WEBVTT - The Harvard Endowment Is on the Verge of Losing Its Crown 0:00:03.120 --> 0:00:12.640 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:20.040 --> 0:00:23.639 Hello and welcome to another episode of The Odd Lots Podcast. 0:00:23.720 --> 0:00:26.119 I'm Joe Wisenthal and I'm Tracy Alloway. 0:00:26.320 --> 0:00:29.200 Tracy, we talk about investing all the time on the show. 0:00:29.320 --> 0:00:33.000 We talk about private credit, we talk about hedge funds, 0:00:33.080 --> 0:00:35.760 we talk about the market itself. But you know, there 0:00:35.800 --> 0:00:40.040 are like a few of these gigantic institutional players out there. 0:00:40.240 --> 0:00:42.959 One of them is insurance that like just don't get 0:00:42.960 --> 0:00:44.040 a lot of attention. 0:00:43.920 --> 0:00:47.000 These huge pools of capital. Yeah, you're right. 0:00:47.320 --> 0:00:49.760 So you know we've talked about we want to talk 0:00:49.840 --> 0:00:54.480 about insurance more, should probably talk about family offices more. Yeah, 0:00:54.920 --> 0:00:57.200 Like that's this whole world that I don't think we've 0:00:57.200 --> 0:01:00.520 ever really explored, but just this massive and booming source 0:01:00.560 --> 0:01:02.160 of capital. Like what the deal is with those? 0:01:02.520 --> 0:01:04.960 Yeah? I remember right around the time that I left 0:01:05.000 --> 0:01:08.000 Hong Kong that was such a big story, especially in Singapore, 0:01:08.080 --> 0:01:12.920 everyone opening family offices. But there's another category of massive 0:01:12.959 --> 0:01:15.240 pools of capital that we need to talk. 0:01:15.080 --> 0:01:18.920 About absolutely, and that one, of course is endowments. They're 0:01:19.000 --> 0:01:21.840 huge and they have you know, they're distinct, they're distinct 0:01:21.840 --> 0:01:25.520 from banks, they're distinct from insurance companies, they have their 0:01:25.560 --> 0:01:28.440 own funding needs and their own funding profiles and the 0:01:28.440 --> 0:01:32.160 schedules with which they need to withdraw and disburse their money. 0:01:32.880 --> 0:01:34.800 And if you're a hedge fund, or if you're anyone 0:01:34.800 --> 0:01:37.240 else looking for money for your investment, at the end 0:01:37.280 --> 0:01:39.520 of the line, there's a good chance that, like, at 0:01:39.560 --> 0:01:41.720 some point, you're going to be knocking on the door 0:01:41.840 --> 0:01:42.920 of a really big endowment. 0:01:43.240 --> 0:01:46.720 Yeah, So I'm really interested in kind of how that 0:01:46.800 --> 0:01:50.920 became a thing, because, of course, university endowments nowadays are 0:01:50.960 --> 0:01:55.080 known for making investments in things like private equity and 0:01:55.160 --> 0:01:58.040 hedge funds and stuff like that, and I'm curious how 0:01:58.120 --> 0:02:01.400 all of that began, and then obviously how it's been 0:02:01.440 --> 0:02:02.240 working out. 0:02:02.480 --> 0:02:05.560 So, you know what another cool thing, Tracy is, at 0:02:05.680 --> 0:02:09.720 least when it comes to university endowments. I believe the 0:02:09.800 --> 0:02:12.600 endowment of my alma mater, University of Texas, is on 0:02:12.639 --> 0:02:14.679 that I knew that was k Yeah, is on the 0:02:14.760 --> 0:02:18.080 verge of becoming the biggest university endowment in the country. 0:02:18.240 --> 0:02:21.600 Right, So for years, Harvard was the biggest, right, but 0:02:21.680 --> 0:02:25.200 it looks like it might be superseded by Joe's College. 0:02:25.320 --> 0:02:28.960 Congratulations Joe, thank you have you been donating? Is this 0:02:29.040 --> 0:02:30.400 all you can. 0:02:30.280 --> 0:02:33.760 I say, I don't. I've never donated. They have so 0:02:33.840 --> 0:02:37.320 much money already, they don't need my donation. I probably should. 