Michigan State University trustees approved doubling the allocation to Drake Capital Advisors to $60 million from its $2.3 billion endowment, said Philip Zecher, chief investment officer, in an interview.
The East Lansing-based university hired Drake Capital in 2013 to invest in emerging hedge fund managers with track records of less than three years and less than $500 million in assets under management in a customized separate account format.
The current $30 million allocation is fully invested in 16 hedge fund portfolios and returns of the separate account have fully met expectations, Mr. Zecher said.
Mr. Zecher recommended increasing the size of the separate account in order to raise the allocation to each underlying hedge fund manager to about $5 million, up from about $2 million when the account was originally created with Drake Capital.
The emerging manager hedge fund-of-funds portfolio returned 5.4 percentage points more than MSU's mature hedge fund portfolio in 2015 and by a cumulative 2.6 percentage points since inception.
“While this sort of spread cannot be expected every year, and Drake can't outperform the mature portfolio every year, the performance thus far has shown that Drake can stand up to MSU's mature portfolio, even in some difficult market conditions,” Mr. Zecher and Mark P. Haas, vice president for finance and treasurer, wrote in a memo to the board of trustees for their April 15 meeting.
MSU's aggregate target for its emerging and mature hedge fund portfolios is 22%, according to the endowment's most recent investment policy statement.