University of Michigan adds private credit, equity mandates

The $12.5 billion endowment fund for the University of Michigan in Ann Arbor continues to build up its private markets’ exposure, wrapping up 2020 new fund allocation announcements. Officials revealed four new fund allocations and a handful of add-on commitments to well-known firms. Minneapolis-based OSP Value Fund III LP received a $40 million commitment over the summer that was reported at trustees' December meeting. OSP buys loans from motivated sellers through privately negotiated transactions. The investment firm typically purchases loans at a discount to both par and intrinsic value. Within the private equity portfolio European-based fund, FSN Capital VI was awarded $44 million to invest in private, mid-sized companies in the Nordic region. FSN Capital works with the companies to achieve organic growth or to implement buy-and-build strategies to achieve performance objectives. The aim is to double these companies’ earnings over the life of the fund’s ownership, which is typically between four and six years. Another new European holding is Summa Equity, which has offices in Stockholm and Oslo and a focus on lower mid-market companies in the Nordic region. This $15 million investment is a co-investment with in a leading Norwegian waste management and recycling company. A $30 million commitment was made of the summer to Y Combinator, a San Francisco venture capital firm that provides funding for companies from the seed stage through early growth-stage and then in later-stage growth. According to the university endowment, while Y Combinator has invested across a number of sectors, while mostly being focused on information technology, mobile and consumer companies. The Y Combinator investment is expected to provide the University with significant exposure to high-quality companies starting at the seed and early-stage that can generate meaningful investment returns as the companies develop, officials said. Earlier in the fourth quarter, the university made follow-on investments with previously approved partnerships with a commitment of $5 million to Francisco Partners VI, L.P.; a commitment of $50 million to three General Catalyst funds; and a commitment of $85 million to seven Sequoia Capital funds. In a report to trustees, Erik Lundberg, chief investment officer of the endowment reported a return of 2.2%, which was in line with the staff’s benchmark. Generally, investment funds that are tied to what is dubbed the ‘new economy’ have done well, he added. Leading the way was venture capital, which was up 19% for the year.

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