(Bloomberg) -- Philip Zecher looks to Warren Buffett when it comes to running Michigan State University’s endowment.
“Don’t bet against the US economy,” Zecher said, summarizing an oft-cited line from the billionaire investor.
The strategy is paying off for Zecher, who’s been shifting away from international equities and toward US stocks. Michigan State’s fund returned more than 15% for the year ended in June, topping a broad measure of gains at college endowments and beating all Ivy League schools that have so far reported performance.
US stocks were mainstays of university funds decades ago, before the richest schools began moving more assets to illiquid investments such as private equity and hedge funds. That shift has meant that many of the biggest endowments mostly missed the stock rally during the last two years while contending with sluggish returns in private equity.
Zecher too has raised his bets on alternative assets, doubling Michigan State’s exposure to private equity holdings including venture capital to 32%. But global stocks — mostly big US companies such as Apple Inc. and Visa Inc. — make up 39% of the endowment. Zecher directs a quarter of the public equities allocation, or a tenth of the entire endowment, to low-cost index funds with minimal fees. That has helped insulate Michigan State from the weakness in private equity.
The fund’s performance still trails the 23% gain in the S&P 500 index during the 12 months ending June 30, a rally that has called to mind Buffett’s admonition to “never bet against America.”
But putting all the money in stocks would be too risky. Meanwhile, Michigan State beat the median 9.1% return before fees at college endowments with more than $500 million, according to Wilshire Trust Universe Comparison Service, which doesn’t name individual schools.
In the Ivy League, Columbia University’s 11.5% return is the best so far, while Dartmouth College and the University of Pennsylvania reported single-digit gains. Harvard and Yale, which have the largest funds in the elite eight-school grouping, have yet to report their performance.
Zecher earned a PhD in nuclear physics from Michigan State in 1996. He later started a risk management firm and has worked as chief risk officer at hedge fund EQA Partners.
Since he took the reins at Michigan State’s endowment in 2016 as the school’s first chief investment officer, the fund has generated about $1.6 billion in income for the university’s operating budget while assets have climbed to $4.4 billion from $2.3 billion.
Zecher created the school’s investment office in Greenwich, Connecticut, and later moved it to Stamford — about 700 miles (1,125 kilometers) from Michigan State’s campus in East Lansing.
In September, Connecticut Governor Ned Lamont appointed him chair of the Connecticut Investment Advisory Council, which assists the state treasurer on investment policies.
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