Alumni of the Ivy League

Harvard and Yale, two of the most successful investors in private equity, have also been two of the largest breeding grounds for private equity talent—in terms of LPs and GPs alike. By Paul Fruchbom.

The universities of Harvard and Yale are not only two of the most prestigious colleges in the United States, they are also two of the most successful investors in the private equity asset class. Small wonder, then, that the two institutions of higher learning count so many titans of the LBO industry among their alumni—David Bonderman (Harvard Law School ‘66), Stephen Schwarzman (Yale ‘69 and Harvard Business School ‘72), Thomas H. Lee (Harvard ’65) and Ted Forstmann (Yale ’61), to name just a few.

Yet private equity talent, as recent moves at both Harvard and Yale have made clear, does not solely reside in the student population—the two universities’ endowments have been fertile breeding grounds as well.

Schwarzman: Yalie and private equity blueblood 

Certainly the most well publicized spin-out has been Convexity Capital Management, the hedge fund started by Jack Meyer, the former chief investment officer of Harvard Management Company, who announced his resignation last year amid controversy over staff compensation at HMC. Earlier this year, Convexity raised a record $6 billion, the most money ever raised by a new hedge fund.

Meyer’s fortunes notwithstanding, a number of his former colleagues are thriving as well.

Last month, Sowood Capital Management, which was formed in 2004 by Jeffrey Larson, who oversaw foreign equities at HMC, closed its fourth commodity-focused fund on $1.2 billion. Other Harvard spin-outs include Charlesbank Capital, which was founded in 1998 as the successor firm to Harvard Private Capital Group—it raised $900 million in 2005—and BayNorth Capital, a private equity real estate firm which itself spun out of Charlesbank in 2004. Last year, Baynorth closed its sixth fund on $430 million. All told, approximately seven independent funds—and up to 12 of the university’s top managers—have emerged from Harvard’s ranks over the past seven years, often with significant commitments from the university itself.

At Yale, the story is somewhat different, perhaps reflecting the more subdued demeanor of its chief investment officer, David Swensen—not to mention his longevity. Some of Swensen’s colleagues have been with him for up to 20 years. And yet when those investment officers do leave, many of them, rather than forming their own firms, have gone on to run other institutions.

Andrew Golden, for example, the current president of Princeton University Investment, which manages approximately $11 billion, worked in the Yale investment office for four years. Another Swensen protégé, Paula Volent, oversees the $600 million endowment at Bowdoin College, a liberal arts college in Maine, while Ellen Shulman, who worked with Swensen for 15 years, is now the chief investment officer at Carnegie Corp. The endowments at the New York Public Library and the Rockefeller Foundation are also run by Swensen acolytes.

In an article earlier this year in Bloomberg (owned, incidentally, by a graduate of Harvard Business School), Swensen noted that he primarily hired Yale graduates, not only for their dedication to the university, but also because they understood the school’s investment philosophy. Of course, Swensen—as well as his counterparts at Harvard—might do well to also place private equity capital with their fellow alumni.

Boosting your endowment with strong returns is one thing, but generous alumni contributions are nice as well.