Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of The Odd Lots Podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, we talk about investing all the time on the show.
Speaker 2: We talk about private credit, we talk about hedge funds,
Speaker 2: we talk about the market itself. But you know, there
Speaker 2: are like a few of these gigantic institutional players out there.
Speaker 2: One of them is insurance that like just don't get
Speaker 2: a lot of attention.
Speaker 3: These huge pools of capital. Yeah, you're right.
Speaker 2: So you know we've talked about we want to talk
Speaker 2: about insurance more, should probably talk about family offices more. Yeah,
Speaker 2: Like that's this whole world that I don't think we've
Speaker 2: ever really explored, but just this massive and booming source
Speaker 2: of capital. Like what the deal is with those?
Speaker 3: Yeah? I remember right around the time that I left
Speaker 3: Hong Kong that was such a big story, especially in Singapore,
Speaker 3: everyone opening family offices. But there's another category of massive
Speaker 3: pools of capital that we need to talk.
Speaker 2: About absolutely, and that one, of course is endowments. They're
Speaker 2: huge and they have you know, they're distinct, they're distinct
Speaker 2: from banks, they're distinct from insurance companies, they have their
Speaker 2: own funding needs and their own funding profiles and the
Speaker 2: schedules with which they need to withdraw and disburse their money.
Speaker 2: And if you're a hedge fund, or if you're anyone
Speaker 2: else looking for money for your investment, at the end
Speaker 2: of the line, there's a good chance that, like, at
Speaker 2: some point, you're going to be knocking on the door
Speaker 2: of a really big endowment.
Speaker 3: Yeah, So I'm really interested in kind of how that
Speaker 3: became a thing, because, of course, university endowments nowadays are
Speaker 3: known for making investments in things like private equity and
Speaker 3: hedge funds and stuff like that, and I'm curious how
Speaker 3: all of that began, and then obviously how it's been
Speaker 3: working out.
Speaker 2: So, you know what another cool thing, Tracy is, at
Speaker 2: least when it comes to university endowments. I believe the
Speaker 2: endowment of my alma mater, University of Texas, is on
Speaker 2: that I knew that was k Yeah, is on the
Speaker 2: verge of becoming the biggest university endowment in the country.
Speaker 3: Right, So for years, Harvard was the biggest, right, but
Speaker 3: it looks like it might be superseded by Joe's College.
Speaker 3: Congratulations Joe, thank you have you been donating? Is this
Speaker 3: all you can.
Speaker 2: I say, I don't. I've never donated. They have so
Speaker 2: much money already, they don't need my donation. I probably should.
Speaker 2: I don't want to talk about how I avoid the
Speaker 2: calls from my university, and I don't know, I feel
Speaker 2: a little bad about it.
Speaker 3: I think in this case, well we'll get into why,
Speaker 3: but maybe it's okay not to donate. Well we'll talk.
Speaker 2: I don't really want to talk about it. I don't
Speaker 2: really you know, And even talking about how big UT
Speaker 2: is versus I think there's actually like twenty two universities
Speaker 2: or something served by the Texas Endowment and other things.
Speaker 2: So I don't even know if it's a true apples
Speaker 2: to Apple's comparison, because you know, the student body of
Speaker 2: Texas is so jiganting. Nonetheless, if we're just looking at, Okay,
Speaker 2: which university endowment is the biggest, at least currently, there's
Speaker 2: a very good chance it looks like the Texas could
Speaker 2: eclipse Harvard on that front. So we got to understand
Speaker 2: what's going on more in endowment world. And then the
Speaker 2: other thing is not just that Texas has grown and
Speaker 2: that's great and I love to see it, but that
Speaker 2: Harvard's performance has been a little bit mediocre in recent years,
Speaker 2: even compared to just other ivs, the rest of which
Speaker 2: sort of smaller. The Yale Endowment is sort of famous,
Speaker 2: actually not necessarily due to its size, but because of
Speaker 2: its longtime manager's approach to endowment investing. So we got
Speaker 2: to learn more about what's going on with Harvard and
Speaker 2: what's how these big institutional pools of capital, how they're performing,
Speaker 2: and what they're doing.
Speaker 3: Yeah, it is kind of funny that the Harvard Endowment,
Speaker 3: which presumably employs a lot of highly paid smart people.
Speaker 3: I think it was up about nine point six percent
Speaker 3: in twenty twenty four, that's the preliminary fiscal year. But
Speaker 3: of course the S and P five hundred is like
Speaker 3: twenty two percent so far. So yeah, what's going on?
Speaker 2: Just hy spy. No, like people will say, oh, you
Speaker 2: can't really compare. People love to say people love to
Speaker 2: say you can't compare things. Oh you can't compare hedge
Speaker 2: funds return to the SMP. You can't compare an endowment
Speaker 2: funds return to the SMB. Maybe that's true. I don't
Speaker 2: totally get why anyway, should we learn more?
Speaker 3: Let's do it.
Speaker 2: Well, I'm really excited to say we do have the
Speaker 2: perfect guest someone here at Bloomberg who I've wanted to
Speaker 2: speak to on the podcast for a long time. We're
Speaker 2: going to be speaking with Janet Lauren, higher education finance
Speaker 2: reporter for Bloomberg. Janet, thank you so much for coming
Speaker 2: on odd Laws.
