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UQ Wire: Harvard’s Millions Poured Into Harken

Unanswered Questions: Thinking For Ourselves
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Harvard fund poured millions into Bush-connected oil firm


Family connection raised as factor
By Michael Kranish, Globe Staff, 7/18/2002
The Boston Globe

WASHINGTON - As a congressional candidate in the Texas oil patch in the late 1970s, the last thing George W. Bush wanted to mention to the rural electorate was his postgraduate degree from Harvard. But when Bush later was involved in struggling Harken Energy Corp., Harvard Management Co. poured a total of $30 million into Harken, keeping it afloat and helping sustain Bush's career.

The investment in Harken by Harvard Management, an independent fund that manages the university's endowment, has received far less notice than the controversy about whether Bush used inside knowledge in 1990 to sell stock in the firm at a profit. But the money from Harvard, beginning in 1986, was crucial, at one point giving the fund one-third control of Harken. That was such a large stake that a key member of Harvard Management's investment team acquired stock in the firm on his own and was invited to join Bush on Harken's board of directors.

All these years later, the question remains: What did the investment arm of the nation's most prestigious university see in a troubled little oil company from Texas that justified such attention and a $30 million investment?

Harvard Management officials, citing confidentiality and the difficulty of retrieving old documents, refused to release records about the investment or discuss it in any detail.

In a telephone interview, Harvard Management chief executive Jack Meyer said he did not know whether Harvard made the investment because Bush, then the son of the US vice president, was on the board.

''I would be surprised that George Bush had anything to do with the investment decision, but I don't know that,'' said Meyer, who was not at Harvard Management when the decision was made.

Meyer's predecessor, Walter Cabot, who was at the firm at the time of the investment, said he had no recollection of Bush's name being mentioned in connection with the Harken investment.

Michael Eisenson, the former Harvard official who dealt directly with the Harken investment, declined requests for an interview. Eisenson, now the chief executive of Charlesbank Capital Partners in Boston, said through a spokeswoman that he could not talk about the specifics of the Harken deal because of restrictions placed on him by Harvard Management.

Eisenson not only dealt with Harvard's Harken investment, he also invested his own money in the company. Eisenson owned at least a few thousand shares of the company's stock and was given a position on the Harken board. (His spokeswoman would not say exactly when he made the purchase.)

In 1991, The Harvard Crimson raised questions about whether Eisenson had a conflict of interest in owning stock at the same time he was overseeing the investment for Harvard Management. In a May 1, 1991, editorial, The Crimson criticized what it said was Eisenson's ownership of 10,000 shares, saying that ''traders cannot be trusted to make objective decisions about Harvard's investments when their personal interests are tied to the same companies.''

But Harvard Management officials told the Boston Globe at the time that they had no concerns about a conflict.

Harvard Management is a famously profitable enterprise, where fund managers have earned more than $10 million per year. The endowment fund, which had $18.3 billion under management by June 2001 and is one of the nation's largest, does not issue an annual report, although its holdings are disclosed in federal filings.

It was 1986 when Harvard started to pour millions of dollars into Harken. Harken founder Phil Kendrick, an Abilene oilman, vividly remembers the day when the small oil drilling and trading company learned that the most prestigious university in the country wanted to invest millions of dollars in the company.

''All of a sudden the name `Harvard' turned up,'' Kendrick said.

Kendrick had been hoping for such a break for his old company. Kendrick had sold his share of Harken in 1983 and briefly remained a consultant. He is still a stockholder.

A Harken official did not respond to a request for comment.

Kendrick said investors came and went. But two investors did draw attention. The first was billionaire George Soros. Soros, who runs various investment funds, personally owned about one-third of the company as a result of a business deal that left him with Harken shares. Soros declined to be interviewed for this story. The second was an investor from Saudi Arabia. Then came Harvard.

Bush, a graduate of Harvard Business School, could well have been what made Harken attractive to Harvard Management. From Kendrick's viewpoint, Bush was a good choice to join Harken's board because he lent prestige to the struggling company. Bush was given a seat on the board of directors on Oct. 3, 1986. His annual pay was $120,000 - the same amount Kendrick had earned as founder - and he was given stock options that would eventually be worth hundreds of thousands of dollars. Harvard Management officials said their investment began around the same time Bush joined the board.

''It had to open a lot of doors for them [Harvard executives] to have George Bush there,'' said Kendrick, who voted for Bush for governor and president. ''He could have stayed if they were just using his name. It gave them prestige and credibility.''

Cabot said in a telephone interview that he vaguely recalled that the initial Harken investment was an indirect result of other investments, or ''roll-up deals.'' ''I don't remember his name being talked about,'' Cabot said of Bush.

Nor does Cabot remember being particularly impressed with Harken's potential. ''I don't think we would have bought Harken all by itself,'' he said. ''It wasn't a disaster, but it wasn't Exxon, either. There would have been no reason I can remember that we would have gone out directly and bought Harken. That's why I think it was the result of several roll-up deals, and we ended up with Harken stock.''

Harvard continued to pour millions into the company. Kendrick recalled that Harvard was concerned about Harken's problems. Referring to Eisenson, Kendrick said that Harvard Management officials ''put the guy in charge of Harvard money, they put him on the board, and their involvement got heavier, their percentage got larger.''

''I think their people had to put money in because it was just in trouble constantly,'' he said.

Thus, even if Harvard was not initially aware of the Bush connection to Harken, it almost certainly must have become aware of it as the troublesome investment continued.

At the height of its investment, Harvard owned roughly a third of Harken but began selling its shares in the early 1990s, Meyer said. Harvard made a ''small profit,'' he said, but did not provide details. As of last May, Harvard still owned 254,251 shares in Harken, according to federal filings. The Harken stock closed yesterday at 36 cents.

Michael Kranish can be reached at kranish@globe.com.

This story ran on page A12 of the Boston Globe on 7/18/2002.
© Copyright 2002 Globe Newspaper Company.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)


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