The University of Sydney endowment will invest directly in hedge funds for the first time, after its investment team identified some sufficiently skilled managers with newfound capacity.
The endowment will invest up to 3 per cent of its $700 million long-term fund in hedge funds, and target single-manager, multi-strategy products, Greg Fernance, head of investment and capital management (ICM) at The University of Sydney, said.
Even though the strategic asset allocation for the long-term fund, which is comprised of gifts and bequests, allows for 3 per cent of its capital to be invested in hedge funds, the ICM has not yet exercised this provision – mainly because the managers it liked had reached full capacity.
But after honouring investor redemptions during the financial crisis, and observing that many Australian institutional investors had weathered the financial crisis well and were a solid source of capital, such managers flew south in search of new commitments.
“Some of the hedge funds we’ve seen recently were endowment-friendly. In other words, they had capital preservation as a strong theme within their approach,” Fernance said.
These managers had honed their strategies while investing family office money, or exclusively managing money for large private investors. The ICM would invest directly with these managers to avoid the additional layer of fees accompanying fund-of-fund structures, he said.
Fernance is being assisted in the search by Andrew Batsakis, manager external investments, and Jon Glass, who advises the endowment when not working as chief investment officer of the $2.5 billion MediaSuper. Asset consultant Mercer is also providing research about identified managers.
Glass is known as a proponent of hedge funds. Before joining MediaSuper and the ICM, he chaired the educational committee of the domestic arm of the Alternative Investment Management Association, the hedge fund industry body, and ran a small investment consulting company, FineAnswers.