Speaker 4: Thanks for having me.
Speaker 2: How do you get to be the higher ed finance
Speaker 2: reporter of Bloomberg? And also, it's like we just have one, Like,
Speaker 2: what's the deal there? These institutions are so important. We
Speaker 2: probably have, you know, twenty people covering hedge funds. We
Speaker 2: just have a higher education finance reporter.
Speaker 4: Well, I've been writing about university finances for almost seventeen
Speaker 4: years here at Bloomberg. And it's not just endowments, but
Speaker 4: I used to write a lot about student loans back
Speaker 4: when they were only about a trillion dollars in outstanding
Speaker 4: debt and college admissions and endowments, and it's just a
Speaker 4: fun job and there's a lot of money involved, and
Speaker 4: there's a lot of nuance that most people have no
Speaker 4: idea about. And it's thrilled to talk about Harvard as
Speaker 4: well as the University of Texas. It has an amazing story.
Speaker 3: Okay, so talk to us a little bit more about
Speaker 3: how significant the space is, Like, how much money are
Speaker 3: we actually talking about?
Speaker 4: Off the top of my head, I mean, we're talking
Speaker 4: about several hundred billion dollars the universe is. You know,
Speaker 4: there aren't too many college endowments that have over a billion.
Speaker 4: Maybe it's around fifty. I can get you the exact number,
Speaker 4: but there certainly aren't that many the size of Harvard
Speaker 4: and Yale and the University of Texas and Harvard, I
Speaker 4: included many stories. Is the oldest and richest university. You know,
Speaker 4: it goes back to the sixteen hundreds, and Harvard was
Speaker 4: actually found, you know, through a donation and as you know, donors, alumni,
Speaker 4: rich people in Boston gave them money over hundreds of years.
Speaker 4: You know about that thing called compounding interests.
Speaker 2: Yeah, imagine if you just bought spy on sixteen hundred. Sorry.
Speaker 4: So that has certainly helped them. But in the nineteen
Speaker 4: sixties college endowment started doing something different. Instead of having
Speaker 4: a traditional sixty forty split, you know, with a lot
Speaker 4: of plain vanilla type US equities bonds, they pursued a
Speaker 4: different model. In the Ford Foundation actually presented this strategy
Speaker 4: in schools like Harvard and Yale started using it because
Speaker 4: their time horizon is literally in the hundreds of years,
Speaker 4: so they liquidity for them is okay because you know,
Speaker 4: they have a very long term horizon. So they started
Speaker 4: moving things into liquid assets over time, private equity, hedge funds,
Speaker 4: you know, eventually venture capital, real estate, you know, now
Speaker 4: private credit. But at the time that was a pretty
Speaker 4: new strategy. Harvard and Yale did things a little bit differently.
Speaker 4: So Harvard started Harvard Management Company, which runs down and
Speaker 4: is fifty years old this year. They actually operate not
Speaker 4: in Cambridge but in downtown Boston in the Federal Reserve building.
Speaker 4: It's actually very close to our Bloomberg office in Boston,
Speaker 4: and they employed traders and it was, you know, over
Speaker 4: two hundred people working there. They were extremely good at
Speaker 4: their job. Their strategy was literally the envy of the world.
Speaker 4: They made a ton of money. A guy by the
Speaker 4: name of Jack Meyer ran the fund, and there was
Speaker 4: some outcry by a group of alumni and people who
Speaker 4: thought they were their managers were being paid too much
Speaker 4: because they just consistently exceeded the market. And one year
Speaker 4: there was a manager trying to remember, paid thirty five
Speaker 4: million dollars and people were just aghast at that because
Speaker 4: they made too much money. So after a lot of critics,
Speaker 4: long story short, that model was disbanded. Jack left in
Speaker 4: two thousand and five. They went through a succession of managers,
Speaker 4: seven CEOs of the Harvard Management Company. Some only stayed
Speaker 4: a short term. There were two less than two years,
Speaker 4: several interims, changing strategies, selling off assets. You know, for
Speaker 4: a while they were big into agriculture and real assets.
Speaker 4: Those perform well, but then they didn't perform well. And
Speaker 4: the current CEO has been there since December twenty sixteen.
Speaker 4: He eventually sold a lot of those natural resources. You know,
Speaker 4: I think, writing off like a billion dollars and you know,
Speaker 4: change of strategy. Not at the greatest time. They didn't
Speaker 4: have a lot of private equity, and they've ramped that
Speaker 4: up now.
Speaker 3: That was a great potted history of Harvard's endowment. I
Speaker 3: ought to say, Joe, I started rewatching. Did you ever
Speaker 3: watch The Gilmore Girls? Probably not, No, I never did.
Speaker 3: I started rewatching Gilmore Girls.
Speaker 2: And so are you going to tie this in?
Speaker 3: Well, so it's all about rich people in Boston basically,
Speaker 3: and one of the main characters has to decide between
Speaker 3: Harvard and Yale. She eventually goes to Yale. I guess
Speaker 3: she was lured by the performance of the endowment.
