Duke University Buys Back Debt, Mirroring Other University Endowments

(May 9, 2011) — Duke University has joined Harvard in buying back credit-crisis debt.

University endowments around the country are now buying back debt that was sold during the credit crisis. Data compiled by Bloomberg has shown that at least 15 university endowments sold a total of $7.2 billion of taxable bonds from December 2008 to November 2009.

As the 15th largest US university endowment, Duke University has bought back the $500 million it borrowed during the financial crisis. According to Bloomberg, the Durham, North Carolina-based university paid a premium to investors to redeem the taxable bonds before they were set to mature in 2014 and 2019.

According to KC Connors of consultancy NEPC, the endowment and foundation space is taking advantage of stronger markets to reassess its liquidity needs. “With high levels of debt on the books, endowments often face investment restrictions,” she told aiCIO. “And with the rise that we’ve seen in the market and liquidity in the market, it doesn’t make sense to pay such high interest rates with large quantities of debt. The only reason endowment funds would want to keep debt is if they want to ensure they have enough liquidity in their portfolios,” she said, noting that with return of liquidity starting in the latter half of 2009, that concern is subsiding. “Now, with liquidity returning to the marketplace, there’s enough of a recovery where looming liquidity fears are put aside and thus funds are thinking longer term.”

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Meanwhile, since a reduction in debt would permit Harvard University to have greater flexibility to make new investments, the endowment is planning to buy back $300 million of bonds that it sold during the financial crisis. During the worst of the crisis, Harvard reportedly sold $1.5 billion in taxable bonds and $1 billion of tax-exempt debt to bolster its cash holdings.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Investors are flocking to smaller property funds of less than $1 billion in size due to their more focused strategies and better returns, Preqin has found.

(May 9, 2011) — New research by Preqin shows that North America-focused funds with a minimum of $1 billion in commitments are being outperformed by funds of less than $500 million in size for their more focused strategies and superior returns.

The research indicates a reversal of the trend in the years leading up to the financial crisis of 2008, when large property funds dominated the space.

“Given that many larger funds appear to have under-performed in recent years, investors might be expected to focus on the small to mid-size funds; the size of the funds which have been successful in raising capital in 2010 and 2011 certainly suggests that this is the case,” Preqin’s Andrew Moylan, manager of real estate data, says in a release.

The research firm’s findings reveals that 54% of small funds — or firms less than $500 million — are outperforming the median. Meanwhile, only 23% of $1 billion-plus funds are producing top quartile returns, and 60% are producing returns below the median. Preqin data shows 60% of the $8.2 billion capital raised in the first four months of 2011 was by funds managing less than $1 billion of assets. In 2010, these funds accounted for 53% of the $43 billion capital raised.

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Furthermore, the report asserts that although several $1 billion-plus property funds were brought to market in Q1 2011, there has been a general decline in their number since September 2008.

The study also found several established firms launched new funds between January to April 2011, indicating that the fundraising market may be heading toward a recovery. “A number of mega funds were launched in Q1 2011, so these managers clearly feel that investor confidence is returning, but while Preqin’s conversations with investors do indicate that they are more likely to make new commitments, fundraising will remain challenging given the number of funds on the road.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742