0:02:37.840 --> 0:02:40.120 I don't want to talk about how I avoid the 0:02:40.160 --> 0:02:42.880 calls from my university, and I don't know, I feel 0:02:42.880 --> 0:02:43.680 a little bad about it. 0:02:43.720 --> 0:02:46.560 I think in this case, well we'll get into why, 0:02:46.600 --> 0:02:49.560 but maybe it's okay not to donate. Well we'll talk. 0:02:50.200 --> 0:02:51.560 I don't really want to talk about it. I don't 0:02:51.560 --> 0:02:53.799 really you know, And even talking about how big UT 0:02:54.080 --> 0:02:57.279 is versus I think there's actually like twenty two universities 0:02:57.440 --> 0:03:01.360 or something served by the Texas Endowment and other things. 0:03:01.360 --> 0:03:03.280 So I don't even know if it's a true apples 0:03:03.280 --> 0:03:07.160 to Apple's comparison, because you know, the student body of 0:03:07.360 --> 0:03:11.200 Texas is so jiganting. Nonetheless, if we're just looking at, Okay, 0:03:11.240 --> 0:03:14.560 which university endowment is the biggest, at least currently, there's 0:03:14.560 --> 0:03:16.440 a very good chance it looks like the Texas could 0:03:16.480 --> 0:03:18.880 eclipse Harvard on that front. So we got to understand 0:03:18.919 --> 0:03:21.400 what's going on more in endowment world. And then the 0:03:21.440 --> 0:03:23.320 other thing is not just that Texas has grown and 0:03:23.320 --> 0:03:25.160 that's great and I love to see it, but that 0:03:25.280 --> 0:03:29.360 Harvard's performance has been a little bit mediocre in recent years, 0:03:29.480 --> 0:03:32.240 even compared to just other ivs, the rest of which 0:03:32.720 --> 0:03:35.720 sort of smaller. The Yale Endowment is sort of famous, 0:03:36.080 --> 0:03:39.000 actually not necessarily due to its size, but because of 0:03:39.040 --> 0:03:43.080 its longtime manager's approach to endowment investing. So we got 0:03:43.120 --> 0:03:45.480 to learn more about what's going on with Harvard and 0:03:45.520 --> 0:03:49.280 what's how these big institutional pools of capital, how they're performing, 0:03:49.280 --> 0:03:49.920 and what they're doing. 0:03:50.040 --> 0:03:53.200 Yeah, it is kind of funny that the Harvard Endowment, 0:03:53.360 --> 0:03:57.160 which presumably employs a lot of highly paid smart people. 0:03:57.280 --> 0:03:59.880 I think it was up about nine point six percent 0:04:00.080 --> 0:04:03.680 in twenty twenty four, that's the preliminary fiscal year. But 0:04:03.800 --> 0:04:06.480 of course the S and P five hundred is like 0:04:06.840 --> 0:04:11.120 twenty two percent so far. So yeah, what's going on? 0:04:11.280 --> 0:04:13.440 Just hy spy. No, like people will say, oh, you 0:04:13.440 --> 0:04:16.320 can't really compare. People love to say people love to 0:04:16.360 --> 0:04:18.360 say you can't compare things. Oh you can't compare hedge 0:04:18.360 --> 0:04:20.800 funds return to the SMP. You can't compare an endowment 0:04:20.880 --> 0:04:23.800 funds return to the SMB. Maybe that's true. I don't 0:04:23.839 --> 0:04:26.080 totally get why anyway, should we learn more? 0:04:26.279 --> 0:04:26.840 Let's do it. 0:04:26.920 --> 0:04:28.839 Well, I'm really excited to say we do have the 0:04:28.880 --> 0:04:31.360 perfect guest someone here at Bloomberg who I've wanted to 0:04:31.400 --> 0:04:34.160 speak to on the podcast for a long time. We're 0:04:34.160 --> 0:04:37.320 going to be speaking with Janet Lauren, higher education finance 0:04:37.360 --> 0:04:39.560 reporter for Bloomberg. Janet, thank you so much for coming 0:04:39.560 --> 0:04:40.200 on odd Laws. 0:04:40.360 --> 0:04:41.240 Thanks for having me. 0:04:41.480 --> 0:04:43.679 How do you get to be the higher ed finance 0:04:43.720 --> 0:04:47.279 reporter of Bloomberg? And also, it's like we just have one, Like, 0:04:47.360 --> 0:04:49.880 what's the deal there? These institutions are so important. We 0:04:49.880 --> 0:04:53.240 probably have, you know, twenty people covering hedge funds. We 0:04:53.360 --> 0:04:55.560 just have a higher education finance reporter. 