Speaker 2: So, Jenny, you gave us the broad history of Harvard's endowment,
Speaker 2: and I want to talk about actually like what happened
Speaker 2: in those years from like how you have one stable
Speaker 2: management company that goes all the way to two thousand
Speaker 2: and five more or less, and then you run through
Speaker 2: I think, what'd you say, like seven CEOs since then
Speaker 2: or something, and then Tracy mentioned the Yale endowment with
Speaker 2: their famous endowment manager for several years. David Swinton, can
Speaker 2: you talk about like the sort of compare and contrast
Speaker 2: between the strategic volatility and I'm not even talking about
Speaker 2: price volatility, but the strategic management volatility of Harvard versus
Speaker 2: the Yale model that I think David wrote a whole
Speaker 2: book about.
Speaker 4: So, Harvard management company files a tax return and because
Speaker 4: of their nonprofit status, they have to disclose how much
Speaker 4: they pay their top p people. And Yale the Investment
Speaker 4: Office is part of Yale University. They employ outside managers
Speaker 4: and they have a much smaller number of employees and
Speaker 4: only a handful of listed in the tax return. And
Speaker 4: because they're using outside managers, you know, you think of
Speaker 4: the two and twenty model, that's not showing up in
Speaker 4: the tax return, whereas Harvard, you know, you could see
Speaker 4: how much they were getting paid, and people read that
Speaker 4: and it was a big deal how much they were
Speaker 4: getting paid. And you know, that's really a simple explanation
Speaker 4: of why Harvard's manager's got so much more scrutiny.
Speaker 3: So you talked about the criticism of you know, how
Speaker 3: much they're getting paid. What's the benchmark for Harvard's performance, Like,
Speaker 3: what are they actually comparing themselves to?
Speaker 4: Well, many endowments create their own benchmark, surprise, so I
Speaker 4: don't know, you know, they come up with it. And
Speaker 4: one of the big criticisms of Harvard's pay was the
Speaker 4: managers who did extremely well in their own asset class
Speaker 4: would get paid base on their own performance, not the
Speaker 4: overall performance of the endowment. So if they had a
Speaker 4: middling return, which they have, some of these managers still
Speaker 4: got paid quite a lot of money.
Speaker 2: Well, then let me ask you another question. Let's say, Okay,
Speaker 2: we don't really know what the benchmark is. So you
Speaker 2: wrote this piece for Bloomberg a few weeks ago talking
Speaker 2: about like issues and the performance.
Speaker 1: What has it been?
Speaker 2: Why now are people saying, Look, Harvard's performance is not
Speaker 2: that great, there's some reason to be concerned. There's some
Speaker 2: falling off in the what they're able to generate for
Speaker 2: the university.
Speaker 4: Well, I think some insiders, especially you know, some of
Speaker 4: their really famous economists, they know what's going on. But
Speaker 4: the last year the performance was overshadowed by some other issues,
Speaker 4: especially you know, their president being thrown before Congress. You know,
Speaker 4: the president resigned, she had plagiarism scandal. People have been
Speaker 4: very upset about how Harvard has handled anti semitism. The
Speaker 4: story had last week said their fundraising was down. You know,
Speaker 4: their cash gifts was the lowest in it fell fifteen percent.
Speaker 4: It was the lowest since twenty fifteen. You know, they
Speaker 4: famously raise a huge amount of money. You know, they're
Speaker 4: known for the endowment, but they're also known for being
Speaker 4: prolific fundraisers. And you know, they did get to a
Speaker 4: billion dollars last year. But I'm sure it wasn't easy.
Speaker 4: Considering people are upset when Plovotnik Ken Griffin both alum
Speaker 4: said they're not giving money that they've paused their gifts
Speaker 4: to Harvard because the way things are going there.
Speaker 3: So one thing I'm trying to wrap my head around is,
Speaker 3: as we've mentioned a number of times, Harvard is a
Speaker 3: huge pot of money. And I've heard people say stuff
Speaker 3: like because of its size, it makes it harder to
Speaker 3: move positions around, it can't be as nimble. But then
Speaker 3: I think, well, it's huge, so it should be getting
Speaker 3: like the best deals. It should have some sort of edge.
Speaker 3: So is size here a net pro or con.
Speaker 4: I think that's a very fair question, And you know,
Speaker 4: Harvard will say it's so big it's hard to manage
Speaker 4: fifty three billion dollars. Now, keep in mind the size
Speaker 4: hasn't been that big.
Speaker 1: Ever.
Speaker 4: They had a huge eleven billion dollar gain in fiscal
Speaker 4: twenty one, you know, when everybody had a crazy year.
Speaker 4: You know, some endowments had gains of fifty percent. Harvard
Speaker 4: was on the low end at thirty four percent, And
Speaker 4: of course they had a huge decrease during the financial crisis,
Speaker 4: so they've been building back up. Now. The school with
Speaker 4: the best ten year performance is Brown and that has
Speaker 4: the smallest endowment size, and they're definitely more nimble but
Speaker 4: they seem to take more risk. You know, they're into
Speaker 4: you know, you've heard maybe there's some cryptocurrency or there's
Speaker 4: some other risk there. And if you go back and
Speaker 4: read all the Harvard alumni the Harvard financial reports, as
Speaker 4: I did, the current CEO talks a lot about risk.
