By Ashutosh Shyam, ET Bureau | Mar 23, 2017, 01.17
AM IST
Hit by low returns and starved of lucrative investment
avenues, endowment funds of some of the top American universities are betting
on Indian stocks. Endowment funds of Harvard University, Massachusetts
Institute of Technology (MIT), University of Notre Dame and Washington
University are testing their luck in Dalal Street, largely preferring the
primary market.
The assets under management (AUM) of global
university funds in Indian equities touched Rs 2,592 crore in January 2017, up
74% in a year. The total AUM of FPIs in India rose 26% in the same period,
according to data compiled from the depository NSDL.
Endowment funds of universities are built on
money received from donors or alumni. The earnings from the fund's investments
are used to run the university.
University endowment funds typically belong to the class of
investors with long investment horizon. Some of them were anchor investors in
IPOs of Alkem Laboratories, BSE, Endurance Technologies, HCG, Inter-Globe, PNB
Housing Finance, and Quess Corp. Their investments accounted for 1-10% of the total
anchor book of these IPOs. The average listing gain of companies where
university funds invested was 45% in calendar 2016 when the benchmark S&P
BSE Sensex gained 3.8%.
HARVARD INVESTMENTS
Among the major funds, Harvard Management Company (HMC), the
world's largest university fund with AUM of $35 billion, has been actively
participating in the Indian primary market. Of the total 27 IPOs that hit the
market in 2016, HMC took a stake in the five companies as anchor investor. Emily
Guadagnoli, vice-president of communication at HMC, said they would be unable
to comment on the investment strategy of the company.
In an email response to ET, Scott Malpass, chief
investment officer of the endowment fund of the University of Notre Dame, said,
"We have a global perspective to our portfolio and there are some very
attractive, fast-growing consumer companies in India that we would like to own
over time."
The total endowment fund value of the top 25 US
universities stood at nearly $270 billion in 2016. Some of the funds have
investments up to 10% of the total fund size in emerging markets.
STRICT PARAMETERS
V Jayasankar, senior executive director &head of equity capital markets, Kotak Investment Banking, said that endowment funds follow strict parameters to choose stocks: quality of management, strong earnings potential, stable past financial performance and lower disruption to revenue. Thus, their investible universe is limited.
Why do they prefer the Indian primary market
over secondary trades?
The BSE maiden offer had three university funds as its anchor
investors — thanks to the duopoly model of stock exchange in India and 84%
marketcap to GDP ratio as against 110% or more in developed markets; second, a
dearth of investable opportunities.
The overall performance of the large global
endowment funds has not been impressive in the past two years. In 2016, they
posted their worst performance since the financial crisis of 2008. Hunt for
better yield is driving them to experiment with emerging market equities.
Here,
the IPO route gives them a better chance to pick companies that are less
dependent on general economic environment.
Some of them use hedge funds to buy shares in
the secondary market.
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