers of Harvard University's endowment - called the Harvard Management Co. - by more than half.
According to a letter to investors issued late Monday, the formerly $3 billion fund is now worth under $1.5 billion after completing the sale of its bond portfolio to Citadel Investment Group. A Harvard spokesman declined to comment.
The loss of at least $250 million appears to be the single biggest investment debacle in the recent history of the $29.2 billion Harvard endowment. Founded in March 2004, Sowood's general partner was Jeffrey Larson, long one of Harvard Management's star portfolio managers, who earned $17.3 million in 2004 running the endowment's international equities portfolio.
Larson's track record in foreign stocks was so good - averaging returns of 11.6 percent -that Harvard Management backed the launch of Sowood in March 2004 with a stake of $500 million. The endowment also invested $200 million in a Sowood commodity fund.
Sowood's losses appear to be the result of a combination of excessive leverage in its portfolio of corporate bonds, credit default swaps and loans - sectors where prices have come under severe pressure.