Super-Size Me

With the largest endowment in higher education, Harvard can use its size to make large bets on a wide range of investments, from traditional stocks and bonds to unconventional holdings like timber.

When Harvard submitted its proposal to liquidate Korea Equity Fund, it was the fund’s largest institutional shareholder, having amassed nearly 30 percent of the stock.

And Harvard held about 20 percent of the Korea Fund when it sold its stake at the end of August.

While large shareholders like Harvard are exposed to greater risk, compared to smaller investors they are in a much stronger position to seek structural and management changes.

“The average investor has no real clout with management,” USA TODAY financial columnist John Waggoner writes in an e-mail.

When Harvard sold its shares of the Korea Fund this summer, it took advantage of an offer to return its shares to the fund in exchange for a proportional amount of the net assets comprising the fund’s portfolio. But many smaller shareholders declined because they were not registered to trade the South Korean securities, Newsweek’s Allan Sloan theorizes.

Harvard’s size, Sloan writes, enabled it to capitalize on the deal and sell its stake at a price much closer to the value of the fund’s assets per share.

But the size of the endowment can also pose obstacles for the University, which must struggle to find enough high-performing assets in which to invest its billions.

Some of the most desirable venture capital and hedge funds only take a few million dollars from each investor. Once Harvard uses up these top-tier allocations, it must “go down the quality spectrum [of firms], which is very dangerous,” Harvard Management Company President Jack R. Meyer said in May.

Large blocks of shares can also be unwieldy to trade. Because enough buyers may not exist at the market price, a seller of a large block may have to settle for a price below that quoted on the open market. Conversely, a buyer of a large block may have to purchase securities at an above-market price.