whoyg813

Home - Profile - Archives - Friends

Ready to Play

Posted on 2009-Nov-11 at 06:29 - 0 Comments - Post Comment - Link

Dropping in on Platinum Equity is an adventure in cognitive dissonance. It's a tad odd in such an opulent setting to hear Tom Gores, founder and chief executive of the buyout firm, talk about getting his hands dirty running a garbage truck maker, a troubled real estate business or a distressed auto parts distributor. But Gores and his 19 principals and partners like their comforts: The 90,000-square-foot headquarters on North Crescent Drive in Beverly Hills is a temple of Art Deco architecture and museum-quality furniture. The place has a storied, if very mixed, roster of past tenants: Music Corp. of America, Litton Industries and the spectacular flameout Global Crossing ( GLBC - news - people ). Then again, Gores, 45, is at home with paradox. "When everyone [else] is scared about the market, we go to pearl jewelry wholesale work."

The recession has frozen the once gushing deal flow of private equity, pushing many players to the side. In the first half of 2009 there were just $26 billion in deals, down 88% from the $215 billion in the same time period in 2007, says PitchBook in New York City. With 11 acquisitions so far in 2009, Gores is still very much in the game, sweeping up such ugly ducklings as a maker of electronic wire systems for cars, a vendor of used servers and telecom equipment and a company that provides maintenance and transportation to offshore oil rigs. In May Platinum bought the ailing San Diego Union-Tribune, during a year when newspaper ad revenue is down 30% and several big publishers are in bankruptcy court. "We don't have a plan to turn the whole newspaper business around," says Gores. "But in San Diego, we have a plan to be successful."

So far the $2.8 billion fund, Platinum Equity Partners Capital II, which closed last year, has returned a negative 27.5% to investors (through June 30). That's not unusual for new funds. The $700 million Fund I, which closed in 2004, claims a net internal rate of return of 62.5%. (It collected no fees; for the second fund it gets 1.75% of assets a year plus 20% of profits.) Gores' approach hasn't changed much in 14 years; it's as if he were always operating in a deep recession. Gores buys broken companies, reorganizes them (sometimes with acquisitions), puts in new management and, eventually, sells them off. He personally bets alongside his investors and his firm, putting up an estimated $200 million in the first fund and $300 million so far in the second. His net worth: $2.2 billion.

It's a long way from working in his father's grocery stores in Flint, Mich. His family emigrated from Israel. Tom, the fifth of sixth children, hustled his way through Michigan State working as a janitor and telemarketer. After a short stint at Continental Telephone (where he met his future wife, Holly), Gores helped found a lumber-logistics software firm with his older brother Alec (currently the billionaire head of rival buyout firm the Gores Group LLC). In 1989 Tom and Holly drove to Los Angeles in a used Cadillac to run West Coast operations. Gores lost big at the blackjack tables in Las Vegas. Near the California border he stopped at a casino for one last game--and won $4,500.

He wasn't quite as lucky with the software company that handled billing and inventory for lumber outfits. The brothers sold it at a loss. But they learned a lot about salesmanship, distribution and customer service. Another key lesson: buy existing companies backed with real assets. As they worked side by side on a number of deals, the pair began butting heads. Alec says he became angry and depressed over their split in 1995; after that they sometimes competed for the same acquisitions. They've since patched up their differences. But a friendly rivalry persists. "Tommy took what I did and raised the bar to a whole new level," says Alec. "Of course, I'm watching--and then I move the bar for him."

Tom launched Platinum Equity out of his small Sherman Oaks home, writing out business plans on the ottoman in his living room. He cold-called business development offices looking for divisions up for sale. That's how he found his first prospect--LSI, which generated computer graphics to re-create accidents for courtroom testimony--in 1996. Despite having good software, the company was gushing red ink as it tried to go national: Corporate offices in Chicago were out of touch with legal clients across the country; programs, often redundant, were getting written everywhere there were customers. Gores cobbled together $200,000 of savings and credit card debt and turned LSI upside down, redistributing management across the field offices and consolidating software writing to wholesale pearl jewelry one site in Los Angeles. He focused on existing customers and stopped hunting for new ones. Once it stabilized Gores began selling branches. Within six months LSI was off his books, and he was $5 million or so richer.

