Sowood Collapse Hits Hub Hard

Aug 2 2007 | 11:38am ET

The collapse of Boston-based hedge fund Sowood Capital Management is taking its toll on the firm’s hometown, with two big Beantown institutions accounting for almost one-fifth—at least—of the money lost.

The $50 billion Massachusetts state pension system lost some $30 million of its Sowood investment after the fund was sunk by the sub-prime mortgage market slide, the Boston Globe reports. And Boston-based Harvard Management Co., which manages the $30 billion Harvard University endowment, has lost at least $250 million in the collapse.

Massachusetts Secretary of the Commonwealth William Galvin—a noted hedge fund foe who has railed against public pensions investing in hedge funds—wasted no time in taking advantage of the collapse to further his favored cause, demanding that Sowood explain how it lost so much money so fast. The firm, which once managed $3 billion, was left with just half that after selling its portfolio to Citadel Investment Group.

The state’s pension plan was invested in Sowood through New York-based fund of funds Arden Asset Management. It is the second big loss the pension has suffered in funds of funds in less than a year: It lost $50 million in the Amaranth Advisors collapse last year. Still, Michael Travaglini, executive director of the Massachusetts Pension Reserves Investment Management Board, defended its investments with Arden.

“The autopsy on Sowood won’t be complete for some time, but obviously we will be working with Arden to determine what, if anything, we should change about our existing program going forward,” he told the Globe.

Meanwhile, across the river in Cambridge, Mass., Harvard wasn’t talking about its loss in Sowood, which was founded in 2004 by ex-Harvard money manager Jeffrey Larson. The university’s endowment was an initial investor in Sowood, seeding it with $500 million. The endowment, one of the best-performing investment pools anywhere over the past decade, had announced in December that it planned to boost its exposure to Sowood.


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