Hedge Funds Help Wake Forest Buck Endowment Slump With Gain

  • Wake, Minnesota schools among few with positive returns
  • University’s investments are managed by Verger Capital

Much-maligned hedge funds helped Wake Forest University’s investment performance in fiscal 2016.

The endowment, managed by Verger Capital Management, gained 0.9 percent for the year ended June 30, driven by gains in hedge funds, fixed income, gold and emerging markets, Jim Dunn, Verger’s chief executive officer, said in an interview. The University of Minnesota’s fund also posted a positive return.

Wake Forest, in Winston-Salem, North Carolina, joined only a few endowments including Massachusetts Institute of Technology that reported investment gains so far. About a dozen public university endowments with more than $1 billion have reported losses for the fiscal year, which is expected to be the worst for school funds since 2009. College endowments will continue to report investment performance through next month.

Different Risk

Funds with more than $500 million lost a median 0.73 percent in the fiscal year through June 30, according to the Wilshire Trust Universe Comparison Service. The Wilshire data, from fund custodians, excludes fees while most schools report returns net of fees. A benchmark 60/40 portfolio of the Wilshire 5000 Total Stock Market Index for U.S. equities and the Wilshire Bond Index returned 4.5 percent in fiscal 2016.

“We have no interest in tying the future of Wake Forest to the S&P 500,” said Dunn, who was Wake Forest’s chief investment officer until 2014 before establishing Verger. “We can take different exposure and get different risk in our portfolio.”

Some hedge funds have trimmed management fees amid losses in response to an investor backlash. Hedge funds have contributed to losses at some schools, including the University of California. Wake Forest’s hedge fund strategy was up 2.3 percent, Dunn said, thanks to small and new funds that invest in emerging markets, municipal debt and direct lending.

The fund’s value was $1.17 billion as of June 2015. The school declined to disclose the June 2016 value until an audited report is available next month.

Big Driver

Verger, also based in Winston-Salem, oversees funds for other nonprofits, including a museum and hospital, according to Dunn.

Wake Forest’s largest allocation, about a quarter, was to absolute return, followed by 19 percent in fixed income and 16 percent in global equity as of June 30. The fund also invests 6 percent in agriculture and timber and 4 percent each in real estate, and in energy and natural resources.

“Real assets were a big driver, up over 5 percent. Gold did really well for us this year,” Dunn said. “At a high level, it’s about controlling risk and fees.”

Along with MIT and University of Oregon, at least two other endowments posted investment gains in the fiscal year. The University of Minnesota’s investments increased 1.5 percent. The endowment’s value was unchanged from the prior year at $2.2 billion, according to a report posted on the fund’s foundation website. Syracuse University’s endowment gained 1.6%, and the value of the fund was $1.1 billion.

The Minnesota endowment increased its allocation to global equity in the most recent year to one-third from a quarter. It almost doubled its bonds and cash to 21.2 percent and decreased the allocation to private equity to 16 percent from 25.4 percent, according to the report.

— With assistance by Kate Smith

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