Three money managers are planning to leave Harvard University's struggling endowment to start their own hedge funds as the organization cuts staff and outsources investments.
Portfolio managers Michele Toscani and Graig Fantuzzi, who each focus on fixed income at Harvard Management Co., are teaming up to start a hedge fund, according to people with knowledge of the matter. Sanjiv Bhatia, a portfolio manager who focuses on emerging market stocks at the $37.5 billion fund, is also setting up his own shop, said one of the people, who asked not to be named because the information is private.
The three are among the employees leaving Boston-based Harvard Management as part of a sweeping restructuring aimed at boosting performance. The organization said last month it will eliminate about half of the 230 staffers by year-end and shutter an internal hedge fund unit. While the university has the largest endowment in higher education, returns have fared poorly when compared to its Ivy League peers.
Harvard Management said it's “exploring investing relationships” with groups overseeing the internal hedge funds who are departing although it was unclear if any of these new funds are involved. Messrs. Toscani, Fantuzzi and Bhatia declined to comment as did Emily Guadagnoli, a spokeswoman for Harvard Management.
The endowment had managed about $8 billion on a so-called internal platform as of June 30, 2014, which included equity and bond funds, according to a 2015 internal McKinsey & Co. report reviewed by Bloomberg. It had $6 billion committed to hedge funds, according to Harvard's fiscal 2016 annual report.
Messrs. Toscani's and Fantuzzi's firm will likely be named TPRV, said one of the people. One of Harvard's internal strategies is called Tufnell Park Relative Value, which was one of the best-performing books in its hedge fund portfolio and among the largest in terms of assets in 2014, according to the McKinsey report.
Mr. Bhatia, who joined Harvard in December 2012 after closing his hedge fund Isometric Investment Advisors, is part of a group investing in equities that the endowment began dismantling last year.
The layoffs and restructuring follow the arrival of Nirmal “Narv” Narvekar, who started as CEO at Harvard in December. He's seeking to make a transition from a “silo investment approach to a generalist investment model,” with fewer staffers. Mr. Narvekar came from Columbia University where he led a team of about 20 people overseeing around $9 billion that delivered top returns among peers.
Harvard also employed more people than other endowments because it had teams making direct investments in assets such as real estate and natural resources. The management company said last month that the real estate team is also expected to be spun out by the end of the year, although “it will continue to be a valuable partner.”
