Eisenson agrees, saying that while limited partnership gave Harvard "access to bigger deals," the new direct investments avoid the "cost attached to limited partnerships," a cost he says amounts to about a 20 percent cut of the profits.

But while most agree the lure of increased profits has drawn the Harvard Management Company's attention, Harvard officials say they are also considering the ethical issues involved.

Vice President for Finance Robert H. Scott has said that "the Corporation is focusing in on the issue [of LBOs]." He added that there has been "quite a bit of discussion on the appropriateness of a variety of investments."

Harvard's seven-member chief governing body "is still looking at the issue" of LBOs because, Scott says, the University does not want to participate in any deals "where the fees are more important than the economics."

But while the finance administrator says he thinks "there is nothing inherently wrong with leveraged buyouts," many economists and politicians say the deals are economically questionable and ethically dubious.

"The problem you have with leveraged buyouts is there are a lot of people making zillions of dollars on them...and no one likes to see these people making all this money," a Wall Street money manager says.

One expert, Kennedy School lecturer Robert B. Reich, says "I doubt that this is the most socially productive way to use that money." The economist, who has taken his dispute with LBOs to the op-ed page of The New York Times and the front cover of The New Republic, argues that "the only clear winners [in leveraged buyouts] are investment bankers and lawyers."

Objections to LBOs center on three main ethical issues. First, many say that the deals force companies to go private and thus lose any chance of public scrutiny. Second, they say that if management initiates the takeover there is a conflict of interest between their responsibilities to stockholders and their position as investors.

And finally, critics contend that the deals produce socially unacceptable results by concentrating profits in the hands of a few investors. "LBOs create a structure where a few individuals are owners and derive profits from the work of several thousands of individuals," says Robert K. Massie, Jr., a former fellow in the program on ethics and a Ph.D candidate at the Business School.

Many critics of LBOs also say that while they make money for the shareholders, they often put employees out of work.

"One of the objections to LBOs is that companies have to operate with a very narrow attitude towards expenses," says Converse Professor of Finance and Banking Warren A. Law. Recently bought-out companies "tend to fire a lot of people," he adds.

But advocates of leveraged buyouts say that the transactions produce more streamlined companies with higher profit margins and more efficient managements. "A fat, dumb and happy management is bad for the employees," says the Wall Street administrator.

And LBOs have been lucrative for Harvard, Sperling says. For example, Harvard's investment in the Kohlberg, Kravis, Roberts and Company (KKR) limited partnership that recently took over RJR-Nabisco "has generated significant returns for Harvard's account."

Of the $162 million the University currently has invested in LBOs, Sperling says "somewhere in the low tens of millions of dollars" of that money was in the KKR deal, which was finalized last month.

In making its LBO investments, the University is looking for companies "with a stable predictable cash flow, assets and no debt," says the Wall Street investment banker. "You want non-sexy businesses--bricks rather than toys or fashion," he adds.