2008 Woodie Awards
Trustee chair quits amid bear market
Board Chair Jeffrey Larson resigns after his hedge fund loses $1.5 billion
By: Zac Farber, Managing Editor
Issue date: 9/7/07 Section: News
Just two months ago, if you had half a billion dollars and a desire to double it, Jeffrey Larson '79, chairman of Macalester's Board of Trustees and a hotshot hedge fund manager, could do it-for a hefty price, that is.
But this July due to market anomalies tied to the subprime loans debacle, a heavy reliance on a borrowing practice, known as leveraging, and a lack of diversification, Larson's Boston hedge fund, Sowood Capital Management L.P., plummeted. After losing more than $1.5 billion of its investors' money, the fund sold its remaining assets to Citadel Investment Group.
The collapse of the fund made headlines throughout the summer. Karl Egge, Larson's two-time economics professor who recently transitioned into semi-retirement after teaching economics at Macalester for 37 years, said he told Larson via e-mail "that this isn't as bad as having a child die, but it's still bad."
Larson subsequently gave up his chairmanship of the board of trustees and, with it, his position on the board's influential investing committee.
Reached at his home on Monday, Larson told The Mac Weekly he resigned because "the demands on my time will not allow me to give the Board the commitment it deserves."
While Macalester invested no money in Larson's fund because of a by-law that prohibits the college from engaging in such business dealings with its trustees, other major institutions invested in Sowood and lost tens to hundreds of millions of dollars. Harvard Management Company (which manages Harvard University's endowment) lost more than $350 million, the Massachusetts state pension fund lost $30 million and the philanthropic Boston Foundation lost almost $20 million.
Amid this summer's volatile market, Sowood remains the only large hedge fund to have imploded so disastrously. This singularity prompts questions: What led to the collapse of Larson's seemingly infallible hedge fund? Can Larson's risky choices be to blame?
News reports and a Macalester professor, who is acquainted with Larson, said that it was probably a combination of the two factors.
But this July due to market anomalies tied to the subprime loans debacle, a heavy reliance on a borrowing practice, known as leveraging, and a lack of diversification, Larson's Boston hedge fund, Sowood Capital Management L.P., plummeted. After losing more than $1.5 billion of its investors' money, the fund sold its remaining assets to Citadel Investment Group.
The collapse of the fund made headlines throughout the summer. Karl Egge, Larson's two-time economics professor who recently transitioned into semi-retirement after teaching economics at Macalester for 37 years, said he told Larson via e-mail "that this isn't as bad as having a child die, but it's still bad."
Larson subsequently gave up his chairmanship of the board of trustees and, with it, his position on the board's influential investing committee.
Reached at his home on Monday, Larson told The Mac Weekly he resigned because "the demands on my time will not allow me to give the Board the commitment it deserves."
While Macalester invested no money in Larson's fund because of a by-law that prohibits the college from engaging in such business dealings with its trustees, other major institutions invested in Sowood and lost tens to hundreds of millions of dollars. Harvard Management Company (which manages Harvard University's endowment) lost more than $350 million, the Massachusetts state pension fund lost $30 million and the philanthropic Boston Foundation lost almost $20 million.
Amid this summer's volatile market, Sowood remains the only large hedge fund to have imploded so disastrously. This singularity prompts questions: What led to the collapse of Larson's seemingly infallible hedge fund? Can Larson's risky choices be to blame?
News reports and a Macalester professor, who is acquainted with Larson, said that it was probably a combination of the two factors.
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