University of Michigan Endowment Set to Invest in Credit Funds

  • Hedge fund run by protege of Appaloosa's Tepper among funds
  • Fund's board set to vote on about $168 million in investments

The University of Michigan’s endowment is looking to invest about $168 million in four credit funds including a hedge fund said to be backed by Appaloosa Management’s David Tepper.

Kevin Hegarty, the school’s chief financial officer, is recommending the Board of Regents approve those investments at a board meeting on Thursday, according to a posting on the school’s website.

The Ann Arbor-based school’s endowment is valued at a record $10 billion as of June 30, the third largest among public universities. It had a 3.5 percent return for the fiscal year, lagging its elite peers.

New Fund

Warlander Asset Management, a New York-based hedge fund formed by Eric Cole, a protege of billionaire Tepper, would receive $25 million for investment, according to a letter by Hegarty to the board posted on the website. Warlander will begin operations in January, Hegarty said in the letter.

The Warlander fund will take long and short positions globally in credit and credit-like securities, Hegarty wrote.

The largest allocations to new funds would be about $53 million to Black Toro Capital Fund II, based in Barcelona, Spain, Hegarty wrote. The fund specializes in distressed investing and the Spanish financial markets. The endowment is also seeking to invest $50 million with Los Angeles-based Calmwater Real Estate Credit Fund III, which invests in secured first-lien and some second-lien commercial real-estate mortgages in the U.S.

China Investing

Hegarty also is recommending $40 million to the long-term portfolio of Abax Asian Structured Credit Fund II, which is based in Hong Kong. Abax Global Capital makes direct loans to small-and medium-sized enterprises based in China or have a significant Chinese connection, according to the letter.

The letter also informs the board of additional investments in five alternative asset funds that the university had previously committed to. One of those is GSR Ventures V, a venture capital fund with offices in Beijing and Palo Alto, California, that makes early stage investments and has “substantial” operations in China. The endowment previously invested $15 million in the fund.

“The focus will be on digital companies in the e-commerce, financial technology, online advertising/big data, mobile gaming, and education sectors,” Hegarty wrote.

The endowment, managed by Erik Lundberg since 1999, in September pledged about $345 million to seven managers.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE