Michigan Endowment to Invest in Y Combinator, Litigation Fund

(Bloomberg) -- The University of Michigan plans to bolster its portfolio with a $100 million investment in startup accelerator Y Combinator and stakes in other vehicles that aren’t tied to financial markets, including a British litigation fund.

The school will consider more than $300 million of investments in new funds at its Board of Regents meeting later this week, according to an agenda published Monday. The endowment was valued at $11.3 billion as of Oct. 31, ranking Michigan among the wealthiest public U.S. universities.

Y Combinator, famous for launching Airbnb Inc. and Reddit, will give Michigan’s venture-capital portfolio “significant exposure to seed and early stage companies, which have the potential to generate meaningful investment returns,” Kevin Hegarty, the university’s finance chief, wrote in a request for action to the board, which meets Thursday.

A separate commitment of as much as 25 million pounds ($33.7 million) to London-based Harbour Fund IV is at least the third litigation fund the school has backed this year.

‘Primary Risk’

“In exchange for funding, Harbour typically receives a portion of the litigation proceeds,” Hegarty wrote. “The primary risk of this strategy lies in Harbour’s ability to continue to underwrite the merits of the claims in which they invest, which makes this strategy largely uncorrelated to the capital markets.”

In September, the university committed $100 million to a fund that invests in legal claims against Brazilian government entities.

Michigan also is seeking to commit $130 million to Toronto-based Bay & King Investment Fund, which seeks to invest in mining, distressed opportunities and commodities with “attractive upside potential due to valuation dislocations, transactional complexities, or supply-and-demand imbalances,” Hegarty wrote.

Colleges and foundations posted returns averaging 12.7 percent in fiscal 2017, fueled by a surge in global stock markets. University endowments look for investments that will perform well even when equities decline.

To contact the reporter on this story: Janet Lorin in New York at jlorin@bloomberg.net.

To contact the editors responsible for this story: Mary Romano at mromano6@bloomberg.net, Peter Eichenbaum, Josh Friedman

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