If Harvard were to turn away from internal management, it would be a final — if giant — step in a process that began roughly seven years before. That's when the first of at least five investment teams left Harvard Management to start private investment firms. In each case, HMC bought stakes in the spinoffs and entrusted endowment money to them.
Jonathon S. Jacobson, an absolute-return fund manager, left Harvard in 1998 to set up Highfields Capital Management, Boston, with an initial mandate of $500 million in Harvard endowment money. In July of that year, HMC's private equity and real estate group, led by Michael Eisenson, broke away to form Charlesbank Capital Partners LLC, Boston, with an initial infusion of $1.4 billion of Harvard endowment money and a commitment of another $550 million.
Timothy Peterson, who managed high-yield bonds, left to start Regiment Capital Management, Boston, in 1999. During the second half of 2001, a team of HMC veterans, led by equity portfolio managers Robert Atchinson and Phil Gross, set up Adage Capital Management, Boston, with an initial $1.8 billion infusion from Harvard. And last March, Jeffrey B. Larson, who managed foreign equity and emerging markets funds at HMC, left to start Sowood Capital Management, Boston, with an initial $700 million infusion from Harvard.
Those spinoffs have lowered the portion of Harvard's endowment managed internally to roughly 50% now from more than 85% at the end of 1997. And that figure could slump further if Harvard entrusts Mr. Meyer's yet-to-be-launched firm with some of the endowment money his team manages.
Mr. Rothenberg, in one press report, didn't rule out that possibility. The treasurer couldn't be reached for comment.
But much remains unclear. What would a move to "outsourcing" mean if the bulk of Harvard's endowment money continues to be managed by five or six firms that Mr. Meyer nurtured? While the arrangement has continued to yield superior results, the overlap of ownership stakes and investment mandates could create a system fraught with moral hazard, said one executive who declined to be named.