A total of 10% of the university’s endowment fund and 5% of its pension fund will be dedicated to private markets, which include private equity, venture capital and real estate investments, said Donald Lindsey, president and chief executive officer.
Hedge funds will round out the publicly traded portion of each fund, with the idea that active equity component of the funds will be enhanced with long/short equity strategies.
“Our objective is to have diversified equity exposure,” Mr. Lindsey said.
He expects the hedge fund allocation to be based initially on the original A.W. Jones model, with the possibility of adding merger arbitrage and convertible arbitrage in the future.
In the meantime, the first private equity deal is closing with Providence Equity Partners, a buyout fund. Mr. Lindsey would not say how much of the C$2.3 billion (U.S. $1.5 billion) pension fund and the C$1.4 billion (U.S. $905 million) endowment fund will be invested in Providence.
The private equity investments will be structured as limited partnerships, which probably will total six to eight funds in all.
Mr. Lindsey said it is too early to tell how the U.S. $206 million up for grabs in both the university’s pension and endowment funds will be allocated to private equity, let alone how much could go to real estate and venture capital.
“It (the allocation) encompasses a broad array of investments in private markets,” Mr. Lindsey said.
Specific mandate decisions will come after Brian Stewart, recently hired as managing director of private markets, starts. Mr. Stewart who will start on Dec. 11, will oversee investments in real estate, private equity and venture capital. He had been with BC Investment Management Corp.
Buyout fund investments will be done first, with investments in venture capital and real estate to follow. And while an exact timeframe has not been put in place, Mr. Lindsey said he expects most of the work to start next year. Investment decisions will be market driven, he said.
Currently, the endowment fund has a standard equity allocation of 80% stocks and 20% fixed income, while the pension fund invests 60% of its assets in equities and 40% in bonds.
Other initiatives include a search for a managing director of international equities and emerging markets. When all the investment staff has been hired, the possibility of managing assets from pension and endowment funds outside of the university may come to fruition, but it’s likely to take a few years, Mr. Lindsey said.
The corporation started last May and has three investment executives, including Mr. Lindsey.
“We are moving at lightning pace because there is a lot of work to get done,” said Mr. Lindsey, who left his job overseeing the endowment at the University of Virginia on a Friday and started his new job in Toronto on a Monday.
Previous investments of the university had been overseen by the treasurer’s office.
Susan L. Barreto, Senior Reporter SBarreto@HedgeWorld.com