Over the next five years, between July 1996 and September 2001, Gores' wholly owned fund (Platinum Equity LLC) made 32 acquisitions and realized $940 million on investments that totaled $226 million. These included plunges into call centers (Foresight Software), networking gear (Racal Electronics ( RCALY.PK - news - people )) and voice and data service (Williams Communications).

Perhaps nothing typified Gores' moxie better than his furious attempt to grab Pilot Software (now a unit of SAP) from Dun & Bradstreet ( DNB - news - people ). Over a frantic weekend in May 1997 Gores scrambled to put a fresh gloss on his threadbare offices as he learned that a group of Pilot executives would fly out from Boston for a meeting that Monday. "We thought, 'Who the hell are these guys in suits from L.A.?'" recalls Philip Norment, who worked for Pilot at the time and is now a Platinum partner. "We went out to see if these guys were real."

Gores knew his cramped eight-person Encino, Calif. headquarters wouldn't cut it; they shared the building with a doctor's office and a gym. He quickly sublet a corner lair in a sparkling Century City office tower, rented furniture and recruited his wife and other employees' spouses to mind phones, pour coffee and pad the thin personnel roster. According to company lore, they slapped a freshly made "Platinum Equity" sign on the door just as the d&b group entered the lobby. Gores closed the deal that August.

Ten years later Gores has 100-plus transactions behind him. "We have a lot of very capable people, but if you make it bureaucratic, you're not going to be fast," he says. "If we lose speed, we become more of a commodity." Still, Gores casts a wide net looking for acquisitions, employing 15 associates to scour for deals. His database manages contact information on 140,000 corporate executives, investment bankers, financial brokers and anyone else who might provide a lead. In a typical year Platinum looks at 1,200 possible deals, researches half and pulls the trigger on perhaps 20. At any moment Gores is running a portfolio of 20 to 30 companies.

Three years ago it bought U.S. steel wholesaler PNA Steel from TUI AG, a German tourism company. Feralloy, one of PNA's three units, was burning through cash, thanks in part to inefficient management. The various units were also fighting over the same customers. Thirty PNA executives attended a presentation arranged by Merrill Lynch to pearl jewelry introduce the company. This set off Gores' operational radar: If it took that many people to explain the business, Platinum could probably thin out and refocus operations.

With no prior experience in the industry, Platinum analysts plunged into the world of steel for a month, grilling general managers of every distribution center about how they won and why they lost customers, where the bottlenecks lay, how steel prices moved. Gores' mergers and acquisitions gang formed a plan to dominate the construction-beam industry and plotted three additional acquisitions that could help them get there.

Gores modeled the deal to absorb a theoretical 25% crash in steel prices the day after they took over. "Our analysis was based on [the assumption that] if the worst happens, can we survive," he says. He bought PNA for less than the book value of its assets.

Platinum slashed executive ranks and distribution centers, redirected sales efforts, hired industry veteran Maurice (Sandy) Nelson Jr. to unite the three warring divisions and made three key acquisitions. Within nine months PNA was the biggest distributor of steel beams in the U.S. In a highly leveraged deal, Platinum put up $19 million. Two years later it sold the company to Reliance Steel & Aluminum ( RS - news - people ) for $1.1 billion. Platinum's net proceeds amounted to $512 million.

In July Gores lost his bid for bankrupt auto parts maker Delphi ( DPHI.PK - news - people ). Platinum had spent three years on the deal, getting government approval to offer $3.6 billion, including $2.5 billion in financing from gm, in a salvage plan. But creditors, complaining they weren't getting a fair shake, persuaded the bankruptcy judge to open the bidding. The lenders won, agreeing to pearl strand forgive $3.4 billion in Delphi debt, plus offering an additional $750 million in new financing. "It's a tough subject," says Gores, who claims that the group of lenders hijacked his plan. "We could've created a huge ruckus, but we were gentlemen."

