Apparently Harvard (or more specifically, its endowment) engages in merger arbitrage. Taking a 5.77%
percent stake in Teavana Holdings, Inc. (NYSE:TEA) after it agreed to be
acquired by Starbucks (NYSE: SBUX), Harvard now owns 2,240,000 shares valued at
roughly $33mm as of TEA's closing price on Friday. With a portfolio valued at
over $30 billion, this represents ~0.1% of the
total endowment and therefore ~0.6-0.7% of the ~15% "absolute return"
portion of the endowment. It is far from large for Harvard, yet makes it one of
the largest holders of TEA.
It can do this because Harvard operates an active, "hybrid"
investment model. Unlike most endowments such as Yale, Duke, MIT, etc.,
Harvard Management Company (HMC) has external as well as internal managers
to handle its investments. This has has indeed turned parts of HMC into a hedge
fund, spinoffs and all. In particular, Convexity
Capital Management (founded in 2006 by the Jack Meyer, former head of the
endowment) shows some of the more complicated options/swaps-based strategies
that were employed, discussed here.
But what about other methods of investing for endowments? This article from Greycourt & Co.
looks to the (equity) index approach take by Norway's sovereign wealth fund,
which does the "anti-Yale" approach in investing mostly in passive,
liquid indices and has still done with. One possible explanation given is that
1) Yale's focus on alternatives (mirrored by Harvard now) was done when
illiquid assets were cheap/undiscovered, hence their legendary returns under
David Swenson. As a result, recent lackluster returns by large
endowments focused on alternatives (real estate, hedge funds, private equities)
may be a function of over-interest.
What can we gain from this? Maybe, it's that like anything else in
investing, no asset class always does better and outperformance is ultimately
driven by value.
Disclosure: I am short TEA.
-Stanley
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