June 24, 2024

Endowment Fund, Run by Mark Yusko, Limits Withdrawals

But now investors in the fund, the nine-year-old, $3.3 billion Endowment Fund, are finding it was much easier to get in than it is to get out.

The fund, run by Mark Yusko, the charismatic former chief of the endowment for the University of North Carolina at Chapel Hill, sent letters on Friday to investors saying it was limiting the amount of money that could be taken out each quarter. Investors withdrew more than $1 billion, or about a quarter of the fund’s assets, this year through September, according to a filing with the Securities and Exchange Commission.

Investors generally have been disappointed with hedge fund returns for the last couple of years because many have lagged the gains made in the stock market. Investors have pulled about $13.2 billion, or 2 percent of total assets, from hedge funds for the year through August, according to estimates by BarclayHedge and TrimTabs Investment Research. The firms estimate that in the 3,000 hedge funds that they track, assets have fallen 28.7 percent from their peak of $2.4 trillion in 2008 through a combination of weak performance and withdrawals.

But hedge fund investors and lawyers said the move by the Endowment Fund was one of the first forms of gating, or reducing the ability of investors to take out their money, since the financial crisis. Then, several large hedge funds gated, angering their investors who could not get access to their money.

The troubles at the Endowment Fund are a black eye for Mr. Yusko, a frequent speaker at investment conferences who, after leaving the University of North Carolina in 2004, built a substantial hedge fund empire that at its peak in 2008 controlled $22 billion in assets. Today, he oversees $14 billion.

Mr. Yusko declined to comment on Monday.

He started the Endowment Fund in 2003 with Salient Partners, a Houston firm that managed money for wealthy individuals. It is a fund that invests in dozens of other funds, including some run by prominent managers who have stumbled in recent years, like John A. Paulson, Philip A. Falcone and Eric Mindich.

Several experts were quick to say they saw the gating at the Endowment Fund as a reflection of what that fund had invested in, not as a general trend among funds. About 35 percent of the fund’s assets are invested in real estate, energy and private equity assets — investments that the fund simply could not exit quickly if investors were to demand their cash.

The substantial redemptions in the Endowment Fund follow several years of weak returns. For the 12 months ending late August, the fund was down 2.5 percent, compared with an 18 percent gain in the Standard Poor’s 500-stock index and a 0.9 percent decline in the average hedge fund. Over the last five years, the Endowment Fund returned 5.7 percent annually, lagging the 7.7 percent gain by the S.. P. 500 and the 7.3 percent annual gain by the average hedge fund.

“Hedge funds, as an asset class, have underperformed the stock market and there are definitely some investors out there who feel like they haven’t been invited to the party,” said Stewart Massey, a partner at Massey Quick in Morristown, N.J., which invests money for individuals and institutions.

But the fees investors have paid the Endowment Fund for its lukewarm performance have been considerable, up to about 3.5 percent a year. Additionally, the underlying funds can receive as much as 25 percent of any profits they make.

On top of that, some of the fund’s investors who came in through Merrill Lynch financial advisers may have paid as much as a 2.5 percent upfront fee, similar to what is charged for other funds, according to internal Merrill Lynch documents.

A spokesman for Bank of America, which acquired Merrill Lynch in 2009, declined to answer specific questions about the Endowment Fund. But he did confirm that the wealth management arm of Bank of America on Friday changed the Endowment Fund’s status from “open,” to “on hold,” meaning that wealthy investors could not put any new or additional money into the fund.

Article source: http://www.nytimes.com/2012/10/31/business/endowment-fund-run-by-mark-yusko-limits-withdrawals.html?partner=rss&emc=rss

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