Gores has his hands full with the San Diego Union-Tribune, which he bought in May for an estimated $30 million, based on current industry multiples. Three days after the deal closed, Platinum laid off 192 people; 112 additional cuts came in August. Gores saw no other way: The newspaper (average daily circulation: 300,000) had less than $10 million in Ebitda last year on revenue of $225 million, down from $100 million on revenue of roughly $360 million in 2005. "The outlook was for an unprofitable 2009," says a Platinum spokesman.

What makes Gores think he can revive a near-dead enterprise? He likes the market. San Diego is still relatively affluent and culturally conservative; few denizens read the Los Angeles Times. He also prizes the assets--a 500,000-square-foot headquarters and warehouse in Mission Valley, plus 50,000 square feet of offices in La Jolla, San Marcos and Carlsbad.

But, oh, the challenges. The U-T was perhaps the last paper in the U.S. that relied on cut-and-paste layouts; Platinum has spent several million dollars on new publication software. To replace the loss of national advertisers, especially retailers and real estate firms, and classifieds, the paper is refocusing on small businesses. Gores has also updated the Web site with more social media, blogs and podcasts. He has reinstated 401(k) matching and reversed pay cuts by the previous owners, the Copley family. He expects a slight operating profit this year.

Gores plans to game machines buy more distressed media companies. Lately his name has surfaced among potential buyers of the Boston Globe and BusinessWeek. Platinum's response: "Don't believe everything you read in the papers."

America's Largest Private Companies

Posted on 2009-Nov-11 at 06:29 - 0 Comments - Post Comment - Link

Our 25th annual survey of America’s largest private companies reflects the same turbulence that is rocking the publicly traded firms that make all the headlines. Seven companies on this year’s list are operating in Chapter 11 bankruptcy, including aluminum maker Aleris (taken private by Texas Pacific Group) and Reader’s Digest (by Ripplewood Holdings).

Private equity firms, which own one-third of the companies on our list, are scrambling to repair such souring investments. The State Street private equity index, which tracks investments made by 1,600 investment firms, was down 28% in the year ending March 2009. As punishment, private equity funds have seen the average amounts they raise from investors cut in half.

Yet the S&P, up 21% this year, has everyone thinking it's party time again. Kohlberg Kravis Roberts has its sights set on a stock offering for Dollar General (No. 29). Billionaire David Murdock is planning to spin off Dole Foods (a subsidiary of No. 37, Murdock Holding). The fractured Pritzker family wants to cultured akoya pearl cut in the public on its Hyatt Hotels chain (No. 104).

Not so fast. The number of U.S. public offerings has fallen from 42 in the first nine months of 2008 to 30 through the same time period this year. Only two firms from last year’s list, Select Medical ( SEM - news - people ) and Education Management ( EDMC - news - people ), have gone public this year.

Recent receptions to new issues have been mixed. Education Management, backed by Providence Equity, Goldman Sachs ( GS - news - people ) and Leeds Equity, is up 21% since its first closing price in early October, but Select Medical, backed by Goldman, Morgan Stanley ( MS - news - people ) and Bank of America ( BAC - news - people ), is down 4% since its late-September offering.

One wonders if bubble-borne balance sheets will scare off investors. Dollar General’s debt of $4.1 billion is equivalent to 54% of its capital. West Corp., a telecommunication services firm, has debt of 138% of capital (a ratio due to negative equity).

Our list of largest private companies includes only firms with revenue greater than $2 billion. There are only two new names on the list: Interstate Bakeries (No. 166), the maker of Twinkies and Wonder Bread, which was taken private in February by Ripplewood Holdings and General Electric ( GE - news - people ), and Pilot Travel Centers (No. 14), here by dint of a change in ownership structure.

Most of the companies on our list have no plans to change their private statuses. Many businesses like the freedom from quarterly earning expectations and reduced obligations to leisure chairs Sarbanes-Oxley reporting requirements. (Private companies with publicly traded debt must file financial statements with the Securities and Exchange Commission.)

In addition to our $2 billion revenue requirement, the companies on our list have either too few shareholders to be required to file financial statements with the Securities and Exchange Commission, or have shares with ownership restricted to some group, such as employees or family members. We exclude foreign companies, companies that don’t pay income tax (like Mohegan Tribal Gaming Authority), mutually owned companies (like State Farm Insurance), cooperatives (like Central Grocers), companies with fewer than 100 employees, and companies that are more than 50% owned by another public, private or foreign company. We also leave out companies with their primary business in auto dealerships or real estate investment and/or management.

