Another Harvard University farmland investment in Brazil may go awry.
The prosecutor's office in the state of Bahia said it's reviewing allegations that a company linked to Harvard's endowment isn't the rightful owner of land in the region, and it's determining whether to sue to reclaim the titles.
The land in western Bahia was purchased by Caracol Agropecuaria, a company that is controlled by Harvard's $37.1 billion endowment through an entity called Guara LLC, according to the university's tax filings.
The dispute, which dates back years, concerns property titles for about two-thirds of a sprawling 140,000-hectare (540 square miles) farm, an area about the size of Phoenix. Such fights have become more common in Brazil as industrial agriculture spreads to poorer regions of the country and illustrate one of the risks for institutions investing in the sector.
"Caracol has the property title, but it couldn't prove how the land, at the dimensions it has today, has been formed over time," Barbara Camardelli Loi, who's leading the probe in the prosecutor's office, said in an interview. "If we prove this is an area owned by the state, the company will lose it."
A spokesman for Harvard Management Co., which oversees the endowment, declined to comment. Caracol didn't return calls seeking comment.
The dispute is another headache for Boston-based Harvard Management. The endowment has been re-evaluating its investments in farms and forests, writing down the value of the portfolio by $1.1 billion to $2.9 billion last year and selling properties including a portion of a eucalyptus plantation in Uruguay.
The endowment, which has a number of other properties in Brazil, decided to exit from a farm investment of at least $150 million in a state neighboring Bahia last year, contributing to the writedown of the natural resources portfolio.
"For years, HMC benefited from an internally managed natural resources program that generated strong returns," N.P. "Narv" Narvekar, CEO of HMC, said in an annual investment letter in September. "At this stage, however, while most assets remain attractive, a few have significant challenges."
Mr. Narvekar wrote that HMC sold some of the assets in fiscal year 2017, and will continue to hold others. "Our natural resources platform will take multiple years to reposition," he wrote.
The value of Caracol was about $44 million, according to a 2016 endowment tax filing.
While the property Caracol owns in western Bahia is vast, only about 15% of it has been developed into farms for beef cattle, eucalyptus trees and crops such as corn and sorghum, according to government documents dated 2014. The farms are operated by the company Granflor Agroflorestal, according to the documents.
Brazil enacted restrictions on foreign ownership of farms in 2010 after an influx of international capital. Institutional investors including TIAA-CREF and Japanese trading house Mitsui & Co. have been drawn to the region in the past decade.
The dispute in Bahia was sparked by complaints from subsistence farmers who claim they had been forced from government land. The state formed a commission that recommended in a 2014 report to revoke titles after finding a "festival of irregular and illegal procedures which resulted in usurpation of public lands" that predated Caracol's involvement.
The commission found irregularities with 24 titles that Caracol holds for lands it acquired, according to the report.
The expansion of industrial agriculture in emerging markets in the past decade has led to complaints about so-called land grabbing, where subsistence farmers are pushed off property, according to Devlin Kuyek, a researcher at GRAIN, a Barcelona-based group that tracks the disputes.
"This is far from being just a land litigation," Ms. Camardelli Loi of the prosecutor's office said in the interview. "It's a difficult situation also for the people who live there as agriculture is the main activity in the area."