October 22, 2020

Fees to manage MTSU investments in Grand Cayman hedge fund accounts not disclosed

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By SAM STOCKARD From Murfreesboro Post

Nearly half of Foundation’s endowment funds, about $26.8 million, are invested by its asset manager in two hedge funds, both bringing better returns than standard investments.

But the university foundation, which oversees gifts made to the university, declines to say how much it pays of Memphis, the firm that has handled its investments for 25 years.

“All investments made by the MTSU Foundation are reviewed and approved by the finance committee, which considers previous and anticipated performance, fees and fund diversification when determining new investments,” says Joe Bales, vice president for university advancement at MTSU.

Asked how much Gerber charges, though, Bales says, “We don’t disclose fees, as that would put our manager at a disadvantage should he issue an RFP for new/additional services.”

MTSU’s refusal to disclose the fees charged by its money manager is protected under a 2017 state law enabling Tennessee colleges and universities to keep secret “proprietary” fees they pay money managers for handling risky investments.

Several key lawmakers, however, including Lt. Gov. Randy McNally and House Speaker Beth Harwell say they’re willing to review the law sought by the University of Tennessee as the Legislature starts digging into more than 530 exemptions to the Tennessee Open Records Act.

McNally says the law would “definitely” fall under the list of Open Records Act exemptions a special committee would look at this year.

The matter surfaced after a German newspaper obtained documents this year showing numerous investments in areas such as the Cayman Islands, an attractive move because they’re exempt from U.S. tax laws. News reports showed roughly a third of UT’s $1 billion in endowments goes into alternative investments, with nearly $200 million into Caymans investments.

The MTSU Foundation, likewise, invests in two hedge funds registered in the Cayman Islands, GT Offshore Fund A and GT Offshore Funds, both of which are held and owned by Gerber Taylor and designed to provide diverse investments beyond traditional stocks and bonds, according to information from Bales.

As of March 31, the MTSU endowment fund was valued at a little more than $63 million, including domestic and international equities, hedged and private equity, real assets such as real estate and fixed income such as bonds and treasury notes.

By the end of April, the MTSU Foundation had a total of $26.8 million in the Caymans, $13.7 million in GT Offshore A and $13.1 million in GT Offshore B, where the foundation has been investing since September 2013, a period in which both funds have performed better than national benchmarks of comparative funds. GT Offshore A is bringing a 5.1 percent return compared to a 3.0 percent benchmark, and GT Offshore B is bringing 6.1 percent compared to a benchmark of 3.9 percent.

Hedge funds, typically used by a group of investors using borrowed money to make large capital gains, are considered riskier than traditional mutual funds, mainly because they aren’t regulated by the Securities and Exchange Commission (SEC). Thus, investors are warned to undertake due diligence on these types of investments. Another factor in hedge funds is that they aren’t required to report their investment strategies to the public or to a regulatory agency such as the SEC.

Money comes to the MTSU Foundation in two forms, often to be spent immediately for financial aid. The rest is made through endowment money, which people often give in larger sums for the foundation to invest and maintain in perpetuity, according to Bales.

“One of the things we try to do is keep a diversified portfolio. So if we were just in stocks and the stock market crashed, then we’re kind of hurting,” Bales says. “If we’ve got things like property, real estate, private equity in private companies and those kind of things, the whole idea is to give us a broad level of protection with any variation in the market.”

The MTSU Foundation is a non-profit entity, so parts of its actions fall under the Open Records Act, and other parts are exempt. Several years ago, for instance, the Legislature decided information about donors should be confidential. The idea was to keep other non-profits from taking its donor list and soliciting money from them.

The foundation provides information on its total endowment performance, the number of donations and where its investments are held, but it doesn’t provide more specific information because it would be considered “proprietary,” according to Bales.

In addition, it provides a net figure in the funds, minus the fees, but it doesn’t publicly specify the fees paid for different investment funds. Instead, the foundation produces a report for donors annually showing how much their account has appreciated, how much it’s produced for spending and how much the foundation has paid in fees.

Says Bales, “I don’t think the state law was ever designed from the standpoint of open records to put private investors or private entities at a disadvantage because they work for the state.”

For more on this story go to: https://www.murfreesboropost.com/news/murfreesboro/fees-to-manage-mtsu-investments-in-grand-cayman-hedge-fund/article_303d0b4a-79b1-11e8-9b58-5bf7bb4a4d35.html

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