Endowments Across U.S. Search for Bargains After Brexit Tumult

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Texas Christian University at Fort Worth, Texas.

Photographer: David Kozlowski/Moment Editorial via Getty Images
  • ‘Best house in neighborhood is stocks,’ one manager says
  • Cash positions stemmed from concern over global downturn

Some U.S. university endowments that were sitting on cash have become buyers following the global market plunge from Britain’s vote to exit the European Union.

“The best house in the neighborhood is stocks,” Jonathan Hirtle, chief executive officer of Hirtle Callaghan, which manages more than $24 billion for endowments, foundations and wealthy families, said in an interview June 24, the day of the Brexit result. “We’re buying stocks on weakness.”

The U.K.’s decision last week triggered a rush toward havens as global equities lost about $3.6 trillion in market value. Stocks, the pound and commodities climbed on Tuesday for the first time since the vote. Global shares continued to rebound on Wednesday.

Looking Around

“We’ve been conservative, holding cash,” Jagdeep Bachher, chief investment officer at the University of California system, who manages $91 billion of pension and endowment assets, said in an interview June 24. He and outside money managers the fund invests with are searching for opportunities. “Many of them in public equities had cash,” he said.

The earlier cash positions weren’t a prescient call on the referendum but were due to general concerns over a global economic slowdown, which made funds ready to take advantage of the fallout. Larger endowments tend to have higher exposure to international equity markets than their smaller counterparts, often through hedge funds and other alternative assets. Holding cash may have mitigated some losses.

“I don’t know if there is going to be a Lehman moment stemming from Brexit,” James Hille, chief investment officer of Texas Christian University’s $1.5 billion endowment, said in an e-mail, referring to Lehman Brothers Holdings Inc.’s collapse eight years ago that triggered the worst financial crisis in decades. “Like in 2008, we are pleased to have a much higher than average level of cash and lower than average level of long-only public equity.”

Taking Advantage

Hille said in an e-mail June 28 that the portfolio, which usually has an average cash position of 2 percent to 3 percent, is now at more than 8 percent.

“We are not yet adding capital to equities at this stage but are certainly holders of what we do have,” he said. “Our managers have been buyers, putting their cash positions to work, however.” More than 25 investment managers handle portions of the portfolio, according to the school’s website.

The University of Connecticut endowment’s foundation is considering a $3 million Brexit-related investment decision, Jerry Ganz, the foundation’s chief financial officer, said in an interview on Wednesday. The endowment has a value of $383.1 million.

The University of Iowa’s $1.3 billion endowment “has sufficient liquidity to take advantage of market dislocations,” Jim Bethea, chief investment officer, said in an e-mail on Wednesday. “In general, we take advantage of buying opportunities, but it is too early to tell what opportunities, if any, Brexit has created.”

‘Ugly Year’

Even with a long-term investment horizon of 20 years or more, “we’re not purely passive investors and we have some exposure to particular managers who I’m sure are working hard to figure out Brexit’s winners and losers in order to take advantage of that for us,” John W. Sell, director of college investment at the College of Wooster’s $284 million endowment in Ohio, said in an e-mail on Wednesday.

Others, like the University of Notre Dame, which has more than $8 billion in its endowment and opened an office in London in the past year, also said they aren’t swayed by short-term news.
 
“Focused as always on quality, liquidity and balance in our portfolio,” Scott Malpass, chief investment officer of the fund, based in South Bend, Indiana, said in an e-mail on June 24.  

For endowments, most of which are on a fiscal year that ends June 30, Brexit was the final straw to a volatile year.

“The timing of this for universities is pretty bad because we’re all getting ready to close our books at the end of the month,” Philip Zecher, chief investment officer of Michigan State University’s $2.3 billion endowment said in an interview June 28. “We’d earned a good bit back. But this wiped all that out. It’s going to be an ugly year.”

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