Appaloosa Protege to Manage Money for University of Michigan

  • Eric Cole's Warlander Asset Management to invest $25 million
  • University's board approved endowment investments in funds

The University of Michigan’s board approved endowment investments of $168 million in four credit funds, including one run by a protege of Appaloosa Management’s David Tepper.

Warlander Asset Management, a New York-based hedge fund formed by Eric Cole, who previously worked for Tepper, will receive $25 million for investment after it was approved by the Board of Regents Thursday in Ann Arbor. The three other credit fund allocations are about $53 million to Black Toro Capital Fund II, based in Barcelona, Spain, $50 million to Los Angeles-based Calmwater Real Estate Credit Fund III, and $40 million to Abax Asian Structured Credit Fund II in Hong Kong.

While endowments have reduced allocations to fixed income in recent years, institutional investors see some private credit investments as chances to get equity-like returns, said John Keshner, managing director of endowments and foundations at Northern Trust Asset Management in Chicago. He said recent losses in the high-yield bond market may present a good opportunity for managers to increase holdings.

“It’s a thoughtful investment with a nice opportunistic entry point,” Keshner, whose company oversees $887 billion in assets, said of University of Michigan’s allocations. The Warlander fund, which is expected to begin operations in January, will take long and short positions globally in credit and credit-like securities.

Taking Advantage

Williams College in Williamstown, Massachusetts has targeted 10 percent of its endowment’s asset allocation to non-investment grade bonds since fiscal year 2013, up from 4 percent in 2012, according to the school’s investment office. The current allocation will remain in place in fiscal 2016.

“Managers are positioning themselves to take advantage of a potential distress cycle,” Jonathan Kraft, chairman of the endowment’s investment committee, and Collette Chilton, chief investment officer, wrote in Williams College’s most recent investment report. The $2.4 billion endowment gained 9.9 percent in fiscal 2015.

The University of Michigan’s $10 billion fund, the third wealthiest among public schools, returned 3.5 percent in the fiscal year ended June 30. The endowment has been managed by Erik Lundberg since 1999. The school also made investments of undisclosed amounts in five alternative asset funds that the endowment previously committed to, including one that makes early-stage investments in digital companies in China.

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