Elizabethtown College is betting on the skill of a Julian Robertson-seeded hedge fund, $1.2 billion Emerging Sovereign Group, to profit from the ill fortune of the developed world. The college’s endowment, managed by alumnus and trustee James Hoover, has invested an undisclosed sum with ESG, which was founded nine years ago by former Morgan Stanley emerging markets traders Kevin Kenny, Mete Tuncel and Yoon Chang. The firm was seeded by legendary Tiger Management founder Robertson, who remains an investor.
Elizabethtown’s investment is in the firm’s $400 million treasury opportunities strategy, which is designed to benefit from higher interest rates on long-term bonds and steeper yield curves in the U.S., U.K., and Japan. The onshore version gained 109% in 2009. “In the next few years, the supply of government securities those three countries have to finance their deficits will be exceedingly overwhelmed,” said Hoover.
Not only do the three countries have to finance trillions of current deficits, they also have to issue longer-dated securities, he added, which could lead to an imbalance of supply and demand for longer-dated securities. “When I looked at their returns potentials,” he said of Emerging Sovereign Group, “it reminded me of Paulson a few years ago.” Hoover moved the college into Paulson & Co.’s Credit Opportunities Fund in February 2007, which rose 350% that year.
Hoover, who earned his bachelor of science in business administration at Elizabethtown in 1975, was selected as the chairman of the investment committee in 1999. In July 2005, he began managing Elizabethtown’s endowment as an outsourced cio. Soon after that, the college named its two-story center for business in his honor.
On Jan. 1, Hoover invested the college in D.E. Shaw’s multi-asset fund, and on Feb. 1, he invested in Ludgate Hill Investment Management, a $100 million Hong Kong-based fund dedicated to investing in China. Elizabethtown is also invested in Avenue Capital.
Hoover is considering increasing the college’s allocation to managed futures strategies. He cites the $1.5 billion Dublin-based fund of funds firm Abbey Capital as one firm they are considering. Its ACL Alternatives Fund invests in managed futures and global macro managers. “That’s the one category of investment style that was actually up in 2008,” Hoover said on managed futures. CTA’s returns tend to be modest in a rising equity market—in 2009, the average CTA fund was only up a few percentage points—but can act as a safe haven in a financial crisis. “Looking back at 2008, that protection was quite valuable,” Hoover says. In 2008, Abbey Capital was up 41.8%.
Elizabethtown’s endowment has $50 million in assets and was up 21% in 2009 after suffering a drop of 21% in 2008.
—Suzy Kenly