Speaker 4: He mentions more than once that Harvard takes less risk
Speaker 4: than its large peers. And you know it still could
Speaker 4: be a vestige from two thousand and eight when they
Speaker 4: had a huge liquidity problem.
Speaker 2: Let me ask another way of thinking about the benchmark
Speaker 2: sitting aside. What is a good return in a given
Speaker 2: year or a good return over five years? What is
Speaker 2: the importance of the Harvard Endowment to the Harvard University budget?
Speaker 2: And because there's multiple ways of financing the university, there's tuition,
Speaker 2: there's alumni giving, there's probably other grants and stuff like that,
Speaker 2: and then there's the money that the endowment throws off.
Speaker 2: What does Harvard University need from the Harvard Endowment?
Speaker 4: Well, the Harvard Endowment is the largest provider of money
Speaker 4: to the university thirty seven percent, okay, and that's grown
Speaker 4: over time. Ten years ago it was thirty one percent,
Speaker 4: and twenty years ago it was twenty twenty one percent.
Speaker 4: So in other words, Harvard University is becoming a lot
Speaker 4: more reliant on the Harvard endowment.
Speaker 3: So you mentioned this idea of investing in alts, and
Speaker 3: I think Harvard was like a backer of D one
Speaker 3: in particular a hedge fund. And I'm curious the sales
Speaker 3: pitch from hedge funds is always uncorrelated returns. So what
Speaker 3: happened in down years for Harvard, like in twenty twenty two,
Speaker 3: twenty twenty three when markets were like or sorry in
Speaker 3: twenty twenty three, when markets were falling? Did they manage
Speaker 3: to post above average returns?
Speaker 4: So over time in twenty twenty three, I think they
Speaker 4: had a two point nine percent gain, which was not bad.
Speaker 4: You know, among the Ivy League schools, a couple of
Speaker 4: big endowments head losses. I think it was Duke and Mit.
Speaker 4: And Mit is really strong in their returns too that
Speaker 4: we don't sort of use them in their eight schools
Speaker 4: because you know, the Ivy League is a sports conference,
Speaker 4: but it's also a nice group of eight schools that
Speaker 4: you can easily compare. And Harvard, you know, in the
Speaker 4: big year where the in twenty one they were below
Speaker 4: average in the IVY League. Now, they didn't traditionally have
Speaker 4: the allocation to private equity and vcs that say Yale did.
Speaker 4: And Harvard is now at thirty nine percent in private equity,
Speaker 4: but they've ramped up really since twenty sixteen. I'm sorry,
Speaker 4: it was sixteen percent maybe five years ago, six years ago,
Speaker 4: and now they're at thirty nine percent, So they've been
Speaker 4: ramping up sort of not at the best time. And
Speaker 4: keep in mind that Yale has been investing in some
Speaker 4: of these private equity firms and vc for years and
Speaker 4: years and years, and people really want to be Yale's partner,
Speaker 4: and Harvard sort of has a reputation of not being
Speaker 4: the greatest partner because as you saw on the D
Speaker 4: one example, you know, they sell and you know they
Speaker 4: had to unload, you know, a billion dollars worth of
Speaker 4: natural resources assets. So people clamor to be, you know,
Speaker 4: in the Yale and the Princeton Endowment because they're seen
Speaker 4: as just amazing partners, and Harvard doesn't seem to have
Speaker 4: that same reputation lately.
Speaker 2: Yeah, I mean, I don't know that much about the
Speaker 2: Yale endowment model, but I probably should read David Swinston's
Speaker 2: book at some point and all that and really learn
Speaker 2: about it. But I do get the impression that it's
Speaker 2: designed to just be not set it and forget it.
Speaker 2: But like, truly it's all about that sort of all
Speaker 2: cycle portfolio, right that really can just is designed to
Speaker 2: ultimately work across a long cycle of whatever is.
Speaker 3: In and out.
Speaker 4: Well, they will look at firms for years before they
Speaker 4: may make an investment, so they tend to do their
Speaker 4: homework for a long time. And there I think I
Speaker 4: remember on one report they said the average tenure of
Speaker 4: their outside managers is something like thirteen years. So it's
Speaker 4: you know, if you think getting into a school like
Speaker 4: Yale or Princeton is hard, try getting to be one
Speaker 4: of their managers.
Speaker 2: Well just actually, and I want to get into this war.
Speaker 2: But just a very quick question, does Harvard have hedge
Speaker 2: fund allocation? Of course, oh yeah, yeah, you're already talking. Yeah, okay, god,
Speaker 2: they do, okay.
Speaker 4: And it's the second largest allocation now it's at thirty
Speaker 4: two percent. The largest allocation is private equity at thirty
Speaker 4: nine percent.