Whenever possible, our revenue figures for each company exclude sales of publicly traded subsidiaries. For example, our $106.3 billion revenue estimate for Cargill excludes $10.3 billion in revenue for its publicly traded subsidiary The Mosaic Co. ( MOS - news - people ).

Our data sources include voluntary disclosures by companies, Securities and Exchange Commission filings and akoya pearl jewelry estimates from Forbes researchers and outside sources.

You can browse through our list of America’s Largest Private Companies by rank, name, state, industry, revenue and number of employees.

Endowments Rethink Private Equity

Posted on 2009-Nov-11 at 06:28 - 0 Comments - Post Comment - Link

For years endowments led by the likes of Harvard University and Yale University rushed into private equity investments to boost returns, but the global financial crisis has caused many endowments, particularly larger ones, to shift their strategy.

According to a survey report released on Wednesday, 57% of responding endowments altered their private equity strategies as a result of the financial crisis by such things as reducing their allocation and future commitments. Some 9% of responding endowments indicated they were completely postponing making investments in private equity over the next year and 14% planned to decrease their private equity allocation over the long term.

''Although endowments' attitudes toward private equity have been significantly affected by the global financial crisis, in general, they are still seeking to freshwater pearl invest in the asset class,'' said the seven-page report. ''Future investments will be reviewed under a more stringent due diligence process.''

The report was prepared by Preqin, a London-based research group that conducted the survey with 100 endowments, mostly from the U.S.

Illiquid private equity holdings that still require large future investment commitments have become a headache for many endowments amid the credit crisis.

Stanford University's endowment, staring at $6.1 billion of unfunded future capital commitments, is currently trying to sell up to $1 billion of private equity stakes on what appears to be a strengthening secondary market for such assets. Stanford's is, however, trying not to abandon its private equity funds and trying to sell only fractional parts of its current holdings.

Harvard University has already sold a chunk of its private equity holdings, helping to reduce its future capital commitments to illiquid partnerships by roughly $3 billion. Harvard recently reported that in its fiscal 2009 the private equity portfolio lost 31.6%.

''Private equity has been a top-performing asset class over the past 10 years and will remain part of the portfolio,'' Jane Mendillo, who heads Harvard's endowment, said in a statement to Forbes. Mendillo also bought private equity assets on the secondary market in the last year.

The euphoria many endowments have had for private equity resulted in the average endowment, pre-crisis, allocating 11.8% of assets to private equity, above the average allocation for all types of institutional investors, which stands at 8.8% today.

But it was the larger endowments that led the charge and now, according to Preqin, they are the first to retreat. ''The larger endowments, those in the $750 million or more bracket, had the largest proportion of respondents planning to reduce their commitments,'' says Preqin.

Preqin reports that 35% of endowment respondents are reducing the rate of commitments they make to single pearl necklace private equity and 22% are exercising greater caution.

When private equity fund raising was at its peak, Forbes wondered about the ''mad rush to private equity'' in a March 2006 cover story, questioning the wisdom pension funds and endowments were showing. At least one endowment manager recently surveyed by Preqin suggested that as big investors abandon the asset class it was a good time to invest.

'''The market is at a stage where it is ideal to invest,''' the manager was quoted as saying. ''Historically, good opportunities exist when investments are made in funds raised at the bottom of the cycle'''

The Impact Of Chrysler's Bankruptcy

Posted on 2009-Nov-11 at 06:28 - 0 Comments - Post Comment - Link

On April 30, Chrysler filed for Chapter 11 bankruptcy protection from its current creditors. As such, Chrysler will be able to operate as a going concern, while the company renegotiates its debt structure and other obligations. The U.S. government has described Chrysler's action as a "prepackaged surgical bankruptcy," through which it hopes the company will be able to exit the bankruptcy process within 30 to 60 days.

