James Walsh, the departing endowment chief at Cornell University, plans to start a $150 million
hedge fund with performance fees that are spread out over three years.
The fund, named Cayuga Capital Partners for Cayuga Lake near Walsh's home in Ithaca, New York, will invest in easy-to- sell securities such as stocks and bonds globally, he said in a telephone interview. Walsh, who is English, will base the fund in London.
Cayuga Capital will “broadly” follow the standard hedge- fund fee structure of 2 percent of assets and 20 percent of investment gains, while offering some investor-friendly terms, Walsh said. Half the performance fee will be charged in the first year and the rest over the next two years. The fee won't kick in until returns exceed inflation plus 2 percent.
“Having been an institutional investor for a number of years, we thought about what we would want in terms of terms,” said Walsh, 43, who announced plans in February to leave as the Ithaca university's chief investment officer in late June. “We're trying to align ourselves with investors.”
Investors have been pushing hedge funds for fee concessions since the industry posted record losses and imposed limits on redemptions in 2008. The California Public Employees' Retirement System, the largest public pension fund in the U.S., is seeking lower fees and a closer link between manager compensation and performance.
Walsh said he'll have five employees when the fund starts trading in July.
He ran Cornell's endowment as it lost 26 percent in fiscal 2009, in line with declines at Harvard University and Yale University, the two wealthiest U.S. colleges. Cornell said Feb. 17 the fund's investments had risen 10 percent this year.
Walsh, who previously headed strategy at Hermes Pensions Management Ltd. in London, increased the size of the investment office to 25 people from 17 during his tenure at the university. He joined Cornell in 2006. Cornell's endowment stood at $3.97 billion as of June 30.
Cornell is searching for Walsh's replacement. The fund is being run on an interim basis by its three senior investment officers -- A.J. Edwards, David McNiff and John Regan.
Endowments have seen turnover in their management ranks after record losses last year. Dartmouth College in Hanover, New Hampshire, Brandeis University in Waltham, Massachusetts, and New York University in Manhattan didn't immediately fill chief investment officer positions as they reviewed spending. Wesleyan University in Middletown, Connecticut, fired CIO Thomas Kannam in October.
Christopher Brightman resigned in March from the University of Virginia in Charlottesville. Stanford University's endowment, the third-richest among U.S. colleges, is searching for a chief investment officer after leaving the post vacant for more than two years. Rensselaer Polytechnic Institute in Troy, New York, the oldest U.S. technological university, hired HighVista Strategies LLC in April to manage its endowment after its investment team quit.
About 20,000 graduate, undergraduate and professional students attend Cornell. The Ivy League university, one of eight top-rated schools in the Northeastern U.S., was founded in 1865 and has a medical campus in New York City.
Cornell alumni include Sanford “Sandy” Weill, former chairman of
Citigroup Inc. in New York, and Abby Joseph Cohen, senior investment strategist at
Goldman Sachs Group Inc. in New York.
