The University of Houston is restructuring its hedge fund exposure to focus on strategies that offer higher return potential, as it sees positive growth in the second quarter of 2025.
At a recent Board of Regents meeting, the university’s consultant, NEPC, noted the rebalancing of the hedge fund portfolio would allow the endowment to increase exposure to areas not currently represented in the fund’s public equity and fixed income holdings.
The board approved redeploying recent hedge fund redemptions into a roughly 6% ($12M) allocation to Evanston Capital Alpha Strategies, a new manager for the endowment. “The fund has exhibited very low volatility and very low correlation to public equities,” said Ryan Walter, senior consultant at NEPC, “while generating returns in any market environment.”
NEPC also highlighted the endowment’s latest hedge fund addition, Broad Reach, a macro fund with a focus on thematic investing. Since its November 2024 inception, Broad Reach has returned 8%, including 4.5% for the most recent quarter. “Through this fund, the endowment can invest in credit, currency, commodities, and more esoteric trades in an appropriate size,” said Sam Parla, partner at NEPC. “We think this is very additive, and they’ve shown great acumen.”
During the meeting, the endowment also reported a net return of 6.0% as of June 30, 2025, outperforming its benchmark of 5.8%. Private equity was credited with driving Q2 results, posting a 15.1% annualized return over five years as of June 30, 2025. “Private equity in particular has been a big driver … for the university right now,” noted Parla. “It really supports the ongoing discussion we’ve had and the work this committee has done to continue to build and increase that exposure appropriately as a part of the endowment.”
The endowment’s U.S. equity portfolio returned 10.4% during Q2 2025, closely in line with the broader market, as the S&P 500 rose nearly 11% over the same period. Non-U.S. developed equity outperformed domestic markets, returning 11.4% for the quarter. Parla highlighted the recent addition of the Acadian Non-U.S. All-Cap Equity Fund, a currency-hedged portfolio focused primarily on European companies, which performed well amid volatility in the U.S. dollar relative to the euro.
NEPC also recommended fully redeeming the endowment’s allocation to the Edgbaston Asian Equity Fund and reinvesting the proceeds, along with excess cash, into an existing Acadian Asset Management holding. While Edgbaston is a skilled manager, it carries significant exposure to China, said the consultant, noting the endowment’s recent investments with Jennison, Arrowstreet, and Acadian have provided more diversified emerging market exposure. Consolidating the Edgbaston position is also expected to reduce the number of line items and lower investment management fees, NEPC noted.
