Sydney Uni makes private equity secondaries play

The investment and capital management office within the University of Sydney has tapped its long-term portfolio to invest in private equity secondaries.

The office, which has $1.1 billion in funds under management, has allocated $30 million to the Dover VII fund run by US private equity manager HarbourVest, which targets assets up for sale on the private equity secondaries market. Greg Fernance, director of the investment and capital management office, said that the secondary assets, which are bought from private hands, were often less risky than traditional private equity holdings and suited the investment needs of the division’s long-term portfolio. “They are more mature private equity assets. The capital draw-downs and returns are good for the endowment fund,” Fernance said. The office manages both short-term funds, such as capital received from grants, student fees and departmental operating accounts, and long-term funds, such as endowments, bequests and foundations. Since the office aims to deliver an inflation-adjusted 5 per cent return each year to the university, the short-term pool is invested in debt securities and managed by an internal team. The long-term component, which comprises roughly 75 per cent of the portfolio, is invested through external managers in growth assets, including alternatives. It also owns and operates commercial farms in the Camden region that are used for research in university programs and to generate funds. Fernance said the office began investing in alternatives in early 2006. Since then it has allocated US$50 million to Makena Capital Management, a fund modelled on those managed by the elite US university endowments and run by members of the former Stanford endowment team. Up to 3 per cent of the office’s long-term portfolio is invested in unlisted domestic infrastructure, and 3 per cent in global unlisted infrastructure. It has also invested in a long/short fund, and is currently evaluating another private equity secondaries mandate with another manager. “All of our alternatives account for approximately 17 to 20 per cent of the long-term portfolio,” Fernance said.