Ever abreast of trends in the financial world, Harvard's in-house investment company is on the cutting edge of the latest Wall Street rage: leveraged buyouts.

The LBOs--as they are called by the traders, economists and politicians who are busy debating the ethical implications of such mammoth takeover deals--have become a staple of the University's investment in the past few years, currently taking up $162 million of Harvard's endowment.

And Harvard Management Company, the wholly-owned subsidiary of the University that maintains its $4.2 billion endowment, has built up a team of LBO experts that other university financiers say is the envy of the higher education investment circle.

Scott M. Sperling heads the University's three member LOB team. Michael Eisenson and Michael G. Thonis are two relatively new additions to Harvard Management brought in to strengthen the University's buyout investments, according to a Wall Street investment banker who has worked with Harvard.

"By adding Eisenson and Thonis, they're now trying to put the burden of deal review on [their own] people" rather than the managers of limited partnerships, who traditionally put together such deals, says the investment banker.

Sperling's buyout team has geared up for action over the past year, increasing by $20 million the amount Harvard has invested in LBOs since 1987. And Harvard has also moved a step beyond, using its resources and expertise to manage its own LBO funds, rather than relying on outside limited parternships to carry off the deals.

As one Wall Street investment banker, speaking on the condition of anonymity, says, "Harvard has some real smart guys." The University, he adds, has built an LBO team with top-notch "in-house expertise."

And Rod Adams, Stanford's treasurer, says, "We don't have a shop like Scott Sperling's." Adams says his university hasn't jumped on the LBO bandwagon in the same way that Harvard has--as he puts it, Stanford "has taken a somewhat different view of LBOs" than Harvard.

Stanford's attitude is not surprising, considering the controversy surrounding the ethics of leveraged buyout deals. Headlines splashed across the business pages of The New York Times and The Wall Street Journal have made LBOs into one of the touchiest investment issues of the day.

Leveraged buyouts are an increasingly popular, though controversial, method of taking over companies. The deals--which included the recent, largest-ever takeover of RJR-Nabisco by a limited partnership in which Harvard invested--buy out stockholders in a company using borrowed funds worth up to 80 percent of the buyout price. Only about 20 percent of the investment generally comes in the form of cash up front, which means the company ends up assuming a large debt once the sale is completed.

In the past few months, Congress has held numerous hearings on the economic and ethical implications of LBOs. And this month, the House Ways and Means Committee is scheduled to hear testimony that may move Congress to consider bills to curb the recent rash of buyouts.

But in the meantime, Harvard continues to increase its presence in the burgeoning LBO market. According to Wall Street sources and Eisenson, the University has been choosing its own buyout deals for about the past five years. And each year, as the endowment has increased, so has the amount of Harvard capital invested in those buyouts.

The reason for Harvard's interest in controlling its own deals? Most experts say the decision has been a strategic financial one--ethical principles, they contend, are secondary.

"I can tell you without any equivocation that Harvard's decision was economically and not politically driven," the Wall Street broker said recently. "In a typical fund," he explained, "20 percent of the profits go to the fund."

And an administrator in a Wall Street investment banking firm says, "There will be a higher return because [Harvard has] eliminated the middleman."