Harvard, CIC reportedly end real estate fund sale talks

The $27.4bn endowment will keep eyeing secondaries sales and acquisitions, after reporting a 2.7% real estate loss in the past year. Real estate, though, would be one of the 'most interesting' opportunities over the next few years.

Harvard University has reportedly ended talks to sell part of its real estate funds interests to China Investment Corporation.

No reasons were offered for the collapse of talks between the $27.4 billion endowment and the Chinese sovereign wealth fund, which was first reported by Bloomberg, although Harvard’s improving real estate returns could be a catalyst. A spokesman for Harvard Management Company, which manages the university endowment, declined to comment.

Harvard reported a 2.7 percent loss to its real assets portfolio for the year to 30 June, compared to a 37.7 percent loss in the 2009 fiscal year.

In its latest annual report, president and chief executive officer Jane Mendillo said that despite the loss “real estate is one of the areas we find most interesting in terms of current and future opportunities”. The endowment added it had already made “several new real estate investments in sectors we judged to be well-positioned for recovery” with more “high-potential investments” expected over the next few years.

Overall, Harvard posted an 11 percent return on its investments for the year to 30 June, 1.6 percent above its benchmark. Private equity was the best performing asset class returning 16.2 percent during the same period.

Harvard defended its early push, along with Yale University endowment, into alternatives but insisted it had “learned some specific lessons over the last two years about keeping control of our capital and being prepared for unexpected market conditions.

“We have made and continue to make adjustments, and recognise that we will constantly need to evolve to be able to seize on market opportunities, manage our risks and meet the needs of this university,” Mendillo said in the report.

Those lessons would include the possible sale – and acquisition – of private equity and real estate fund interests.

This summer, CIC was reportedly set to buy around half a dozen real estate fund interests from Harvard for about $500 million, according to the Wall Street Journal. Morgan Stanley and Credit Suisse Group were reportedly representing Harvard on the sale. Among some of Harvard’s largest fund commitments were with GPs including Lubert-Adler Real Estate, Beacon Capital Partners and Westbrook Partners.

Secondaries professionals often cite the bid-ask spread between buyers and sellers as the primary reason for deals failing to close.

Mendillo said in the 2010 report though that the experience gained by Harvard in buying and selling secondary interests would ensure the endowment maintained a more “active portfolio management strategy with regard to our partnership interests” in the future.

“Over the last few years the secondary market for partnership interests has grown substantially. Given our experience in these markets, and the increasingly active management we strive to pursue in all asset categories, we expect to continue to access the secondary markets from time to time.”