Even the savviest money managers could learn a thing or two from the Harvard Management Company (HMC) about diversifying one’s investment portfolio.

HMC’s recent purchases have made Harvard the second largest forest owner in New Zealand.

The HMC, which manages Harvard’s $21.1-billion endowment, purchased three estates in New Zealand in 2003. The most recent acquisition—468,000 acres of the Kaingaroa forest—was made on Dec. 12.

Industry sources estimate that Harvard bought its largest parcel for $600-$650 million.

HMC President Jack E. Meyer said Harvard now owns “cutting rights”—the right to harvest or seed the land—in a total of 485,000 acres of forest in New Zealand.

While the New Zealand government maintains ownership over the property, Harvard can cultivate and harvest its non-exotic forests consisting of ponderosa pines, douglass firs and other varieties of softwood trees.

“We don’t own the land itself, and eventually it will go back to the Maori Indian tribes,” Meyer said. “The government has reached an agreement with them about eventually returning the land.”

Meyer said that the move to spread Harvard’s multibillion-dollar endowment to real estate assets had begun as early as 1997.

“We think that timber is quite attractive to what other asset classes have to offer,” Meyer said. “[Timber] is also a good diversifier since its returns will not correlate closely with returns from equity markets.”Meyer said that because the most recent purchase was not “typical,” it has generated more interest than Harvard’s previous purchases of timberland.

“In most cases we don’t like to talk about individual investments because it’s not good for Harvard,” Meyer said. “In this case, this was a large transaction. It was negotiated over quite a long period of time, and it was enormously complicated with a number of banks involved. It just wasn’t possible to do this without attention from the public.”

REAPING A PROFIT

Last December, Harvard purchased the 468,000-acre parcel of the Kaingaroa forest in the center of the North Island from Tenon Ltd., a New Zealand-based corporation that focuses on wood processing, marketing and distribution of timber.

According to a Jan. 16 notice to shareholders, Tenon Ltd., with four sawmills and a capacity of 850,000 cubic meters of timber per year, would sell a large fraction of its forestry assets, and looked to auction cutting rights to international investors.

“It’s generally understood that in order for large assets to change hands in a small department like ours, it requires foreign investments,” said Paul M. Gillard, director of legal services at Tenon.

Although Gillard did not say whether or not Tenon thought Harvard would profit from the industry, Tenon’s sellout indicates that the corporation does not look favorably on the forests as an investment.