Harvard spent US$100M on vineyards. Now it’s fighting its neighbours
Four years ago, Harvard BOSTON University bought an old cattle ranch in the foothills of the Sierra Madre Mountains. On an arid expanse north of Santa Barbara, Calif., the school’s endowment set out to make money from a notoriously tricky business: vineyards.
Thirsty wine grapes need water, a lot of it. So Grapevine Capital Partners, which manages Harvard’s investment, planned to dig huge ponds to store groundwater as part of an irrigation system for thousands of vines. For the moment, though, Harvard’s endowment has reaped mostly bitter fruit from this purchase, one of its more than a dozen investments in California vineyards over the last six years. Skeptical locals say the school’s plan threatens the region’s scarce groundwater. With supplies considered critically depleted, county officials agreed, delaying the project for an environmental review. Harvard, which declined to comment, has appealed, and a hearing is scheduled for early next year.
“We’re very supportive of agriculture, but we don’t want agriculture to dry up our resources,” said Robbie Jaffe, who runs a neighbouring vineyard with her husband and is leading the opposition. “This has the potential to be further devastating to our very limited basin.”
The fight illustrates the risks that Harvard’s endowment, the largest in higher education, once embraced with its unusual strategy of investing directly in massive agriculture projects around the world. At its peak, Harvard’s farmland spanned two million acres. Through companies it controlled, Harvard bought Central American teak forests, a cotton farm in Australia, a eucalyptus plantation in Uruguay, and timberland in Romania.
For more than a decade, such investments paid off. But the global commodities boom went bust after the 2008 financial crisis. This exotic fare contributed to the endowment’s lacklustre results, among the worst of any major endowment: a 4.5-per-cent annual return for the decade ended in June. Harvard gained 10 per cent in the year through June, one of the lowest returns in the Ivy League.
“Agriculture entails a lot of risks that you don’t get in other industries,” said Madeleine Fairbairn, an assistant professor of environmental studies at the University of California, Santa Cruz. “Many institutional investors underestimated the complexities.”
To turn around the fund, Harvard Management Co., the unit overseeing the endowment, hired N.P. “Narv” Narvekar from Columbia University in 2016. He has since retreated from natural resources and other direct investments. Last year, Narvekar wrote down the value of timberland and farms in the portfolio by US$1 billion. They now make up less than six per cent of Harvard’s US$39 billion endowment, down from 13 per cent five years ago.
The farmland investments led to headaches alien to those who stick to plain-vanilla stocks and bonds. In Brazil, for example, a public prosecutor’s office has said that it may sue to reclaim part of a farm the size of Phoenix, Ariz., after finding that titles for about twothirds of the property are invalid.
In Australia, a company working for Harvard harmed an Aboriginal burial site when it was digging irrigation canals for one of the endowment’s cotton farms, according to a government inquiry. In South Africa, another project sparked conflict with black families denied land rights for cattle grazing and access to burial sites.
Harvard’s California conflict followed a vineyard-buying spree that began in 2012. The school is merely selling grapes that will blend anonymously into other wines.
The endowment spent about US$100 million on more than a dozen properties. The school bought most of the land near the state’s Central Coast, famed for its wineries. Its value has since increased, according to the endowment’s tax filings.
One investment stood apart because it is further inland. In 2014, a company controlled by the endowment paid about US$11 million for 8,700 acres of grazing land from the North Fork Cattle Co. in the Cuyama Valley. In this wild landscape, Harvard is cultivating a tenth of its land for a vineyard roughly the size of New York’s Central Park.
In the region, fights over water are common; one involving Harvard has spilled into public view. In 2014, amid an epic drought, California legislators passed a law restricting groundwater extraction. Cuyama Valley needed to develop a sustainability plan by 2020.
Enter Jaffe and her husband Stephen Gliessman. Near Harvard’s property, they raise grapes and olives at their five-acre Condor’s Hope Vineyard.
Jaffe and Gliessman assembled a team to fight a county decision: approving three huge Harvard “frost ponds,” as part of an existing irrigation system. In winter, workers would use water from the ponds to spray plants, protecting them from frost. The couple said that would tax groundwater supplies too heavily. The board voted 3-2 to order an environmental review.
Harvard appealed the county’s decision. It also wants an exception from the new groundwater regulations. In April, Ray Shady, a company representative, argued that a fault line separates the western valley, where the Harvard vineyard is situated, from the rest of the region. As a result, he said, the vineyard shouldn’t be subject to the same strict rules as other growers.