Speaker 2: And just a very very short question. If Tracy and
Speaker 2: I are starting a hedge fund, and it's like a
Speaker 2: multi strategy hedge fund and all that stuff. Would Harvard
Speaker 2: definitely be one of our stops when we're trying to
Speaker 2: look at raising money.
Speaker 4: Did you go to Harvard? I'm just kidding. Yeah, I
Speaker 4: don't know. It just depends they like niche, really niche stuff.
Speaker 3: Got it.
Speaker 4: So if you're you know, peddling something like a Japanese
Speaker 4: something fun that is really niche that nobody else is doing. Maybe.
Speaker 3: So you mentioned the sort of turmoil at the upper
Speaker 3: levels of the Harvard Endowment and I think we're on
Speaker 3: the fifth CEO in like eleven years something like that.
Speaker 3: Can you describe the new CEO? Like where does he
Speaker 3: come from? And is his style different to predecessors. I
Speaker 3: think he's done somewhere structuring of the company and things
Speaker 3: like that.
Speaker 4: Yes. So he came in December twenty sixteen from Columbia,
Speaker 4: where he had excellent performance, and that was one of
Speaker 4: the reasons why he was hired, because the performance at
Speaker 4: Columbia used to be pretty good. But he came in
Speaker 4: and had to steer a very large ship in a
Speaker 4: ship that's very scrutinized. Everybody wants to know how Harvard
Speaker 4: is doing, and as I mentioned, before they used to
Speaker 4: employ more than two hundred people traders, and they had
Speaker 4: a different model than Yale because they had a huge
Speaker 4: internal presence, and they slashed that. He also reversed course
Speaker 4: on natural resources, where that had been a huge interest
Speaker 4: of Jane Mendillo, the previous longer term CEO of Harvard Management.
Speaker 4: But they didn't do as well, so he sold a
Speaker 4: lot of those off. They restructured pay again. We talked
Speaker 4: about you know, if you're manager and you did great
Speaker 4: in your own ASCID class, you would get handsomely rewarded,
Speaker 4: but if the endowment as a whole was not performing well,
Speaker 4: that didn't really matter. So he made a lot of changes.
Speaker 2: Let's talk about Actually, you mentioned natural resources, which could
Speaker 2: be code for a few things, so I remember I
Speaker 2: seem to recall I just remembered another thing that I
Speaker 2: remembered about David Swenson, which is I think he was
Speaker 2: like really into timber. Yeah, for a while, and there
Speaker 2: was like sort of like famously into timber. But then
Speaker 2: there's another natural resource issue, and this will eventually allow
Speaker 2: us to talk about what I really want to talk about,
Speaker 2: which is the University of Texas. But of course resource
Speaker 2: politics and resource investing is also always controversial when it
Speaker 2: comes to you know, carbon fuels like oil and stuff
Speaker 2: like that. So before we get into Texas and all
Speaker 2: their oil money, what is the status of Harvard's own
Speaker 2: investments in things like oil, et cetera. And how does
Speaker 2: like the sort of unique politics of Harvard affect those choices.
Speaker 4: So for a long time, most schools, you know, were
Speaker 4: asked by their students to divest from anything related to
Speaker 4: fossil fuels. Harvard did not divest from anything. I think
Speaker 4: sometimes that's not understood. Well, divest means selling things, and
Speaker 4: Harvard said, we're not going to make new investments. So
Speaker 4: you know what it means to allow things to roll off,
Speaker 4: You're not going to make you know, when this next
Speaker 4: private equity fund is raising money, that means they may
Speaker 4: not go into it. They're not selling on the secondary market.
Speaker 4: You know, typically endowments don't have direct holdings, or you know,
Speaker 4: maybe they have a tiny amount, maybe it was a
Speaker 4: gift and they still have held on to it. But
Speaker 4: typically endowments today do not have direct holdings and companies.
Speaker 3: That's how they used.
Speaker 4: To in you know, in the seventies and eighties and
Speaker 4: in the eighties when you heard about schools divesting from,
Speaker 4: you know, investments related to apartheid. They were literally selling
Speaker 4: US companies that operated in South Africa. So that's a
Speaker 4: huge change. So they stopped making new fossil fuel investments.
Speaker 4: And NARV wrote in one of the reports in twenty
Speaker 4: two when they had a loss, the CEO said Harvard
Speaker 4: had missed out on strong returns in the energy sector
Speaker 4: and that decision contributed, you know, marginally to the loss
Speaker 4: a year. But at the same time, you look at
Speaker 4: a place like Texas which has huge amounts of cash
Speaker 4: coming in because of oil, and let's is this a
Speaker 4: good time to bring up their history? Yeah?
Speaker 1: Yeah, yeah, there's a good way.
Speaker 3: Good Where does the how did the oil money kind
Speaker 3: of start?
Speaker 4: So it was kind of a fluke in a lucky
Speaker 4: stroke of history. In the late eighteen seventies, the state
Speaker 4: of Texas set aside land for higher education, and it
Speaker 4: was supposed to be near the railroad, but it was
Speaker 4: too valuable and it got moved to West Texas, and
Speaker 4: eventually higher education in Texas was allotted something like two
Speaker 4: point one million acres in West Texas and they were
Speaker 4: supposed to generate money by agriculture or grazing rights, and
Speaker 4: the plan was eventually to sell it. But then in
Speaker 4: nineteen twenty three, something happened. Joe, do you know what happened?