0:04:55.880 --> 0:04:59.039 Well, I've been writing about university finances for almost seventeen 0:04:59.120 --> 0:05:02.080 years here at Bloomberg. And it's not just endowments, but 0:05:02.160 --> 0:05:04.360 I used to write a lot about student loans back 0:05:04.360 --> 0:05:07.560 when they were only about a trillion dollars in outstanding 0:05:07.600 --> 0:05:12.200 debt and college admissions and endowments, and it's just a 0:05:12.240 --> 0:05:14.880 fun job and there's a lot of money involved, and 0:05:14.880 --> 0:05:17.520 there's a lot of nuance that most people have no 0:05:17.600 --> 0:05:21.000 idea about. And it's thrilled to talk about Harvard as 0:05:21.000 --> 0:05:23.520 well as the University of Texas. It has an amazing story. 0:05:24.279 --> 0:05:26.719 Okay, so talk to us a little bit more about 0:05:26.760 --> 0:05:30.200 how significant the space is, Like, how much money are 0:05:30.200 --> 0:05:31.600 we actually talking about? 0:05:31.880 --> 0:05:33.719 Off the top of my head, I mean, we're talking 0:05:33.720 --> 0:05:37.560 about several hundred billion dollars the universe is. You know, 0:05:37.600 --> 0:05:41.080 there aren't too many college endowments that have over a billion. 0:05:41.600 --> 0:05:44.800 Maybe it's around fifty. I can get you the exact number, 0:05:45.160 --> 0:05:48.400 but there certainly aren't that many the size of Harvard 0:05:48.560 --> 0:05:53.120 and Yale and the University of Texas and Harvard, I 0:05:53.160 --> 0:05:57.000 included many stories. Is the oldest and richest university. You know, 0:05:57.040 --> 0:05:59.280 it goes back to the sixteen hundreds, and Harvard was 0:05:59.320 --> 0:06:04.160 actually found, you know, through a donation and as you know, donors, alumni, 0:06:04.640 --> 0:06:07.960 rich people in Boston gave them money over hundreds of years. 0:06:08.440 --> 0:06:10.719 You know about that thing called compounding interests. 0:06:10.800 --> 0:06:14.480 Yeah, imagine if you just bought spy on sixteen hundred. Sorry. 0:06:14.839 --> 0:06:18.280 So that has certainly helped them. But in the nineteen 0:06:18.480 --> 0:06:22.880 sixties college endowment started doing something different. Instead of having 0:06:23.000 --> 0:06:26.440 a traditional sixty forty split, you know, with a lot 0:06:26.440 --> 0:06:31.120 of plain vanilla type US equities bonds, they pursued a 0:06:31.120 --> 0:06:36.120 different model. In the Ford Foundation actually presented this strategy 0:06:36.279 --> 0:06:40.120 in schools like Harvard and Yale started using it because 0:06:40.200 --> 0:06:43.360 their time horizon is literally in the hundreds of years, 0:06:43.839 --> 0:06:48.440 so they liquidity for them is okay because you know, 0:06:48.440 --> 0:06:51.640 they have a very long term horizon. So they started 0:06:52.480 --> 0:06:57.640 moving things into liquid assets over time, private equity, hedge funds, 0:06:57.839 --> 0:07:01.640 you know, eventually venture capital, real estate, you know, now 0:07:01.760 --> 0:07:04.520 private credit. But at the time that was a pretty 0:07:04.560 --> 0:07:08.320 new strategy. Harvard and Yale did things a little bit differently. 0:07:08.720 --> 0:07:13.320 So Harvard started Harvard Management Company, which runs down and 0:07:13.480 --> 0:07:16.160 is fifty years old this year. They actually operate not 0:07:16.280 --> 0:07:19.880 in Cambridge but in downtown Boston in the Federal Reserve building. 0:07:20.080 --> 0:07:22.720 It's actually very close to our Bloomberg office in Boston, 0:07:23.360 --> 0:07:26.960 and they employed traders and it was, you know, over 0:07:27.000 --> 0:07:29.840 two hundred people working there. They were extremely good at 0:07:29.840 --> 0:07:33.880 their job. Their strategy was literally the envy of the world. 