• China is `rich source' for long-term investment, CIO says
  • U.S. plan to tax endowments would be `huge mistake,' he says

University of Notre Dame’s endowment is hedging some of its investments in China, leaving it with “a little less upside and less downside,” in the volatile market, said Scott Malpass, chief investment officer of the $10.5 billion fund.

“In China, we saw some downside but not too much,” Malpass said Monday in an interview at Bloomberg in New York, declining to name specific investments.

University funds that returned some of the best gains in the fiscal year ended June 30 were propelled by private equity, venture capital and real estate. Notre Dame’s endowment gained 8.7 percent, with some help from investments in emerging markets, particularly China. The fund had 27.5 percent in private equity in the fiscal year.

China “will continue to be a rich source of investment opportunity” but it is a cyclical and long term investment and requires finding the right partners, he said.

“If you’re not willing to commit like that, you will get killed,” he said.

Even with the volatility, e-commerce giant Alibaba Group Holding Ltd. and online retailer JD.com “will be the best in their industry,” within the next 10 years, Malpass said Monday in a Bloomberg Television interview.

Malpass has been chief investment officer of the fund, based in South Bend, Indiana, since 1989, when the endowment was valued at $400 million, he said.

Universities aren’t subject to taxes on their investments like private companies while their endowments’ coffers grow to record highs. There’s been talk in Congress about changing that.

Congressman Tom Reed, a Republican from New York, said at an October subcommittee hearing that he plans to introduce a bill that would mandate colleges allocate investment earnings to tuition relief as a condition of tax-free status for endowments.

Such a bill would be “a huge mistake,” Malpass said in the TV interview. “It would affect fundraising and the quality of faculty, resources, laboratory research.”

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