Harvard and Its Peers

At the same time as many Wall Street investors have embraced the trend towards investing in leveraged buyouts, or LBOs, Harvard has emerged as the leader in the field among the nation's universities.

"We've been a little more systematic [about direct investment]" than other universities, says Harvard Management Company partner Michael Eisenson, who helps run the University's LBO team.

But Eisenson adds that Stanford and Yale also manage their own leveraged buyout deals "from time to time."

And outside experts agree that with the rising costs of higher education, university investors are looking for fast, highly profitable ways of boosting their endowments.

"All big Ivy League schools are deeply involved in putting money in buyouts," says Doug Henwood, publisher of the Left Business Observer. "They're all desperate for the money available."

To most university financial managers, however, 'desperate' is a matter of degree. And many say that Harvard's involvement with LBOs exceeds the amount of capital other universities are willing to commit to such deals.

"We've always been adverse to financial engineering deals," says Stanford Treasurer Rod Adams. Stanford "has never been in big-name LBO funds," Adams says.

Adams says his LBO team "is not quite like Harvard's," although he says it is "very connected to the university."

A Dislike of Controversy

"I apply the New York Times test to it," Adams says, explaining that he does not like his investment deals to be controversial enough to make the front page.

Adams says Stanford's endowment stands at about $2 billion, of which $60 million is currently invested in LBOs.

Roberta M. Weil, vice president for investments at Columbia University, says, "We tend not to take the lead, but to participate with other deals."

Weil says Columbia does not do its own LBO management, although she says that "Harvard's endowment is sufficiently large to do that kind of investing."

"In terms of LBOs, there are a lot of concerns," Weil says, because "everybody believes one of these is going to crash." So, she adds, "bigger is not necessarily better."

According to Weil, Columbia's endowment is at about $1.1 billion. She says only $15 million is currently invested in LBOs.