Speaker 2: Well, black Gold yet struck. Now there's a there at
Speaker 2: the University of Texas campus, there's this little I don't
Speaker 2: know if it's still there, but yeah, twenty years ago
Speaker 2: there's this little like sort of I don't know, exhibit,
Speaker 2: and they played this audio. It's like spinble top black
Speaker 2: Gold and it has like with this like really like
Speaker 2: exaggerated Texas accent, and there's like a fake oil derrick
Speaker 2: or oil well or something like that. This sort of
Speaker 2: shows like where it all came from.
Speaker 4: So in nineteen twenty three they literally started getting all
Speaker 4: this revenue from oil. And I did a story a
Speaker 4: couple of years ago. I went down to Midland and
Speaker 4: I went on on the land and that year they
Speaker 4: got something like two billion dollars in cash. And it's
Speaker 4: it's completely separate from their endowment. It's not generated from investments.
Speaker 4: It's just cash that comes in. And the crazy thing
Speaker 4: about it is, you know they're you know you hear, oh, well,
Speaker 4: at some point energy is not going to be you
Speaker 4: know is not going to be as valuable, which you know,
Speaker 4: it's still going to be around for twenty thirty years
Speaker 4: generating a lot of money for Texas. But they're in
Speaker 4: the best position for wind and solar also, which is
Speaker 4: a really you know, nascent industry there. But you know,
Speaker 4: when when you're ready for that, they're going to make
Speaker 4: a lot of money too.
Speaker 3: It is kind of crazy to think that that decision
Speaker 3: to set aside land in like the eighteen hundreds is
Speaker 3: really paying off now. So every once in a while,
Speaker 3: Joe will tweet something about the Texas Longhorns, the football team,
Speaker 3: and so one thing I'm curious about is we're talking
Speaker 3: about all this money that's flowing into universities. What's the
Speaker 3: breakdown of like where colleges get their money. So I
Speaker 3: imagine it's a mix of donations, returns from endowments, or
Speaker 3: sports like part of that too.
Speaker 4: I don't think I think it's a huge amount. I mean
Speaker 4: unless you're you know, one of the schools like Texas
Speaker 4: that actually makes money on sports. But it's a very
Speaker 4: small number of schools actually collect you know, somewhat of
Speaker 4: a I don't want to say a prophet, but generate revenue.
Speaker 4: But you know, many schools have weird histories of how
Speaker 4: they made their money, like Emery for example, in Atlanta.
Speaker 4: They're one of the richest schools and part of the
Speaker 4: reason is because of the Koch stock that was given
Speaker 4: to them and they eventually sold. Northwestern is one of
Speaker 4: the richest schools because a drug called Lyrica was developed
Speaker 4: in the chemistry department one of their presidents a few
Speaker 4: years a few presidents back, decided to sell half of
Speaker 4: the royalties and that's you know why they had why
Speaker 4: they became one of the richest schools.
Speaker 2: Sorry, I'm just thinking more about that little exhibit on
Speaker 2: the Texas camp.
Speaker 3: But there's the other thing.
Speaker 2: They're like black Goal Texas c which they also said,
Speaker 2: I love that Texas ce.
Speaker 3: Why didn't we go see that exhibit?
Speaker 2: Yeah, I don't know, but it's like one of those
Speaker 2: things where it's like if you're college student, you're like
Speaker 2: walking around and you may be like drunken eleven pm
Speaker 2: at night and you're like walking through campus like you
Speaker 2: stopped there and the audio is playing. If I recall
Speaker 2: like twenty four to seven next to this pump, and.
Speaker 3: I'm sure you're not speaking from personal experience.
Speaker 2: I don't see, not really, but that's like a thing
Speaker 2: that you do, Okay, I get like Texas has this
Speaker 2: big advantage because of this flute gift from over one
Speaker 2: hundred years ago, and they discovered all the oil and
Speaker 2: you know, and the wind and solar coming up. But
Speaker 2: like it's not just that they've done a good job too, right, Well.
Speaker 4: They're huge. I mean it's a huge campus. And initially
Speaker 4: that money only funded two campuses, U T Austin, and
Speaker 4: we can't forget about Texas A and M in college station.
Speaker 4: They share, they share that land. Two thirds goes to
Speaker 4: University of Texas at Austin, one third goes to Texas
Speaker 4: A and M. And they pull that money together and
Speaker 4: it's invested in a company called you Timco. They followed
Speaker 4: the Harvard Management company model and they created a separate company.
Speaker 4: And you tim is based in Austin. And you know,
Speaker 4: if you're a hedge fund and you're visiting, you know,
Speaker 4: the big Texas pension funds, you Timco is there in Austin,
Speaker 4: so it would just be another place.
Speaker 2: So Tracy, because of my Texas roots and we're starting
Speaker 2: our odd lots multi strategy hedge fund we would stop
Speaker 2: at you, Timco rather than Harvard. That would be our
Speaker 2: first stop rather than Harvard.
