Notre Dame Invests More in Europe by Getting In on the Ground

  • Endowment opened London office as it eyes small buyout funds
  • CIO Malpass spoke on panel with Harvard, Duke counterparts

The University of Notre Dame’s endowment, which oversees more than $8 billion, has opened an office in London as it seeks to expand its portfolio of investments in Europe.

Scott Malpass, the chief investment officer, said Notre Dame is in the first year of an experiment where some members of his 38-person team will rotate through an office in London, where they are working on new investing opportunities. He said the South Bend, Indiana-based university endowment already has 20 investing partners in Europe and that the fund is particularly interested in small buyout funds and credit markets there.

“We thought as a team there could be an advantage of having staff overseas,” Malpass said Friday at a conference in Austin, Texas, sponsored by the University of Texas Investment Management Co. “Let’s explore all the advantages of this: does it really help to be on the ground to keep an eye on networks, to source ideas, to know the intermediaries better.”

Generating Returns

Malpass appeared on a panel that also featured Stephen Blyth, the head of Harvard University’s endowment, and Neal Triplett, Duke University’s investing chief, as well as Bruce Zimmerman, who oversees endowments for the University of Texas and Texas A&M University. They all expressed concern about meeting a goal of generating annual average returns of at least 5 percent to support what is transferred out of their funds every year to help pay for academic operations.

Malpass said Notre Dame is in a better position today to obtain so-called alpha, or extra returns, from its portfolio because it has more assets under management. He said that initially he expected the university would open a satellite office in Asia, because of opportunities there, but instead chose London as a way to build more relationships in Europe.

Blyth, who took over Harvard’s $37.6 billion endowment last year, identified a number of themes driving the university’s investing decisions, from the opportunities in the life sciences industry to the upheaval among more traditional retailers caused by online shopping. Another is increased banking regulation in the U.S., allowing investors to pick up attractive fixed-income assets through direct loans.

“That can lead to all sorts of opportunities in cases where there’s no balance sheet available,” said Blyth. “There’s an advantage for a liquidity provider.”

Reducing Fees

Triplett said that Duke’s endowment, with about $7.3 billion in assets as of June 30, 2015, has sought to improve returns and the speed of the investing process while reducing fees by replacing some outside money managers with employees who are directly investing. He said since 2007 the endowment has created a team of five people on the 50-person staff that trades in markets such as large cap U.S. stocks.

“The only way to guarantee outperformance is to lower fees,” he said.

Triplett said Duke, like many other institutional investors, has been exploring opportunities in energy markets where many companies are struggling after petroleum prices plummeted.

“As we are gluttons for punishment, we are beginning to dip our toes into commodities and oil,” he said.

Malpass said Notre Dame is avoiding commodities because “I struggle to bet on commodity prices. I’m not trying to time oil.”

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