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August 22, 2014 01:00 AM

University of Houston hires Franklin Templeton for global unconstrained bonds

Endowment terminates hedge fund manager, commits to private equity and adopts new asset allocation

Meaghan Offerman
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    University of Houston System hired Franklin Templeton Investments as a global unconstrained fixed-income manager for its $592 million endowment, pending negotiations, according to a recording of the endowment management committee meeting on Tuesday.

    Funding will come from the termination of existing active fixed-income manager Mondrian Investment Partners and reducing its allocation to another fixed-income manager, Smith, Graham & Co. Investment Advisors. Assets within the overall $77.3 million fixed income portfolio will be reallocated as follows: 50% to Franklin Templeton and 25% each to a new passive manager and Smith, Graham & Co. Further information on the new passive manager could not be learned by press time.

    Separately, the committee terminated multistrategy hedge fund manager Och-Ziff Capital Management Group.

    The committee invested $8 million in OZ Overseas Fund II in September 2010.

    A shift in the endowment's strategy was provided as the reason for the termination.

    Also, the committee approved a total of $17.5 million in private equity commitments.

    The committee committed $10 million to Lexington Capital Partners Fund VIII, a global secondary fund managed by Lexington Partners. The fund will focus on “smaller, more concentrated direct deals opportunistically” with 60% of the portfolio invested in buyout funds and the rest in venture capital, growth equity and yield-oriented strategies, according to materials prepared for the committee meeting.

    Also, the committee committed $7.5 million to Insight Equity III, which focuses on "operationally challenged or financially distressed North American middle-market companies,” according to documents prepared for the meeting.

    Finally, several changes were approved to the endowment's long-term target asset allocations.

    The target for private investments increased to 25% from 17.5%. Asset classes that had their targets reduced were domestic equity and international equity to 15% from 17.5% each and fixed income to 10% from 12.5%.

    Targets that remained the same were absolute return, hedged long/short equity and developing markets equity at 10% each and marketable inflation protection at 5%.

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