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.
Sanjiv Bhatia, a portfolio manager who focuses on emerging market stocks at the $37.5B 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.
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.
Toscani is a managing director at Harvard Management and co-head of relative value strategy who joined in 2009 from Fortress Investment Group LLC in Tokyo, according to his LinkedIn profile.
Fantuzzi joined the trading desk in 2007 from Morgan Stanley where he traded Treasuries.
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.
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.
Prior to starting a hedge fund in 2009, he ran Asian investments at Deephaven Capital Management and spent 12 years at Goldman Sachs Group Inc.
The layoffs and restructuring follow the arrival of Nirmal “Narv” Narvekar, who started as chief executive officer at Harvard Management in December.
He’s seeking to make a transition from a “silo investment approach to a generalist investment model,” with fewer staffers. Narvekar came from Columbia University where he led a team of about 20 people overseeing around $9 billion that delivered top returns among peers.
Endowments usually try to select the best outside money managers to deliver top returns in both liquid markets such as public equities and bonds as well as private investments such as venture capital.
Harvard was unique with portfolio managers on staff who used hedge fund-like strategies in stock, bond and commodities markets, a legacy of former CEO Jack Meyer, who left in 2005.
The endowment had an annual average return of 5.7 percent in the 10 years through June 30, among the worst in the Ivy League. Columbia gained 8.1 percent, among the best in higher education.
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.”
Posted by: The Trust Advisor