Speaker 3: It sounds like you just want to go to Texas.
Speaker 2: Yeah, but I also want the money.
Speaker 3: Yeah, Okay. One thing I'm wondering is so endowments are
Speaker 3: invested heavily in private equity, which we talked about, and
Speaker 3: it feels to me like there's a little bit more
Speaker 3: criticism of private equity right now than there used to be.
Speaker 3: There is a big piece in the Guardian about how
Speaker 3: private equity is like ruining the economy and things like that.
Speaker 3: Do you think there's going to be any pressure to
Speaker 3: divest from PE?
Speaker 4: Well, I don't know that they would want to sell
Speaker 4: anything on the secondary market, but they you know, perhaps
Speaker 4: you know, they may not want to re up and
Speaker 4: increase their allocation because at this point they're quite large,
Speaker 4: you know, Harvard and Yale and Princeton, they're all around
Speaker 4: the thirty nine percent ish percentage. And part of the
Speaker 4: reason is, again I keep going back to twenty twenty
Speaker 4: one when they had these crazy returns, but you know
Speaker 4: the value of their private equity books just really increased
Speaker 4: with those returns, So you know, it's just a it's
Speaker 4: a bigger share of their endowment. And plus you know,
Speaker 4: they've had great returns up until recently. And you know,
Speaker 4: when you think of when David Swinston started investing in
Speaker 4: private equity decades ago, there wasn't that much money, so
Speaker 4: it was easier to get crazy returns as they did.
Speaker 2: So where are we in terms of the biggest How
Speaker 2: close are we towards my U Timco eclipsing a Harvard
Speaker 2: management company? Like what are we talking about here?
Speaker 4: Well, it's hard to tell. I mean if you look
Speaker 4: at how Harvard did in the last ten years in
Speaker 4: their annualized returns and the year that ended twenty twenty three,
Speaker 4: they were in the bottom twenty percent. So it's hard
Speaker 4: to tell. I mean, if you get another banner year
Speaker 4: with energy and they keep getting a couple billion dollars
Speaker 4: in cash, But.
Speaker 2: Like Hony, how much literally is the gap? Like what
Speaker 2: do we know of in terms of their size?
Speaker 4: I don't know if I've seen what U Timco size
Speaker 4: is right now, but you know, a couple billion here
Speaker 4: and there, so we're close.
Speaker 3: Okay. So the other thing that's going on, speaking of
Speaker 3: public criticism, is some of the Israel Palestine controversy that's
Speaker 3: happened at Harvard over the past year. Talk to us
Speaker 3: about that and what impact that's been having on donations.
Speaker 4: So Harvard has been at the forefront of protests on campus,
Speaker 4: like many schools, they had encampments. There's ended in the
Speaker 4: spring without police arrests. I think everybody was very happy
Speaker 4: about that. But there was a tremendous amount of criticism
Speaker 4: over the last year about how they've handled anti semitism
Speaker 4: on campus, protests, encampments, and alumni really mobilized and said
Speaker 4: we're not donating, and you know in alumni, very wealthy
Speaker 4: ones like Lenn Blovotnik and just sort of your average
Speaker 4: Harvard alum, you know, said we're not going to do this.
Speaker 4: And they're known for being amazing fundraisers. They've raised over
Speaker 4: a billion dollars every year since twenty fourteen. They usually
Speaker 4: raised the most, although Stanford has raised more in some years.
Speaker 4: And donations were down fifteen percent and in the year
Speaker 4: ended in June, and when you think about when they
Speaker 4: were in the news so much at the end of December,
Speaker 4: remember there was that congressional hearing in December fifth with
Speaker 4: the presidents of Penn MIT and Harvard. They were, you know,
Speaker 4: in the news NonStop until the end of December. She
Speaker 4: ultimately stepped down, clutting gay the president on January second.
Speaker 4: But when do most people make their gifts to colleges.
Speaker 4: They make their gifts at the end of the calendar year,
Speaker 4: and that was not a great time for Harvard.
Speaker 2: I just have one last question, and it's a little
Speaker 2: bit philosophical. Am I bad for donating to my college?
Speaker 2: I had an amazing time at Texas. I mean this seriously.
Speaker 2: I had an amazing time at Texas. Nothing I actually
Speaker 2: learned led directly to a job, but it was a
Speaker 2: formative experience. I look back on it fondly. I've been
Speaker 2: very fortunate in my career since then. Many good things
Speaker 2: that have happened in my life were roughly from that
Speaker 2: time that I spent there. Like, should I think about
Speaker 2: this differently? Because when I look at it's like they
Speaker 2: have tons of money, they don't really need anymore. Like
Speaker 2: pitch me that.
Speaker 4: It's like a good idea, Well, do you want to
Speaker 4: help students have a similar experience that you do.
Speaker 2: They have tons of money.
Speaker 4: I don't know, maybe there's something in particular you can
Speaker 4: tailor your donation to something specifically, I mean, and that's
Speaker 4: one of the podcasts.
Speaker 1: Yeah.
Speaker 4: Well, that's one of the things that Harvard complains about
Speaker 4: is a lot of their money is they say it's restricted.
