Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 17)

Pension Corner Strategies Flexibility and lots of alternatives have boosted the University of Michigan to the top of its peer group. By Frances Denmark Liberal Returns each to different asset classes. Over the past nine years, he has continued to hire and train new analysts. He also began rotating staff among the different asset classes to ensure that everyone would have a big-picture view of the portfolio, as well as the ability to handle multiple responsibilities. The group boosted UM’s hedge fund allocation, which today totals 20 percent of the portfolio. It is spread among 20 single-manager hedge funds — including Boston-based credit specialist Sankaty Advisors L iberal arts majors are often taught the importance of being well-rounded — a precept Erik Lundberg, chief investment ofﬁcer for the University of Michigan, has embraced as fervently as the school’s professors have. In his nine years at the helm of UM’s endowment, Lundberg has determined that a generalist stafﬁng approach to portfolio management is superior to one that relies on specialists dedicated to individual asset classes. “We want to have people here who all have the qualiﬁcations to be CIOs,” he explains. That approach, along with a hefty 55 percent allocation to alternatives, helped Lundberg and his 11-member staff generate a 25.6 percent return for UM’s $7.5 billion portfolio for the ﬁscal year ended June 30, 2007 — good enough to best some of the biggest Ivy League endowments. For the same period, Harvard University and Princeton University were up 22.4 percent and 24.7 percent, respectively. As UM’s ﬁ rst CIO, Lundberg had his work cut out for him when he arrived at the Ann Arbor campus in 1999 to establish an investment ofﬁce. At the time, the endowment had $2.5 billion in assets, including $1.5 billion from a recently completed capital campaign. University ofﬁcials were looking to improve what Lundberg describes as the “so-so returns” the school’s treasurer’s ofﬁce had been generating. Lundberg, who had been working in Chicago as an investment strategist and manager of U.S. and international equities for regional phone operating company Ameritech Corp., inherited a sizable hedge fund portfolio. The endowment already had 10 percent of its assets in single-manager hedge funds, including such stalwarts as San Francisco–based Farallon Capital Management, as well as Highﬁelds Capital Management and Brookside Capital Management, both in Boston. “There was a good foundation to build on,” says the Norway native, who moved to the U.S. when he was 20 to attend the University of Wisconsin. “Alumni had already helped us get into some of the best hedge funds out there,” adds Lundberg, 48, pointing to inf luential board members like Sandy Robertson, the co-founder of investment bank Robertson Stephens & Co. (now part of Bank of America). But with no one person dedicated to its management, the endowment’s portfolio lacked any real direction, Lundberg says. As he built his team, he pulled a couple of members from the school’s treasury staff, assigning Photo by Roy Ritchie for Alpha and New York’s Avenue Capital Group, which invests in distressed debt and special situations — as well as in one fund of hedge funds. Lundberg says he and his staff take a holistic approach to investing in hedge funds. “We like the absolute-return category because we want something that is uncorrelated to the whole market,” he explains. Although he is enthusiastic about the absolute-return “We want to make room for good investments in any asset class,” says University of Michigan CIO Erik Lundberg. DECEMBER 2007/JANUARY 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 17

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2007/January 2008

Institutional Investor's Alpha Magazine - December 2007/January 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Liberal Returns The Good Guy: Inner-city MVP Cover Story: Marathon Men Interview: Rizk Management Profile: Living on Hostile Ground Profile: Buy and Hold In Theory: The Fallacy of Portable Alpha Strategies: Changing Course Alpha Bytes: Behind the Scenes Unhedged: Commentary: An Activist Alternative

Institutional Investor's Alpha Magazine - December 2007/January 2008

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