Alpha - September 2007 - (Page 18)

Pension Corner Strategies Keeping the Faith As recent market turbulence has some investors questioning the value of using hedge funds, Wake Forest is reafﬁrming its commitment to alternatives. By Christopher O’Leary A “The current volatility is not a sign of a bear market,” says Wake Forest University treasurer Louis Morrell. lthough recent troubles among several highproﬁle hedge funds have many investors reevaluating their commitment to alternative assets, Wake Forest University treasurer Louis Morrell is staying the course. In the 12 years since Morrell took the helm of the university’s endowment, assets under management have nearly tripled, to $1.2 billion — and hedge funds have been a major part of that growth. “The current market volatility roiling hedge funds is just going to be a correction,” says the 70-year-old Morrell. “It is not a sign of a bear market.” After examining investor sentiment, market fundamentals and stock valuations, Morrell is convinced that hedge funds’ prospects remain strong. In fact, he is so certain that in August — during the height of the market meltdown — he added a distressed-debt hedge fund to Wake Forest’s 18 • INSTITUTIONAL INVESTOR’S ALPHA • SEPTEMBER 2007 portfolio. And there are plans for a second such fund. Direct hedge fund investments make up about one fifth of the endowment of the Winston-Salem, North Carolina– based university. Unlike investors that shun funds of hedge funds largely to save on fees, Morrell, who is constantly altering his asset allocation based on market conditions, prefers the ﬂexibility that comes with direct investments. “We don’t use funds of funds much because we have to target hedge funds based on the underlying asset class,” he explains. “We don’t consider hedge funds to be an asset class but basically a substrategy of whatever asset class they’re assigned to.” Before joining Wake Forest in 1995, Morrell served as chief investment ofﬁcer for Winter Park, Florida–based Rollins College and treasurer of Radcliffe College in Cambridge, Massachusetts, where one of his responsibilities was managing the endowment. Morrell says that he was recruited to Wake Forest after a U.S. News & World Report college survey ranked the university among the nation’s top schools and sent applications soaring. Brought in to boost the then–$450 million endowment, Morrell transformed the portfolio’s traditional mix of equity and bonds by moving into hedge funds. Wake Forest initially allocated $25 million to New York–based Tiger Management Corp. “Tiger had a global macro strategy with a lot of different asset classes,” says Morrell. “There were so many subsets that we got exposure to a variety of areas.” He says that investment netted the school roughly $5 million. In the past few years, Wake Forest has maintained direct investments in seven to nine hedge funds at any given time. Its current stable includes Boston-based Wellington Management Co.’s Bay Pond Partners fund (an energy-speciﬁc hedge fund), Westport, Connecticut–based Bridgewater Associates’ Pure Alpha multistrategy fund and a fixed-income fund run by Los Angeles–based Oaktree Capital Management. For the five-year period ended June 30, Wake Forest generated an annualized 14.3 percent. By contrast, the average U.S. endowment returned 10.8 percent for the same period, according to data from the Santa Monica, Photo by Armando Bellmas for Alpha

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

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