If Chrysler achieves this, it will emerge with a new global partnership with the Italy-based Fiat ( FIA - news - people ). Instead of cash, Fiat will provide the equivalent of billions of dollars in research- and investment-related (R&D) investments for a 35% stake in the new Chrysler. However, many experts think a quick trip into (and out of) bankruptcy might be unrealistic.

In the administration's view, cost cuts--implemented by Cerberus and the new management brought in by Bob Nardelli, who cut into akoya pearl necklace Chrysler's R&D budget and new product development--left Chrysler, the smallest of the Detroit automakers, with a very thin line up of new vehicles.

The Obama administration set partnering with Fiat as a precondition for any further government assistance. Nevertheless, Chrysler was unable to avoid the bankruptcy process, because some creditors balked at the terms being offered in the proposed debt-to-equity swap by the government.

Fiat is vying to get a 35% stake in Chrysler without paying anything for it. What it brings to the table is billions of dollars in R&D that have positioned it well to produce new cars in the future.

Fiat exited the U.S. market decades ago. The marriage between Fiat and Chrysler is based on harsh realities, as evidenced by continuing layoffs in Chrysler's bloated U.S. and Canadian operations, but it seems to be a symbiotic relationship, aimed to help both car makers survive the new tests of an even more competitive landscape. Moreover, it is a reflection of the considerable overcapacities in the global auto sector which may require further consolidation in several national and international markets.

The short-term outcome of Chrysler's bankruptcy filing may come to determine the path for General Motors ( GM - news - people ), if not the entire U.S. auto industry. If bankruptcy proceedings for Chrysler go as the company and the U.S. government have planned, Chrysler's filing may very well turn out to be just a test case before the bankruptcy filing of GM itself.

GM has until the end of May to convince the government it has a viable business plan for restructuring outside a Chapter 11 reorganization. If it fails to renegotiate its debt and convince its current creditors to undergo a debt-for-equity swap--as Chrysler failed to do--then GM will have no option but to file for Chapter 11 protection.

GM's new chief executive, Fritz Henderson, has vowed to do whatever is reasonably necessary to prevent the automaker from going under, including seeking loan packages from U.S., Canadian and European governments (particularly Germany). But GM can no longer afford its extensive European operations and is in the process of looking for bidders.

The significant roles the auto sector plays in employment, exports and industrial production have heightened the political importance of responding to their vulnerabilities, which have been exacerbated by the credit crunch, prompting rescue packages including bridge loans, incentives to pearl strand wholesale purchase domestic vehicles and increases in tariffs on imported cars and auto parts. In the face of rising unemployment in other sectors, governments hope to avoid any disorderly bankruptcy proceedings.

Furthermore, the Chrysler-Fiat merger could set off a chain of consolidations within the auto sector, which continues to have significant production overcapacities. Even emerging economies are likely to contribute slower auto demand growth in coming years. In Russia, automakers, including Toyota ( TM - news - people ), have repeatedly shuttered production, and domestic automakers are now increasing car loans in order to encourage purchases.

Other countries, such as China, also face the near-term challenge of consolidating their many automakers into several companies large enough to take advantage of economies of scale, increasing their share of the domestic market, and possibly expanding abroad.

Fiat is also trying to position itself to obtain an ownership stake in GM's European affiliate, Opel. The plan, which includes the other GM subsidiaries in Europe--Vauxhall in Britain and Saab in Sweden, would create a new global auto company with annual sales of up to 7 million cars and 80 billion euros (106 billion U.S. dollars) in revenues, which would secure Fiat a winning position in the post-crisis market.

The move, however, is likely to face political hurdles, as neither the German nor Italian governments would like to deal with the job losses (an estimated 8,000 to 9,000 jobs) likely from such a merger, particularly not in an election year (Germans vote this fall).

According to press reports, Berlin issued a list of conditions for Fiat, which includes stating where the headquarters would be located, where the taxes would be paid, the number of expected job losses and the future of Opel plants in Germany. GM, though, has the final say in assessing Fiat's offer. Yet the German economic minister suggested Fiat needs German state credits in lieu of adequate financing, which might increase German government leverage. However, supporting the formation of a global car maker with the German government's credit guarantees may enrage other German car makers, such as the VW Group, BMW and Mercedes-Benz.