0:07:33.920 --> 0:07:36.000 They made a ton of money. A guy by the 0:07:36.080 --> 0:07:38.800 name of Jack Meyer ran the fund, and there was 0:07:38.840 --> 0:07:41.960 some outcry by a group of alumni and people who 0:07:41.960 --> 0:07:44.560 thought they were their managers were being paid too much 0:07:44.640 --> 0:07:49.880 because they just consistently exceeded the market. And one year 0:07:50.080 --> 0:07:52.800 there was a manager trying to remember, paid thirty five 0:07:52.840 --> 0:07:56.760 million dollars and people were just aghast at that because 0:07:57.120 --> 0:08:00.000 they made too much money. So after a lot of critics, 0:08:00.640 --> 0:08:04.920 long story short, that model was disbanded. Jack left in 0:08:04.960 --> 0:08:08.880 two thousand and five. They went through a succession of managers, 0:08:08.960 --> 0:08:13.440 seven CEOs of the Harvard Management Company. Some only stayed 0:08:13.480 --> 0:08:15.960 a short term. There were two less than two years, 0:08:16.440 --> 0:08:21.560 several interims, changing strategies, selling off assets. You know, for 0:08:21.600 --> 0:08:25.680 a while they were big into agriculture and real assets. 0:08:26.160 --> 0:08:28.720 Those perform well, but then they didn't perform well. And 0:08:28.800 --> 0:08:31.800 the current CEO has been there since December twenty sixteen. 0:08:32.360 --> 0:08:36.160 He eventually sold a lot of those natural resources. You know, 0:08:36.160 --> 0:08:39.640 I think, writing off like a billion dollars and you know, 0:08:39.760 --> 0:08:42.720 change of strategy. Not at the greatest time. They didn't 0:08:42.720 --> 0:08:44.320 have a lot of private equity, and they've ramped that 0:08:44.400 --> 0:08:44.800 up now. 0:08:45.520 --> 0:08:50.000 That was a great potted history of Harvard's endowment. I 0:08:50.000 --> 0:08:53.040 ought to say, Joe, I started rewatching. Did you ever 0:08:53.080 --> 0:08:55.960 watch The Gilmore Girls? Probably not, No, I never did. 0:08:56.120 --> 0:08:57.920 I started rewatching Gilmore Girls. 0:08:57.960 --> 0:08:59.400 And so are you going to tie this in? 0:08:59.600 --> 0:09:03.559 Well, so it's all about rich people in Boston basically, 0:09:03.800 --> 0:09:07.360 and one of the main characters has to decide between 0:09:07.360 --> 0:09:10.720 Harvard and Yale. She eventually goes to Yale. I guess 0:09:10.880 --> 0:09:13.640 she was lured by the performance of the endowment. 0:09:15.640 --> 0:09:20.320 So, Jenny, you gave us the broad history of Harvard's endowment, 0:09:20.679 --> 0:09:22.840 and I want to talk about actually like what happened 0:09:22.880 --> 0:09:25.400 in those years from like how you have one stable 0:09:25.480 --> 0:09:28.199 management company that goes all the way to two thousand 0:09:28.240 --> 0:09:29.840 and five more or less, and then you run through 0:09:29.880 --> 0:09:31.880 I think, what'd you say, like seven CEOs since then 0:09:31.960 --> 0:09:35.080 or something, and then Tracy mentioned the Yale endowment with 0:09:35.160 --> 0:09:38.600 their famous endowment manager for several years. David Swinton, can 0:09:38.640 --> 0:09:41.160 you talk about like the sort of compare and contrast 0:09:41.320 --> 0:09:44.640 between the strategic volatility and I'm not even talking about 0:09:44.679 --> 0:09:48.880 price volatility, but the strategic management volatility of Harvard versus 0:09:48.960 --> 0:09:51.240 the Yale model that I think David wrote a whole 0:09:51.240 --> 0:09:51.920 book about. 0:09:52.160 --> 0:09:55.880 So, Harvard management company files a tax return and because 0:09:55.880 --> 0:09:58.880 of their nonprofit status, they have to disclose how much 0:09:58.920 --> 0:10:02.520 they pay their top p people. And Yale the Investment 0:10:02.559 --> 0:10:07.079 Office is part of Yale University. They employ outside managers 0:10:07.320 --> 0:10:10.840 and they have a much smaller number of employees and 0:10:10.920 --> 0:10:14.280 only a handful of listed in the tax return. And 0:10:14.360 --> 0:10:17.160 because they're using outside managers, you know, you think of 0:10:17.160 --> 0:10:19.360 the two and twenty model, that's not showing up in 0:10:19.400 --> 0:10:22.120 the tax return, whereas Harvard, you know, you could see 0:10:22.120 --> 0:10:24.680 how much they were getting paid, and people read that 0:10:24.960 --> 0:10:27.160 and it was a big deal how much they were 0:10:27.160 --> 0:10:30.839 getting paid. And you know, that's really a simple explanation 0:10:30.920 --> 0:10:33.720 of why Harvard's manager's got so much more scrutiny. 