Cambridge University adds to hedge funds

The Cambridge fund, which currently has about 17% exposed to hedge funds, is looking to increase its hedge fund allocation to around 20% by mid-2010, chief investment officer Nick Cavalla told HFMWeek. The move will translate to roughly £31.5m ($50.2m) in fresh investment.

Cambridge currently has investments with 15 managers and is looking to bolster the ranks with a further three to four allocations. “We’re looking to increase our allocation a little bit further. But not aggressively,” Cavalla said. “Credit-distressed and, perhaps, a little bit of macro – those are the areas we’re looking at.”

Across the Atlantic, the $350m University of Wisconsin System Trust Funds is searching for its first hedge fund investment (outside of a mandate managed by GMO). According to Doug Hoerr, director of finance, funds of hedge funds (FoHFs) will be the university’s most likely route.

As revealed by the 2009 Nacubo-Commonfund Study, the average allocation to alternatives for US endowments and foundations with at least $1bn jumped from 52% in 2008 to 61% in 2009.

Direct hedge fund investment – the sole method of allocation for the University of Cambridge – is also becoming increasing popular state-side, as US endowments put a renewed sense of confidence to work.

Saint Mary’s College in Indiana, which has a $100m endowment fund, is on the verge of its first direct hedge fund investments, while the Florida State University’s $399m fund is contemplating a wholesale move into direct investment.

According to Cambridge’s Cavalla, however, FoHFs are, and will remain, a no-go area for the university, with the current search concentrating purely on single managers. The fund, the largest academic endowment in the UK, is undertaking due diligence on a number of managers, with a view to reaching the new 20% benchmark by the summer.

“The model that we really like to follow, and we don’t follow it in all cases because it’s not always available, is the single manager, single fund – the vanilla, co-invested hedge fund, if you like,” Cavalla said.     

In terms of strategy, Cambridge – whose endowment is wholly separate to the money of its associate colleges – has a sizeable allocation to equity long/short, but, Cavalla said, the university is “comfortable” with its current level of exposure. Ucits-compliant hedge funds, he added, do not currently offer strong enough reasons for investment.

Cavalla joined The University of Cambridge from Man Investments, Man Group’s alternatives arm, in April 2007. The role of CIO was created especially for his arrival, signalling a fresh focus on alternatives.

Since 2007, the university – which had zero exposure to hedge funds as of Cavalla’s appointment – has reallocated a significant portion of its portfolio to hedge funds. A small amount was invested in 2008, with the majority in 2009, taking exposure to 17%.

The university’s move into alternatives has coincided with a strong surge in AuM. Since the end of 2008, AuM at the endowment fund has risen by 16%, up from £880m ($1.4bn). Cavalla notes, however, that this surge is a result not only of positive performance, but of net donations and increased contributions from a couple of university-associated, non-college investment pools.  

As well as the University of Cambridge, there are 31 Cambridge colleges, each with their own separate endowment fund. The combined value of these colleges is around £2.5bn ($3.9bn) – ranging from Christ Church, one of the largest with £900m ($1.4bn), to smaller funds of £10m to £20m.

The Oxbridge set – the universities and colleges at Cambridge and Oxford – account for the vast majority of assets at UK-based academic endowments. Oxbridge funds are generally considered the only academic endowments to invest in hedge funds.