University endowment office updates trustees on nine alts allocations

The $12.5 billion University of Michigan endowment office remains active in the alternative investment space, recently updating the university’s board of regents on nine niche alternative investment allocations totaling $385 million. The approximately $2.7 billion absolute return portfolio saw new commitments to Kayne Anderson last autumn with investments in the Los Angeles firm’s managed collateralized loan obligations (CLOs). The endowment committed $50 million to Kayne CLO Partners Fund II in September. The fund invests in the equity tranches of Kayne Anderson managed CLOs as well as third party CLO debt and equity and warehouse financing facilities managed by Kayne Anderson or third parties. A $20 million commitment was made to Kayne CLO Partners GP (IMA) back in November. The fund was set up to be deployed during times of market dislocation by providing liquidity in purchasing secondary CLO equity or third-party managers at discounted prices. The remaining seven alternative asset commitments have provided a mix of niche opportunities and were all part of a round of commitments made toward the end of 2019. Three diverse real estate funds were selected to manage $50 million each in September and October – CREA Partners III, Green Courte Real Estate Partners V and LBA Logistics Value Fund VII. Cypress Real Estate Advisors in Austin, Texas invests in residential and mixed-use properties with a residential component in the CREA Partners III. The fund focuses on markets in the Southern U.S. and targets assets that it can acquire at a discount to market value due to the complexity of the transaction or where there are barriers to entry. Value is created through the development, redevelopment or entitlement process. Green Courte Real Estate Partners V LLC is a Chicago-based fund that invests in niche North American sectors including parking, manufactured housing/land lease communities and senior housing. According to the firm, the fund focuses on niche sectors thought to be defensive in nature and have fragmented ownership where specialized knowledge is required to acquire, finance and operate the assets. Newport Beach, California-based fund LBA Logistics Value Fund VII aims to acquire a diversified portfolio of office and industrial properties located primarily in the Western U.S. The fund is expected to maintain a balanced approach to income and growth with approximately half of the returns coming from current income. The remaining funds receiving University of Michigan endowment commitments in October to invest based on geography. With offices in Beijing, China, GSR Ventures VII received a $30 million commitment from the endowment. The venture capital fund makes early stage investments in companies with substantial operations in China. The focus will be on digital companies in e-commerce, financial technology, online advertising, big data, mobile gaming and education. Siguler Guff meanwhile received a $50 million ticket for its Siguler Guff Valiant Fund to invest in Brazilian companies seeking growth capital to scale businesses in a capital-constrained market. Last autumn, the approved model portfolio for the year was established as 25% equities, 18% absolute return, 12% fixed income, 25% private equity and venture capital, 10% real estate, 8% natural resources and 2% cash. Within each category there is an acceptable range to allow for modest shifts throughout the year. The board also has the flexibility to adjust the ranges as new investment opportunities arise. The portfolio had roughly 21.2% in traditional assets – equities and fixed income – and another 22% in absolute return strategies as of year end 2019. Private equity, venture capital, real estate and natural resources accounted for 56.5% of the overall portfolio.

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