0:10:34.400 --> 0:10:38.040 So you talked about the criticism of you know, how 0:10:38.120 --> 0:10:43.520 much they're getting paid. What's the benchmark for Harvard's performance, Like, 0:10:43.559 --> 0:10:45.560 what are they actually comparing themselves to? 0:10:46.120 --> 0:10:50.520 Well, many endowments create their own benchmark, surprise, so I 0:10:50.559 --> 0:10:52.079 don't know, you know, they come up with it. And 0:10:52.160 --> 0:10:55.520 one of the big criticisms of Harvard's pay was the 0:10:55.600 --> 0:10:58.640 managers who did extremely well in their own asset class 0:10:58.960 --> 0:11:01.679 would get paid base on their own performance, not the 0:11:01.720 --> 0:11:04.480 overall performance of the endowment. So if they had a 0:11:04.480 --> 0:11:07.560 middling return, which they have, some of these managers still 0:11:07.559 --> 0:11:08.920 got paid quite a lot of money. 0:11:09.600 --> 0:11:11.680 Well, then let me ask you another question. Let's say, Okay, 0:11:11.720 --> 0:11:13.720 we don't really know what the benchmark is. So you 0:11:13.760 --> 0:11:17.240 wrote this piece for Bloomberg a few weeks ago talking 0:11:17.280 --> 0:11:19.480 about like issues and the performance. 0:11:20.040 --> 0:11:20.679 What has it been? 0:11:20.840 --> 0:11:24.720 Why now are people saying, Look, Harvard's performance is not 0:11:24.760 --> 0:11:27.360 that great, there's some reason to be concerned. There's some 0:11:27.720 --> 0:11:30.240 falling off in the what they're able to generate for 0:11:30.280 --> 0:11:30.920 the university. 0:11:31.120 --> 0:11:33.959 Well, I think some insiders, especially you know, some of 0:11:34.000 --> 0:11:37.040 their really famous economists, they know what's going on. But 0:11:38.160 --> 0:11:41.880 the last year the performance was overshadowed by some other issues, 0:11:42.320 --> 0:11:46.360 especially you know, their president being thrown before Congress. You know, 0:11:46.400 --> 0:11:51.040 the president resigned, she had plagiarism scandal. People have been 0:11:51.160 --> 0:11:54.880 very upset about how Harvard has handled anti semitism. The 0:11:54.920 --> 0:11:58.240 story had last week said their fundraising was down. You know, 0:11:58.280 --> 0:12:02.439 their cash gifts was the lowest in it fell fifteen percent. 0:12:03.000 --> 0:12:05.559 It was the lowest since twenty fifteen. You know, they 0:12:05.600 --> 0:12:08.440 famously raise a huge amount of money. You know, they're 0:12:08.440 --> 0:12:10.360 known for the endowment, but they're also known for being 0:12:10.400 --> 0:12:13.600 prolific fundraisers. And you know, they did get to a 0:12:13.600 --> 0:12:15.920 billion dollars last year. But I'm sure it wasn't easy. 0:12:16.360 --> 0:12:20.400 Considering people are upset when Plovotnik Ken Griffin both alum 0:12:20.520 --> 0:12:22.880 said they're not giving money that they've paused their gifts 0:12:22.880 --> 0:12:25.400 to Harvard because the way things are going there. 