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How Insiders Invest with Private Money

In the Club, Out of the Market

Written by Nick Hodge
Posted November 9, 2012

Andy Wiltshire is the highest-paid employee at Harvard.

But he isn't a professor, a dean, or the president; he doesn't chair any departments; and he rarely, if ever, speaks publicly...

Instead, he's salaried at over $5.5 million per year to manage assets for Harvard's $30-some billion endowment fund, the world's largest.

Wiltshire even makes more than the woman who runs the fund, Jane Mendillo, who worked at Mitt Romney's Bain Capital when it was formed in 1984, and still invests in it today.

Jane rarely speaks to the media, either. Indeed, the entire crew at Harvard Management Company is routinely described as “secretive” and “tight-lipped.”

It uses its status as a nonprofit to keep its dealings as hush-hush as possible. Not even the students know how it operates or where it invests.

The school's student magazine, The Crimson, recently noted: “The managers operate behind a veil of secrecy under the pretext of losing competitive financial advantage.”

They certainly have an advantage. The fund has tens of billions more under management than the next closest fund over at Yale.

It raises more money than any other nonprofit in the United States. And it does so with zero fundraising expenses, so people are literally throwing money at it.

And why not? It's returned an average 12.9% for the past two decades — far better than the average return of the Dow, S&P, or NASDAQ.

In the modern era of information, nothing stays secret for long. And if you look closely enough, over the past few years, some of this fund's secrets have started to be revealed...

Land Barons

We now know the company bought over 400,000 acres of the Kaingaroa forestry estate in New Zealand in 2003. Though the price wasn't disclosed, it's rumored to have sold for over $800 million.

It helped that Andy Wiltshire was from New Zealand and had worked for the New Zealand Forest Service, which originally developed the Kaingaroa Plantation. He also went to school with the CEO of Kaingaroa Timberlands.

After that, Harvard set its sights on Maniototo's Big Sky Dairy Farm, New Zealand's first “superfarm” with 6,000 cows on 4,000 acres.

The bets have paid off nicely: Last year the portion of Harvard's portfolio that owns real estate posted an 18.8% return.

Meanwhile, major market indices only posted a 5% return.

Already this year, the fund has made a $4.0 million profit on the dairy farm alone. And the party is just getting started...

Under Wiltshire's watch, forests, farms, and other real estate have grown to 10% of Harvard's portfolio, over $3 billion.

Of course, making lucrative profits on billion-dollar investments isn't hard when you run in the same circles as Harvard alumni. Many of the funds it manages come from wealthy graduates — a list that includes countless heads of state, congressmen, governors, Nobel and Pulitzer winners, and chief executives. Names like Obama, Romney, and Bernanke are all on the list.


In the Club, Out of the Market

The Harvard Management Company ('management' and 'company' certainly aren't nonprofit words) is definitely “in the club.”

It shares an office with the Federal Reserve Bank in Boston — the same building from which Jane Mendillo, head of the fund, gave a rare interview this year that offered some insight into their strategy...

“What I want,” she said, “is properties that produce something that the world is going to want more of, and the increase in the supply is difficult.”

She's referring to private real estate transactions. And Jane knows the acquaintances with whom the fund rubs elbows gives it a distinct advantage.

That quote continued: “A lot of other investors don't have the expertise, don't have the team to go out and look at individual [real estate opportunities]...”

Not all of us have direct lines to presidents, Fed heads, and banking executives.

Armed with that “expertise,” Harvard is the first endowment fund to directly buy real estate outside of the United States.

After it became one of the largest foreign landholders in New Zealand, it bought the majority of a company that's one of the largest landholders in Romania, with over 86,000 acres. Most recently, it bought three huge farms in Brazil.

And here's the most important thing in all of this: These are investments you can I typically can't be a part of.

There's an Ivy League/Insider velvet rope. They aren't delivering monster returns by investing in publicly-traded land ETFs or real estate funds. They know that stuff's for us underlings.

No, they buy the assets directly and manage them themselves...

And this is their key to success: They play the insider game.

As Bloomberg reported in September, “It was Harvard’s early and enthusiastic embrace of alternative assets such as private equity and hedge funds that turned it into one of the top performers among endowments.”

For too long, surefire investments like these have been off the table for everyday folks, reserved instead for Ivy League graduates and their cocktail party buddies.

In recent years, we've been thrown some scraps as similar funds, like The Carlyle Group (NASDAQ: CG), Blackstone (NYSE: BX), and Kohlberg Kravis Roberts (NYSE: KKR), have taken a portion of their assets public.

But you don't get to profit directly from their deals. You still have to buy a stock and be at the whim of the market.

While the heads of those firms and the people they make deals with have undoubtedly made billions this year, each of those stocks is only up between 5% and 15%.

The key to investing and profiting like these funds is not to own a piece of the fund — but to do the same kind of deals they do on your own.

It's something I've spent a great deal of time researching lately.

And I've found a way for people like us to do it without having been introduced to a Senator or private equity billionaire...

You see, there's an overlooked way you can make real estate investments just like these guys do — without buying a single share of a public company. They are private deals with extraordinarily high returns... and they're available to you now.

It may not get you in their club, but it will allow you to similarly profit without touching the actual stock market.

Call it like you see it,

Nick Hodge Signature

Nick Hodge

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Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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