Fordham University’s $1.1 billion endowment is culling real estate and private credit in favour of higher venture capital and growth equity allocations as the fund looks to juice up performance.
With an annual spending rate of 4.5 per cent and an ambition to reach $2 billion in assets “as soon as possible”, chief investment officer Geeta Kapadia concedes that the endowment “really needs return” and must lean into risks.
The portfolio is underpinned by a significant chunk in private equity (31 per cent) and more moderate exposures to real assets (16 per cent) and private credit (7 per cent), according to financial reports as at June 2024. The private markets allocations are at similar levels now, Kapadia says, although she declines to disclose more recent figures.
“We’re blessed with the ability to take longevity risk, so we should use it to our advantage and be willing to lock up our capital for the chance of earning more return,” she says in an interview with Top1000funds.com in Singapore.
“Real estate and private credit – that’s just not going to be able to provide us with the return that we need [compared to venture and growth equity].”
Kapadia also has reservations about private credit as an asset class. The fund’s current allocation consists of core private credit funds with some non-US strategies, which Kapadia mostly inherited from the previous CIO.
“I’ve never been a huge fan of private credit even way back. Particularly given the change in interest rates, private credit managers’ ability to just financially engineer solutions [is made less likely] by the cost of capital,” Kapadia says.
The speed at which capital is flowing into private credit has slowed down globally: fundraising activity this year is on track to fall 30 per cent short of the 2024 level ($219.2 billion) and hit the lowest number of funds closed in over a decade, according to PitchBook.
“The end to that era of free money is truly changing the landscape of private credit managers’ ability to do really well, so if those returns compress and the cost of debt increases, I have a hard time identifying why I want to put more money to work there,” she says.
“The fees are not as high as private equity, but they’re still high. I would rather pay the fees in private equity and make returns there than lock my money up in private credit.”
Tight roster
Kapadia joined the Fordham endowment after a 13-year tenure as assistant treasurer and investment director at Yale New Haven Health, the largest healthcare system in Connecticut. Three years since taking over the university’s top investment job, Kapadia made her mark by condensing the manager roster from 50 or so names to 30-40 – a sweet spot, she says, for the fund’s current size.
With only five people in the investment team, the fund wants to develop deeper relationships and demonstrate its commitment by handing over more capital to partners it has high conviction in, “as opposed to spreading it far and wide and hoping that some of them will rise to the top”.
“Maybe when we’re $3 billion. We may have a different conversation, but we don’t see the reason to really expand,” she says, adding that its manager appointments are driven by bottom-up views rather than a top-down quota.
“I remember long ago, when I was working at my former institution, one of our board members said ‘I’m not going to put money in my 70th best idea, because that’s not a winning strategy for us’.
“We would much rather have one manager that we feel real conviction about and give them more money than hire three managers and give them only a third of that same dollar amount. For us, it’s a sheer numbers game.”
Kapadia is generally “not a huge fan of buying a bunch of strategies” but its absolute return hedge fund book, which represented almost 18 per cent of the total portfolio in the June 2024 disclosure, is somewhat of an exception.
The portfolio is tasked with mitigating potential downturn in equities and is a diversifying return source. While the capital is still tightly allocated to a small group of managers, they represent a wide array of strategies – Kapadia is keen to explore more event-driven and macro opportunities to take advantage of big picture economic developments, but less so for long/short where the fund already has significant European and US exposures.
It’s important to the fund that the manager stays in its lane, and there are no sudden changes in investment strategy. Transparency and communication are also critical, and she says investor relations staff hindering access to portfolio managers or simply not returning calls are instant red flags.
“We want to get married to these managers, like we want to really feel like we have a relationship,” she says.
Kapadia flags that the endowment will conduct a more careful evaluation of private markets manager relationships too. As the exit environment continues to look depressed, she expects investors like herself to be more scrutinising when deploying capital in the space.
“The fact is that funds keep extending their terms, distributions are at an all-time low, and the terms are not becoming more friendly to us yet. From the LP’s perspective, we’re being asked a lot,” she says.
“I do think that long-term, we have to have a significant amount of exposure [in private markets]. But over the shorter to medium term, there’s going to be some sort of reassessment of our landscape, the opportunity set, and the managers that we want to partner with.
“It’s not just putting a bunch of money to work and it should be okay. You have to be much more selective and much more discerning about where you’re going to go.”
