University of Michigan, Ann Arbor, added a fixed-income subclass — unleveraged convertible bond arbitrage to its $9.5 billion endowment — and hired Camden Asset Management to run $75 million in the strategy.
Regents approved the suggestion from the university's investment office at a board meeting on Thursday.
The move was recommended as part of modernizing the endowment's range of fixed-income investments. The board of regents last updated the policy in 1986 when the only eligible fixed-income securities were investment-grade bonds, said Douglas Strong, interim executive vice president and chief financial officer of UM, in an investment recommendation report to the board.
“In contrast, 28 years later, we are in … an era of severely low interest rates and face the potential of rising interest rates at some future date. As interest rates rise, ordinary investment-grade bond prices fall, posing a risk to the fixed-income portfolio,” Mr. Strong said in his report.
Separately, the board approved a commitment of $30 million to Old Ironsides Energy, a new manager for UM, for investment in Old Ironsides Energy II, a natural resources-focused private equity fund.
At every regents meeting, UM's chief financial officer informs the board about commitments the investment staff is permitted to make without regents' approval.
Mr. Strong also provided UM regents with information about commitments to follow-on funds offered by existing managers totaling $194 million:
- a commitment of $69 million was made to Project Ranger, a direct investment in GreyCastle Holdings, a new reinsurance company;
- commitments of $30 million each were made to credit funds Shoreline China Value III, managed by Shoreline Capital, and Apollo Structured Credit Recovery Fund III, managed by Apollo Global Management;
- $30 million also was committed to Shorenstein Realty Investors Eleven, managed by Shorenstein Properties
- Energy fund Orion Mine Finance Fund I-A received a commitment of $20 million;
- MAP 2003, an energy fund managed by Mineral Acquisition Partners, got a commitment of $15 million.
