The California Endowment of Woodland Hills, Calif., a $2.5 billion fund established in 1996, will likely begin searching for buyout and venture capital firms to begin fulfilling its 5%, or $125 million, allocation to alternative investments, said Alex Hsiao, senior investment manager. Originally slated to begin in March, the searches will begin after its July board meeting. The board voted to put them off at that time because a replacement for Chief Executive Steven McKane had not yet been named.
“It’s probably going to be the latter part of the fourth quarter before we begin making the investments,” Hsiao said. “But we will hopefully get the green light to start searching at the committee meeting in July.”
McKane, who was named chief investment officer in November 1997, left in October 1998, just two months after gaining approval for an alternative investment allocation. “Like most other foundations, we look at it as an opportunity to enhance our returns,” Hsiao said.
The board has yet to name McKane’s replacement, but Hsiao, who joined the fund last September, said he expects the searches to move forward, albeit slowly. The fund board has set a two-to-four year investment time frame, but is not wedded to those dates.
The board chose to focus on buyout and venture capital funds and stay out of the liquid side of alternatives, such as hedge funds and arbitrage investments, because they wanted to avoid the volatility of those markets, he said.
Bruce Meyers in the Boston office of Cambridge Associates will help identify investment partnership opportunities as well as assist with screening the candidates. Funding for the new allocation will come from the U.S. equity portfolio, which is currently overfunded, Hsiao said.
The fund’s asset allocation target is 50% U.S. equities, 25% fixed income and 25% non-U.S. equities, which includes a 5% emerging markets allocation.
Hsiao added said the fund currently uses twelve managers and the board may consider increasing that number because the endowment receives an annual influx of assets; the board has no specific plans of yet to search in asset classes outside of alternatives. The endowment was launched by Blue Cross of California to fulfill an incorporation requirement in its conversion from a not-for-profit to a for-profit company.