The pressure on domestic jobs has increased the political importance of responding to freshwater pearl jewelry the automakers' woes in many countries. In February, France raised protectionist fears after introducing state aid for the domestic car makers in return for an unwritten pledge to keep jobs and production at home. It posed a test for the EU's single-market rules and triggered an angry response from the Eastern European countries that would be hurt the most by the measure. Other countries, like Argentina and Russia, have increased restrictions on auto or parts imports in an attempt to support domestic industries. These might actually have the opposite effect--those in Russia hurt the business of used-car sellers.

But some government attempts to stoke auto demand may well erode future demand. So-called "cash-for-clunkers" deals--in which governments provide incentives for consumers to trade in their old cars for new (and often more fuel-efficient) ones--have had the desired effect, boosting auto sales in countries like Germany and China for the types of cars targeted.

These measures are helping to erode the inventory of manufacturers in a relatively orderly manner, but may be deferring the adjustment process the automakers will later face. Moreover, rising unemployment is likely to weigh on consumption, especially for large, credit-dependent purchases like cars.

The bankruptcy also has significant repercussions on the corporate bond market. Chrysler's bankruptcy filing was preceded by tough negotiations among creditors and the government to conclude an out-of-court restructuring in which lenders would receive 29 cents on the dollar in cash in exchange for wiping out about $6.9 billion of Chrysler's debt.

A group of about 20 secured creditors refused to sign off on the deal, arguing that their stakes were worth more and demanding that their seniority rights be observed. However, recent empirical evidence shows that as default rates increase, recovery rates are falling fast in this cycle. Moody's ( MCO - news - people ) reported that in the past seven months, completed CDS auctions resulted in a recovery rate of 30 cents on the dollar for loans and about 15 cents on the dollar for bonds, compared with 85 cents and 70 cents on the dollar, respectively, for all of 2008.

The latest research by Edward Altman yields similar results, stressing that distressed exchanges to avoid bankruptcy have surged since 2008, and that they usually yield significantly higher recovery rates to participating bondholders. In fact, S&P warns that, due to loose covenants and missing early-warning triggers, the losses even for secured creditors in this cycle might turn out to be substantial if a company cannot reorganize and liquidate.

Henry Hu of Texas University points to the "empty creditor" phenomenon to wholesale pearl jewelry explain why some lenders prefer to hold out and force a bankruptcy seemingly against the company's--and thus their own--best interests. In short, creditors with enough credit default swaps may simultaneously have control rights and incentives to cause the debtor firm's value to fall. And if bankruptcy occurs, the empty creditor may undermine proper reorganization, especially if his interests (or non-interests) are not fully disclosed to the bankruptcy court.

But are credit markets finally thawing? Indeed, corporate bond issuance has picked up substantially since December, especially in the high-yield segment amid tighter spreads since the immediate Lehman aftermath. On a more cautious note, the IMF notes that, given shortening credit lines and still tight bank lending standards (confirmed in the April Bank Loan Officer Survey), corporations are taking advantage of this window of opportunity to refinance themselves in the bond market, despite substantially higher costs.

An additional factor fueling this front-loaded corporate bond activity is the likely future crowding-out by sovereign and government guaranteed debt. While the high-yield segment has returned 17.4% year-to-date in 2009, the fates of Chrysler and GM show the default rate may not yet have reached its peak.

Did Harvard Sell At the Bottom?

Posted on 2009-Nov-11 at 06:26 - 0 Comments - Post Comment - Link

Harvard University's $26 billion endowment sold a chunk of its private equity portfolio at what now seems like a low point in the secondary market for such assets, financial statements show.

Jane Mendillo, chief executive of the Harvard Management Co., alluded to the sale of some of Harvard's private equity investments in Harvard University's financial report for fiscal 2009, which was released earlier this month. The report shows Harvard posting a net realized loss of $439 million in its private equity portfolio in fiscal 2009. A realized loss occurs when an asset is sold for less than it cost to acquire.

"HMC has been an active buyer and seller of private equity on the secondary market during the past year," Mendillo said in a statement to pearl jewelry Forbes. "We started down this path early and are quite satisfied with the pricing we have achieved."

