The Harvard University endowment is in talks to move the management of a portion of its real estate investments to Bain Capital, according to people familiar with the matter.
Under the plan being discussed, Bain would hire about 20 people from the team at Harvard Management Co., which oversees the $37.1 billion endowment, said the people, who asked not to be identified because the information is private. Bain would become the money manager for Harvard’s direct real estate investments, the people said.
Harvard Management and Bain declined to comment.
The deal would advance an ambitious effort to overhaul Harvard’s endowment, which has produced mediocre investment results for the last decade. It would also be a significant step for Bain, Boston’s biggest private equity firm, which has stayed out of real estate even as competitors have plunged into the asset class.
Harvard Management, which hired a new chief executive officer a year ago, has been seeking to cut its 230-person staff in half, laying off people while spinning out investment teams and closing internal hedge funds. N.P. “Narv” Narvekar, the CEO hired from Columbia University, unveiled the overhaul in January and said at the time the real estate team would be spun out.
The Harvard team is overseen by Daniel Cummings, who was hired in 2009 and previously worked for Carlyle Group LP and a division of Jones Lang LaSalle Inc. Cummings oversaw the creation of a portfolio of direct real estate investments in which Harvard Management provides capital in partnership with developers who buy property. Cummings was paid $11.6 million in 2015, making him the second-highest paid at Boston-based Harvard Management, according to a tax filing.
Harvard’s partners include New York-based developers Crown Acquisitions and A&E Real Estate Holdings, according university filings. These direct stakes represent more than half of Harvard’s $5 billion real estate portfolio, and for a number of recent years were the best performers in the endowment, according to university annual reports.
The balance of Harvard’s real estate investments are made through external fund companies and these would remain under the university’s direct control, one of the people said. The management company sold more than $1 billion of these fund stakes this year as it cut holdings in the asset class.
While Bain manages about $75 billion across private equity, credit, public equity and venture capital, real estate has been a missing piece. The lack of a formal strategy has increasingly stood out as peers such as TPG and KKR & Co. have added real estate investments in the past decade. It’s the biggest business by assets for Bain’s largest peer, Blackstone Group LP, accounting for about half of Blackstone’s pretax profit during the first nine months of this year.
The addition of a real estate team would come at a time when Bain is building its brand and consolidating leadership. Last year the firm promoted four longtime executives to chairmen and managing partners — roles that are a first in the partnership’s 33-year history — and re-branded its hedge fund and credit divisions to include the Bain name.
It’s also part of an evolution for the asset manager, which Mitt Romney and other Bain consultants started as a pure-play private equity shop in 1984. Bain launched a public equity strategy in 1996 and two years later added a credit team with the idea that the same type of analysis used in buyouts could be applied to debt investing, according to its website. Its venture arm, which has been an investor in high-profile companies including Jet.com Inc. and LinkedIn Corp., started in 2000. In recent years Bain Capital has also started funds for impact investing and life sciences.