The Endowment Fund, a vehicle mimicking the strategy of institutions such as Yale University, is seeking bids for a portfolio of private-equity and hedge-fund stakes valued at $1.8 billion to offer shareholders liquidity, three people familiar with the matter said.
The fund hired Park Hill Group LLC, the placement-agent unit of New York-based Blackstone Group LP, to contact secondary buyers about the portfolio, said the people, who asked not to be identified because the information isn’t public.
Shareholders withdrew more than $1 billion from the fund last year as of late October amid lackluster returns. Houston-based Endowment Advisers LP, the fund’s adviser, decided at the time to block client redemptions and instead return 5 percent of assets by Dec. 31. Earlier this year, it named Lee Partridge as chief investment officer, replacing Mark Yusko.
“In January 2013, we committed to our investors that we would return with a solution for investors who desired more liquidity within four to six quarters,” Christina Moon, a spokeswoman for the fund, said in an e-mailed statement. “We are pleased today to announce that less than four quarters later we have initiated a plan to do just that, which we have communicated to our investors.” Lawrence Thuet, head of the secondary-advisory group at Park Hill, declined to comment.
The Endowment Fund had returned an annualized 5.6 percent since its inception in April 2003, underperforming stocks and a portfolio with 60 percent in equities and 40 percent in bonds, according to a September 2012 letter to clients, while beating a Hedge Fund Research Inc. index that tracks funds of hedge funds. The fund, which attracted $5.5 billion as of mid-2011, declined to $2.9 billion as of this year’s second quarter, according to an August regulatory filing.
As part of the liquidity plan, the fund will offer shareholders the opportunity to participate in a $650 million tender offer in the fourth quarter, according to an October investor letter.
In the first quarter, it intends to give investors the choice of staying in the endowment fund or rolling their interests into a new fund that will gradually liquidate, according to the letter. The firm expects to give investors in the self-liquidating fund an option to sell their interests to third party institutional investors, probably at a discount to net asset value, according to the letter.
The Endowment Fund plans to boost liquidity in the portfolio by limiting new commitments to assets such as private equity, real estate, natural resources and energy, according to the regulatory filing.
The fund was formed as a joint venture with Houston-based Salient Partners LP and Morgan Creek Capital Management LLC, based in Chapel Hill, North Carolina. It sought to offer wealthy individuals access to a strategy that has historically been open only to the largest institutions, such as Yale and the Ford Foundation. The fund invests in stock and bonds, private equity, hedge funds and real estate.