| (Illustration by Joe Mclaren) |
Emeth Partners has yet to start trading, but the event-driven volatility arbitrage fund already boasts a distinctive pedigree. When Emeth goes online in the third quarter of this year, it will be the seventh member of an exclusive club of hedge funds affectionately known as the Crimson Cubs. Founders Steven Alperin and Sara Fleiss are the latest stars to depart Harvard Management Co., the subsidiary that invests the university’s endowment, to start their own fund.
Alperin managed the emerging markets equities portfolio for HMC for more than a decade and recently announced he would retire after 21 years there. Fleiss was the lead analyst of the emerging markets equities team for five years. Alperin and Fleiss are likely to set a precedent for Harvard Management in the post–financial crisis, post–Jack Meyer era. Although their new firm is the seventh Harvard offshoot, they’re the first cubs to break away during the reign of Jane Mendillo, who became president and chief executive officer in July 2008. Emeth Partners did not return calls from AR.
When the predecessors of Alperin and Fleiss left to run their own funds, Harvard Management provided early investment capital and in many cases continues to invest with the funds through the present day. The previous six departures, and the subsequent decision to provide capital — usually at reduced fees for Harvard and often with a percentage of the partnership — happened between 1990 and 2005. Jack Meyer led the firm back then.
“In the course of an annual review Jack said if I wanted to manage outside money, he’d be supportive, and eventually I went out on my own with his 100 percent understanding and cooperation,” says Timothy Peterson, who left Harvard Management in 1999 to start Regiment Capital Advisors, a fixed-income fund manager that now has $6.5 billion in assets. “Part of the evolution of a money manager, at least in my case, was that at some point I wanted to find out if I could be successful on my own,” he says. Since its inception, Regiment has managed capital for HMC through a separate account. (Harvard does not comment on financial arrangements with outside managers, according to a spokesman there.)
Meyer so understood the urge to go it alone that he himself left in 2005 and launched Convexity Capital Management the next year with $6.3 billion, then the largest hedge fund start-up in history. Harvard provided $500 million of the capital. Convexity now has $12.3 billion in assets.
Complaints by envious Harvard faculty and concerned alumni about salaries at the firm were one incentive for Meyer and some others to leave. Harvard Management has always pondered the question of whether to invest with the Crimson Cubs, even though the cost of managing endowment money in-house is about half that of farming it out. In every case so far, they have.
See also: Harvard Management veterans prepare Emeth Partners
