Citadel Takes Over Sowood Capital's Credit Holdings (Update1)
By Katherine Burton and Jenny Strasburg
July 30 (Bloomberg) -- Citadel Investment Group LLC took over the credit holdings of Sowood Capital Management LP, the hedge-fund firm started by former Harvard University endowment manager Jeff Larson.
Terms of the transaction weren't disclosed in a statement released today by Chicago-based Citadel.
Sowood, which manages $3 billion, said July 27 that its bonds fell in value as investors fled riskier debt such as subprime-mortgages and bonds used to fund leveraged buyouts. The risk of owning corporate bonds soared today to the highest on record in the U.S. and Europe, credit-default swaps show.
``This transaction provides for an orderly transference of risk between the parties,'' Kenneth Griffin, Citadel's president and chief executive officer, said in the statement. Citadel manages $14 billion.
Larson, 49, opened Sowood in 2004 and early investors included his previous employer, Harvard, which put in $500 million. He joined the university, in Cambridge, Massachusetts, in 1991 from the finance division of Cargill Inc., the largest U.S. agricultural company. He started at Cargill in 1979 as an economic analyst.
At Harvard, Larson managed foreign stocks and a commodities portfolio and ran about $3 billion of the university's endowment. He earned $17.3 million in 2003, a year when Harvard paid more than $100 million to internal money managers, raising the ire of alumni.
Harvard Planned Increase
Harvard's $30 billion endowment, the largest for a university, was to increase its allocation to Sowood's hedge fund and a separate private-equity fund this year, according to a December statement from Sowood. The private-equity fund was spun off this month as Boston-based Denham Capital Management LP.
Mohamed El-Erian, CEO of Harvard Management Co., and John Longbrake, a university spokesman, didn't immediately return phone calls.
El-Erian said in the December statement that splitting the hedge-fund and private-equity businesses would boost returns for both. The Harvard fund was the sole initial investor in the Sowood private-equity fund, whose assets increased 10-fold in two years to $2.3 billion as of December.
Sowood's name came from ``South Woodside Avenue,'' the street in Wellesley, a suburb of Boston, where Larson lived when he started at Harvard Management. The fund raised $2 billion before closing to new investors.
Sowood trades a variety of strategies including convertible bonds, commodities, bonds and stocks. As of March 31, the fund owned about $6.4 billion in stocks, according to a U.S. Securities and Exchange Commission document.
Hedge funds are largely unregistered pools of capital that cater to wealthy individuals and institutions and allow managers to participate substantially in profits from investments. They control about $1.74 trillion, more than double the amount five ago. |
