Harvard has long been regarded as the pinnacle of higher education. But far from the ivory tower, the University is quickly earning a reputation of which it might not be so proud: the most aggressive university on Wall Street.

As Harvard grows its massive endowment, it is adopting the bludgeon of a hedge fund with an aggressive style rarely seen among universities. It has made Harvard an anomaly among higher-education investors, industry observers say.

In the past three years, the University has waged a proxy war against one fund, sought new management for another, and fought a company in court for allegedly underpaying dividends.

Harvard’s investment activism emerged again this summer when the University wrangled with a small closed-end fund, the Korea Equity Fund, unsuccessfully lobbying shareholders to fire its managers.

It wasn’t the first time.

“Usually we would see predatory hedge funds doing that,” says Thomas J. Herzfeld, chairman and president of Thomas J. Herzfeld Advisors, a Miami investment advisory firm that specializes in closed-end funds (see sidebar, “Closed for Business,” p. 7).

Virtually all of the proposals for changes to closed-end funds are submitted by private hedge funds and other investment firms, according to a list provided by Alex Pulisic, senior mutual fund analyst for U.S. Research at Rockville, Md.-based Institutional Shareholder Services (ISS), a firm that publishes recommendations for shareholder proposals.

“Harvard appears to be the only organization of its kind to submit shareholder proposals to closed-end funds,” writes Pulisic in an e-mail.

These proposals from investors are submitted to a company’s management if they win the majority of shareholders’ votes (see sidebar, “A Modest Proposal,” p. 7).

Harvard’s disputes have centered on closed-end funds and other foreign investments in which the University has held large stakes (see sidebar, “Super-Size Me,” p. 7). The international nature of these holdings has closely tied them to one of Harvard’s outside asset managers, Sowood Capital Management, and its principal, Jeffrey B. Larson.

Larson invested foreign equity for Harvard Management Company (HMC)—the firm that invests the University’s endowment, last reported at $22.6 billion—before he left with his HMC team to form Sowood. At both firms, Larson has been an active player in these disputes.

Sowood General Counsel Megan Kelleher says that Harvard is the only investor for which her firm has filed shareholder proposals or sought changes in closed-end funds.

FINANCIAL WARFARE

The most recent fund in Harvard’s crosshairs was Korea Equity Fund, a $68 million closed-end fund investing mostly in Korean securities.

Larson, while still at HMC, was portfolio manager for Harvard’s investment in the fund and mulled taking action to seek new management and greater performance, Kelleher says. When he spun off his team from HMC in July 2004 to form Sowood, Larson took with him the management of Harvard’s stake in the fund.