RPT-Endowment Fund offers clients ways to exit after sluggish return
By Svea Herbst-Bayliss
BOSTON Feb 24 (Reuters) - The Endowment Fund, a fund that was sold to individuals as an opportunity to invest like large university endowments but has failed to generate equivalent returns, is now giving clients a chance to pull their money out quickly but at a high cost.
Recent sluggish returns have dogged the 11-year old fund that initially caught retail investors' attention with suggestions they could invest the way Harvard and Yale do in hedge funds and private equity funds.
Roughly 16 months after the fund limited withdrawals in the face of $1 billion in redemption requests and after the fund's two managers split up, investors have roughly one month to make up their minds on what they want to do with their money.
The $2 billion Endowment Fund, co-founded by Mark Yusko, will let clients stay put, enter a liquidating fund or sell out at sharp discount, Rusty Guinn, the fund's deputy chief investment officer said on a call with investors on Monday. The fund also sent details about the choices to investors and the Securities and Exchange Commission in writing last week.
The price for getting out fast - the money will be returned by the middle of May - will be stiff. The Endowment fund will return only 87 percent of the net asset value of clients' investments.
This is the latest in a string of changes at the fund which once had $5 billion in assets and 20,000 clients, many brought in through Merrill Lynch's army of financial advisers.
A year ago the fund replaced Yusko, a former endowment chief at the University of North Carolina who co-founded the fund and ran it for a decade, as chief investment officer.
Even for investors who stay with the fund, there will be high costs. They will not be permitted to ask for any money back this year. They will also be charged a 1 percent management fee and a 1 percent servicing fee. On top of that there will be the fund's underlying managers' 1.3 percent management fee and a 16 percent of profits as an incentive fee.
If investors accessed the Endowment Fund through Merrill Lynch they will have also paid as much as a 2.5 percent upfront charge.
The high fees and difficulty in exiting underscore mounting concerns among financial advisers that retail investors really cannot copy big institutions' investment plans despite a flurry of new funds promising to do just that.
TROUBLES BEGAN IN 2012
Troubles started for the Endowment Fund in 2012 when customers asked for roughly $1 billion back. This forced the fund to limit the amount of money investors could withdraw due to its many illiquid positions. The move revived memories of the financial crisis when many hedge funds limited their customers' access to capital by imposing so-called gates.
In January 2013, the fund switched chief investment officers, removing Yusko and appointing Lee Partridge of Salient Partners, the firm that co-managed the fund with Yusko. Since his exit, Yusko's firm Morgan Creek Capital Management has now sold all of its interests back to Salient. Yusko could not be reached for comment.
"Although the Endowment Fund has generated positive performance since inception and in eight of the past 10 calendar years, recent, post-financial-crisis returns have been underwhelming," the fund wrote in a regulatory filing detailing Yusko's departure.
But returns didn't pickup under Partridge either with the fund earning only 2.08 percent last year, dramatically trailing the Standard & Poor's 32 percent gain. The average endowment, which included data from Harvard, Yale, Princeton and Stanford, gained 11.7 percent in the fiscal year that ended June 30, 2013, according to the NACUBO-Commonfund Study of Endowments.
The Endowment Fund tried for more than a year to find a suitable way to let investors exit and have found a secondary buyer, HarbourVest's Origami Structured Solutions L.P., for some of the fund's illiquid positions, the letter to investors said.
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