Speaker 4: Oh yeah, right, so if you give money to the
Speaker 4: crew team, they can't spend it in theory on the
Speaker 4: tennis team.
Speaker 1: Right.
Speaker 4: So you could say I want to you know, I
Speaker 4: want to give it to something, and then there you go.
Speaker 4: It could be named after you if you want.
Speaker 2: Yeah, maybe a little maybe a little podcast studio at
Speaker 2: the j School.
Speaker 3: There you guysenthal podcast.
Speaker 2: Yea there, maybe maybe that.
Speaker 4: And they you know, one thing about these gifts is
Speaker 4: you know, their multi year so you could make up
Speaker 4: pledge over ten years or whatever the case.
Speaker 2: But I'm open to changing my mind on this. So
Speaker 2: I just but you know, I wrestle with it because
Speaker 2: I just between the three of us here in the room,
Speaker 2: like I think I have the number that like they
Speaker 2: call me on like I either haven't blocked or like
Speaker 2: I have like it says like do not answer.
Speaker 1: I'm open to.
Speaker 2: I'm open to like kind of cruel. That's yeah, I know,
Speaker 2: That's what I'm saying. I have a little issue I have.
Speaker 2: I have some misgivings, and I'm open to rethinking this
Speaker 2: question at this stage in my life. Janet Lauren, thank
Speaker 2: you so much for coming on. I really appreciate it.
Speaker 1: Thanks for having me, Tracy.
Speaker 2: I am going to use this podcast for the most
Speaker 2: nakedly egregious self serving purpose ever right now, and I
Speaker 2: just want everyone to be aware of that.
Speaker 3: Okay, Wait, is it urging listeners to continue to support
Speaker 3: the pod so that you can make donations to Steve?
Speaker 2: No? No, no, I'm like open to rethinking my philosophy
Speaker 2: on donations because I probably when I blocked the number,
Speaker 2: I was like, you know, much younger and earlier in
Speaker 2: my career. No, you know what I've thought. I can't
Speaker 2: believe I'm going to say this out loud. I've thought
Speaker 2: that a nice, I quote retirement job for me would
Speaker 2: be being some sort of adjunct professor at the journalism
Speaker 2: school at UT And like, you know, I've done a
Speaker 2: lot in digital media and like maybe through donations or something,
Speaker 2: find a way back into that community.
Speaker 3: Yeah, start laying the ground right now.
Speaker 2: Basically, start prepaying my salary, make a bunch of donations
Speaker 2: so that you know, twenty years from now, when we
Speaker 2: stop doing odd lots. There's like this pool of money
Speaker 2: that can fund my adjunct degree.
Speaker 3: Yeah.
Speaker 2: Absolutely, but maybe someone will hear that. And like I'm
Speaker 2: just saying.
Speaker 3: Don't go to Texas, Joe.
Speaker 4: No I'm not.
Speaker 2: I'm just yeah, I won't, Okay, but I but yeah,
Speaker 2: maybe someone will listen and at the University of Texas
Speaker 2: Journalism School and hear about.
Speaker 3: My twenty years twenty year Yeah. You know.
Speaker 2: One other thing though, for real, though, I think it's
Speaker 2: really interesting about this, and I hadn't realized, is the
Speaker 2: difference in the corporate structure between the Harvard Endowment and
Speaker 2: the Yale Endowment. And so you can and so anyone
Speaker 2: can just look at the Harvard endowments. Why are you
Speaker 2: paying all these people so much? Have you heard? Passive
Speaker 2: is the future? All these fees And yet you could
Speaker 2: have another institution that's doing fantastically and no one sees
Speaker 2: how much they're paying managers or how much individual star
Speaker 2: traders are getting because those independent star traders are at
Speaker 2: the hedge funds that no one actually gets to see
Speaker 2: because they don't file some independent return you know.
Speaker 3: Speaking of transparency, I saw this really great chart in
Speaker 3: the Harvard Crimson the student newspaper, and it's the word
Speaker 3: count of the annual message. I love that from the
Speaker 3: Harvard Management Company CEO, the Endowment CEO, and I think
Speaker 3: it used to be like over three thousand words typically
Speaker 3: and now it's gone down to a little over one thousand.
Speaker 3: So interesting. That's where a lot of the criticism of
Speaker 3: lack of transparency at Harvard comes from.
Speaker 2: Yeah, well you just get rid of all, you know,
Speaker 2: don't have any in house traders talking your thing, and
Speaker 2: you let the third party managers, the hedge funds be
Speaker 2: let them write the words in the letters. That's their
Speaker 2: job is to write words in the letters.
Speaker 3: That's right. We leave it there. Let's leave it there,
Speaker 3: all right. This has been another episode of the Authots podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest Janet Lauren at Janet Lauren and check
Speaker 2: out her recent big take on the Harvard Endowment on
Speaker 2: Bloomberg dot com. Follow our producers Carmen Rodriguez at Kerman
Speaker 2: armand Dashel Bennett at Dashbot and Kilbrooks at Kilbrooks and
Speaker 2: Thank you to our producer Moses onam form our Odd
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