In the financial report, Mendillo also says Harvard "decreased our uncalled capital commitments by roughly $3 billion," referring to the unfunded liabilities that stick to Harvard's investments in private partnerships. Mendillo says in a statement that the reduction in uncalled capital includes private equity sales, but "also reflects the fact that some firms reduced the size of their funds or made capital calls."

Prior to the credit crisis, Harvard's endowment had committed to making $11 billion of future investments to illiquid investment partnerships like private equity funds, real estate vehicles and timberland ventures, according to Moody's Investors Service.

Harvard's efforts to sell big parts of its private equity portfolio generated a lot of publicity a year ago when it was reported that the endowment had pulled the assets off the market due to low bids. At the time, so-called secondary funds, investment partnerships set up to purchase existing private equity fund stakes, expected distressed sellers to drive down prices and flood the market. Mendillo, who only started running Harvard Management Co. in July 2008, had started trying to unload some of the private equity portfolio in the summer of 2008 but was unable to close any deals before the collapse of Lehman Brothers ( LEHMQ - news - people ).

Harvard never publicly disclosed selling any private equity, which has become a money-sucking disaster zone. In its fiscal year ending June 30, 2009, Harvard reported a 31.6% loss in its private equity portfolio. In addition to the $439 million net realized loss, the endowment recorded a $1.9 billion change in net unrealized losses in its private equity portfolio.

While it is unclear how much of its private equity assets Harvard managed to sell or at what price, it seems to have sold some assets when the market was at its weakest point. Cogent Partners, the Dallas firm Harvard hired to advise on its private equity sale, says freshwater pearl jewelry it arranged $2.5 billion of private equity asset sales in the first half of 2009, when assets were attracting high bids of 45% of net asset value as of the end of 2008.

At the same time, Mendillo also purchased private equity assets at a low point in the secondary market. Harvard reports its private equity portfolio purchased a net of $690 million of private equity assets in its last fiscal year.

The secondary market for private equity assets appears to have strengthened radically this fall, along with the dramatic rise of the stock market and as non-traditional players have emerged as interested buyers in the secondary market for private equity fund stakes. That perceived strengthening of the secondary market has currently enticed Stanford University's $12 billion endowment to try to sell up to $1 billion of stakes it owns in private equity funds and other illiquid investment partnerships.

The Stanford endowment's managers thought about putting private equity assets up for sale a year ago, but did not pursue such an effort due to the depressed prices at the time. Now, "there is at least enough signs of strength in the market," John Powers, chief executive of the Stanford Management Co., said in an interview.

Harvard sold more than just private equity in its last fiscal year. Mendillo unloaded a net $3 billion of externally managed assets in portfolios ranging from common stock to high-yield debt. The biggest sale: Mendillo sold a net $1.9 billion of hedge fund assets, posting a net $148 million realized loss and $1.2 billion of net unrealized losses.

"There were a number of externally managed accounts that were terminated or resized to optimize for the best mix of strategies for the portfolio driven by HMC's management team," says Mendillo. "Some of the assets that were sold were reinvested in other strategies, using both internal and external managers. In addition, some assets sales were conducted as a planned measure to create a small positive cash position, which has since been used to take advantage of a variety of investment opportunities."

As Forbes first reported in February, Harvard's fully invested and overly illiquid endowment, coupled with the use of interest-rate and total-return swaps, caused Mendillo to pearl earrings wholesale scramble for cash last fall.

In its fiscal 2009 report, Harvard admitted to the high cost of the interest rate blowup, saying it terminated its interest rate exchange agreements "at a cash cost of approximately $500 million." The university also raised money by selling $2.5 billion of bonds during the period.

In its last fiscal year, the endowment shrank by 27.3% compared to the 18.2% drop of the Trust Universe Comparison Service, a widely used benchmark for the performance of institutional assets.

The university has had to slash operating budgets, lay off 275 workers and put its ambitious expansion plans on hold. At Harvard Management Co., Mendillo also had to reduce her staff and refocus the endowment. A more conservative approach can already be seen: The portfolio, for years 105% invested, now aims to be 2% in cash.