Investure, LLC: Investing in Alternative Assets

Abstract

In July 2019, Bruce Miller, CEO of Investure, LLC (Investure), an outsourced chief investment office (OCIO), is preparing a proposal for Franklin and Marshall (F&M), a small liberal arts college located in Lancaster, Pennsylvania, with an endowment of $350 million. F&M recently began a search to find a new endowment manager in hopes of improving its investment returns and access to alternative assets (AA), such as private equity (PE) and hedge funds. Investure offers outsourced investment-management services to endowments and foundations (E&Fs) with assets less than $2 billion and is one of several companies competing to win the mandate to manage F&M's assets. Investure's approach is to pool the assets of like-minded institutions and significantly increase their allocations to PE. Miller and his team are preparing to meet with the F&M board's investment committee to describe Investure's services and approach to investment management.This case is designed to introduce students to AA and the distinctions among PE, hedge funds, and private capital within this asset class. It focuses primarily on why PE is a difficult asset class to manage and describes several channels available to small endowments like F&M to access PE. The case introduces students to the core vocabulary of PE investing and limited partnership agreements. To make the concepts and terms more concrete, it provides a simple exercise that asks the students to calculate the expected internal rate of return (IRR) on an investment made through a traditional limited partnership (primary fund commitment) and a fund of funds and compare those to Investure's approach. Students must evaluate and discuss the feasibility and attractiveness of each alternative to F&M. In doing so, the case creates an opportunity for students to discuss the current trends and issues many E&Fs confront as they attempt to increase allocations to PE.The case is appropriate for use in an introductory or early class in courses focusing on PE, venture capital (VC), and entrepreneurial finance, as well as in specialized courses for fund trustees interested in AA. The case can be used for the following purposes:1. To introduce students to AA and how they differ from public equities and fixed income.2. To introduce students to the core vocabulary of PE investing and limited partnership agreements.3. To introduce the channels of access to PE investment and evaluate the advantages and disadvantages of each.4. To analyze the returns to limited partners who choose to pursue PE investment under a traditional limited partnership and a fund of funds and compare those to Investure's OCIO model.5. To familiarize students with the current trends and issues motivating the growth in outsourcing of endowment management. Excerpt UVA-F-1971 Feb. 2, 2021 Investure, LLC: Investing in Alternative Assets In July 2019, Bruce Miller, CEO, of Investure, LLC (Investure), an outsourced chief investment office (OCIO), was reviewing the proposal his team would make in an attempt to gain its newest client, Franklin and Marshall College (F&M), a small liberal arts college located in Lancaster, Pennsylvania. F&M had recently started a process to select a new manager for its $ 350 million endowment. In learning more about F&M, Miller felt it was the kind of like-minded endowment and foundation (E&F) his firm targeted, but knew he would face stiff competition to win the mandate. Miller had been recruited to Investure shortly after its founder, Alice Handy, started the firm in 2003. At her previous position as CEO of the University of Virginia Investment Management Company (UVIMCO), Handy had produced a successful track record by increasing the endowment's investments in alternative assets, such as private equity (PE) and hedge funds. Together they had worked to land Investure's first client, Smith College, with a nearly $ 1 billion endowment in 2004. From there, the firm had grown to 12 clients and $ 14 billion in assets under management (AUM) (Exhibit 1). . . .