Univ. to invest $50M in Chinese railway company

University President Richard Levin has garnered headlines in recent years for reaching out to China. Now, according to news reports, Yale will own a part of it — or at least part of its state-owned railroad.

The University will reportedly invest $50 million in the China Railway Construction Corp. as part of the company’s $5.4 billion initial public offering, a seemingly bold investment for an institution that shies away from foreign equities more than most other universities.

Yale will be one of nine “cornerstone investors” in the railway, each of which will be guaranteed $50 million in stock in the IPO in return for pledging not to sell that stock for a full year, according to reports by Bloomberg News, the Wall Street Journal and Forbes.

Among those nine investors, which include Singapore’s government-run investment fund and several wealthy Asian businessmen, Yale is the only American entity. Sources cited by Bloomberg described the move as a very rare investment for the University because of its magnitude.

The Investments Office declined to comment on the report Tuesday afternoon.

Yale has strong ties to China: Levin traveled there as recently as January; a delegation of 100 students, faculty and administrators traveled to the country last spring; and Chinese President Hu Jintao spoke at Yale in 2006. Levin has made globalization a top priority of his presidency.

But that international orientation has not necessarily been adopted by the Investments Office. Unlike its counterparts at many American universities, the Yale Investments Office has traditionally shied away from foreign equity investment.

As of June 30, the University invested 14.1 percent of its endowment in foreign equities, well below the national average. In 2007, the average American university allocated 20 percent of its endowment toward international equities, according to a study released in January by the non-profit Commonfund Institute.

Still, Yale’s 2007 Endowment Report noted that in June, the University articulated a target of allocating 3 percent of its portfolio to “opportunistic foreign positions,” particularly in China and India.

Financial experts have long cited Swensen and his staff for discovering investment opportunities off the beaten path; Yale, for one, was a pioneer of what has become known as alternative investments, which include stakes in real estate, venture capital, hedge funds, timber, oil and gas.

“You’re talking about an endowment that has always been on the forefront in investments,” said David DeRosa, an adjunct professor of finance at the Yale School of Management and the founder of the New Canaan, Conn., consulting firm DeRosa Research and Trading.

And while the railway investment might seem peculiar, it could be another one of those unusual but lucrative positions, he said.

“I’m not surprised that they would want to be in an IPO on that,” DeRosa said. “The basic idea of participating in something like that is very much in tune with what they’ve been doing all along. They look for rates of return in places that are not traditionally regarded as high-return areas.”

The IPO will be Yale’s second major financial splash in China in less than a year. It also participated in the IPO of a Chinese footwear manufacturer last spring, committing to a substantial stake position at the time of the company’s public offering.

But the railroad IPO is of a much larger scale and was thought to be the largest IPO in the world this year until the credit-card company Visa detailed plans this week for its own public offering. The railway, founded in 1948, was once the railway construction and maintenance arm of the People’s Liberation Army; it is now government-run.

Shares of the railway are expected to start trading in Shanghai on March 10 and on the Hong Kong Stock Exchange on March 13.

Yale’s endowment stands at $22.5 billion, trailing only Harvard’s, at $34.9 billion, among American universities. The Yale endowment soared 28 percent last year, outperforming every other university endowment in the country.

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