(January 22, 2013) – Mark Yusko—former CIO at the University of North Carolina and a high-profile advocate of the endowment model—has been removed as CIO of the Endowment Fund, which his firm co-founded in 2003.
Lee Partridge, former deputy CIO of the Teacher Retirement System of Texas, has been promoted from chief portfolio strategist and taken over as CIO. The $3.5 billion Endowment Fund is a joint venture between Houston-based Salient Partners and Morgan Creek Capital Management, which Yusko founded after leaving the University of North Carolina. Spokespeople for Salient and Morgan Creek have confirmed the shake-up, and aiCIO has obtained copies of letters sent to investors today by the fund and Yusko announcing the departure,
“After nearly a decade of working with our joint venture partner in Texas, we found ourselves differing on material aspects of how to best run an Endowment portfolio and run the business, so we decided that a change was appropriate,” Yusko wrote. “In a recent quarterly letter, I talked about the Darwinian principal that it is those who are most adaptable to change that survive and we are clearly adapting to change and expect to thrive in the years ahead.”
The fund’s advisors, in their letter to investors, stated that recent withdrawals of invested capital indicate “that a meaningful number of investors in the fund have lost confidence in Mr. Yusko’s ability to deliver results consistent with expectations and we believe that a change is warranted.”
Yusko will remain on the boards of directors of Morgan Creek and the Endowment Fund’s advisory body, according to two sources. The fund will also remain a 50-50 ownership split between Salient and Morgan Creek. Yusko is not looking for another position, according to someone briefed on the matter.
A board review of the fund in June 2012 called its first-half performance “disappointing,” but concluded its results “should be viewed in a context of extremely volatile markets and historic difficulty for numerous hedge and private fund strategies.” A few months later, Yusko sent a letter to investors announcing quarterly limits on withdrawals. Roughly a quarter of its assets (about $1 billion) had been pulled out in the first eight months of 2012, according to documents filed with the US Securities and Exchange Commission. At that point, gating had been a rarity since the financial crisis, and was an unpopular move with investors.
The board has now overturned the withdrawal limits, according to its letter to investors. In fact, the Endowment Fund will distribute 5% of its net asset value to investors in cash by February 15 to make up for the gating. The fund has also been temporarily closed to new capital, and is set to reopen March 1. According to the letter, “neither the board nor the adviser believed it appropriate to accept new capital into the fund, even via a dividend reinvestment option, until updated offering documents reflective of the changes” were available and distributed to current and prospective investors.
In addition to a new CIO and overturning the gating policy, the letter said Partridge will revamp the investing strategy. He “intends to focus the fund’s hedge fund portfolio with larger allocations to fewer funds, primarily within the global macro and relative value style categories, which he believes are the most fertile ground for managers who ‘hunt’ for excess return or alpha.”
Spokespeople for Partridge and Yusko both declined to comment on their behalf.