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Monday, August 16, 2010

Why Harvard sold their Israel shares?

During the night Sunday night, I posted that the Harvard management company had sold off the university's shares in Israeli companies in its portfolio based on a report that appeared in Globes, Israel's equivalent of the Wall Street Journal (more at Memeorandum). I then went to sleep for a couple of hours and went to straight to synagogue without checking the mail in the morning.

On Monday morning, there were several comments and emails providing plausible explanations for Harvard's sale of their Israeli shares (and apparent purchase of Turkish shares in their place) for reasons that are not political. There are two principle schools of thought.

One is that with Israel's admission into the OECD, we are no longer an emerging market, and therefore the emerging market section of the portfolio had to be reshuffled.

The other is that the Israeli stocks in Harvard's portfolio had performed poorly of late.

I actually find the first explanation more plausible than the second. University endowments are long-term investments and would not be likely to be reshuffled solely on the basis of a quarter or two of poor performance. On the other hand, the OECD admission is a recent, verifiable event.

One would hope that a statement from Harvard will be forthcoming once the business day starts in the US. But that could be a vain hope. The SEC report on which the Globes article was ostensibly based (which is nothing but a list of Harvard's current holdings) is here, here and here (an overall document and two subparts).

Globes probably put together the list of Israeli shares sold by comparison to last quarter's report and updating the prices. But that says nothing about why the shares were sold.


From John Longbrake, Sr., Communications Manager at Harvard Management Company:
Regarding the reports, the Management Company's most recent SEC filing details changes in holdings, as is routine, but no change in policy. The University has not divested from Israel. Israel was moved from the MSCI, our benchmark in emerging markets, to the EAFE index in May due to its successful growth. Our emerging markets holdings were rebalanced accordingly. We have holdings in developed markets, including Israel, through outside managers in commingled accounts and indexes, which are not reported in the filing in question.


At 1:34 PM, Blogger JLan said...

MSCI Barra took Israel off of its emerging markets list in May. That's also what a lot of the big financial players (Vanguard, etc) use as their basis for emerging countries. You can look at this as a positive thing, if you like: South Korea and Taiwan are still "emerging markets" at least until next year, but Israel is now considered developed!

At 12:12 AM, Blogger Daniel said...

I see.
Israel was promoted from being an emerging market to a developed one, and this unbalanced Harvard's investment portfolio between the two so much that they had to take action to rebalance. In doing so, Harvard had a choice: it could proportionally reduce all investments in developed nations and put the receipts of this into investments in emerging markets; or it could reduce its least promising investments here and there in developed nations to rebalance. It chose to do neither: it eliminated ALL its explicitly Israeli investments.
No divestment there, move along.

Similarly those suffering from hard times who make charitable contributions might make proportional cuts in their giving, or make cuts here or there. Perhaps they should follow the Harvard policy: cut out all gifts to Harvard! A logical solution!


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