0:12:41.160 --> 0:12:44.280 So one thing I'm trying to wrap my head around is, 0:12:44.360 --> 0:12:47.480 as we've mentioned a number of times, Harvard is a 0:12:47.600 --> 0:12:51.480 huge pot of money. And I've heard people say stuff 0:12:51.600 --> 0:12:55.240 like because of its size, it makes it harder to 0:12:55.320 --> 0:12:58.520 move positions around, it can't be as nimble. But then 0:12:58.880 --> 0:13:02.480 I think, well, it's huge, so it should be getting 0:13:02.559 --> 0:13:06.199 like the best deals. It should have some sort of edge. 0:13:06.600 --> 0:13:10.040 So is size here a net pro or con. 0:13:10.440 --> 0:13:13.120 I think that's a very fair question, And you know, 0:13:13.320 --> 0:13:16.319 Harvard will say it's so big it's hard to manage 0:13:16.440 --> 0:13:19.560 fifty three billion dollars. Now, keep in mind the size 0:13:19.960 --> 0:13:22.040 hasn't been that big. 0:13:22.120 --> 0:13:22.400 Ever. 0:13:22.760 --> 0:13:25.680 They had a huge eleven billion dollar gain in fiscal 0:13:25.760 --> 0:13:27.920 twenty one, you know, when everybody had a crazy year. 0:13:28.200 --> 0:13:31.520 You know, some endowments had gains of fifty percent. Harvard 0:13:31.600 --> 0:13:34.080 was on the low end at thirty four percent, And 0:13:34.160 --> 0:13:37.400 of course they had a huge decrease during the financial crisis, 0:13:37.400 --> 0:13:40.200 so they've been building back up. Now. The school with 0:13:40.240 --> 0:13:43.320 the best ten year performance is Brown and that has 0:13:43.320 --> 0:13:47.040 the smallest endowment size, and they're definitely more nimble but 0:13:47.080 --> 0:13:49.959 they seem to take more risk. You know, they're into 0:13:50.520 --> 0:13:54.160 you know, you've heard maybe there's some cryptocurrency or there's 0:13:54.480 --> 0:13:57.720 some other risk there. And if you go back and 0:13:57.800 --> 0:14:01.640 read all the Harvard alumni the Harvard financial reports, as 0:14:01.640 --> 0:14:04.720 I did, the current CEO talks a lot about risk. 0:14:04.800 --> 0:14:08.160 He mentions more than once that Harvard takes less risk 0:14:08.240 --> 0:14:11.160 than its large peers. And you know it still could 0:14:11.240 --> 0:14:13.320 be a vestige from two thousand and eight when they 0:14:13.360 --> 0:14:15.160 had a huge liquidity problem. 0:14:15.640 --> 0:14:19.080 Let me ask another way of thinking about the benchmark 0:14:19.080 --> 0:14:21.720 sitting aside. What is a good return in a given 0:14:21.760 --> 0:14:24.760 year or a good return over five years? What is 0:14:24.800 --> 0:14:29.720 the importance of the Harvard Endowment to the Harvard University budget? 0:14:30.000 --> 0:14:33.760 And because there's multiple ways of financing the university, there's tuition, 0:14:34.480 --> 0:14:38.440 there's alumni giving, there's probably other grants and stuff like that, 0:14:38.520 --> 0:14:41.160 and then there's the money that the endowment throws off. 0:14:41.320 --> 0:14:45.360 What does Harvard University need from the Harvard Endowment? 0:14:45.880 --> 0:14:50.080 Well, the Harvard Endowment is the largest provider of money 0:14:50.120 --> 0:14:53.560 to the university thirty seven percent, okay, and that's grown 0:14:53.640 --> 0:14:57.200 over time. Ten years ago it was thirty one percent, 0:14:57.280 --> 0:15:00.760 and twenty years ago it was twenty twenty one percent. 0:15:01.200 --> 0:15:04.480 So in other words, Harvard University is becoming a lot 0:15:04.520 --> 0:15:06.280 more reliant on the Harvard endowment. 0:15:07.640 --> 0:15:11.800 So you mentioned this idea of investing in alts, and 0:15:11.880 --> 0:15:15.440 I think Harvard was like a backer of D one 0:15:15.840 --> 0:15:19.560 in particular a hedge fund. And I'm curious the sales 0:15:19.600 --> 0:15:24.080 pitch from hedge funds is always uncorrelated returns. So what 0:15:24.400 --> 0:15:28.920 happened in down years for Harvard, like in twenty twenty two, 0:15:29.240 --> 0:15:33.120 twenty twenty three when markets were like or sorry in 0:15:33.160 --> 0:15:36.960 twenty twenty three, when markets were falling? Did they manage 0:15:36.960 --> 0:15:39.640 to post above average returns? 0:15:40.720 --> 0:15:43.720 So over time in twenty twenty three, I think they 0:15:43.760 --> 0:15:46.960 had a two point nine percent gain, which was not bad. 0:15:47.080 --> 0:15:49.920 You know, among the Ivy League schools, a couple of 0:15:50.000 --> 0:15:53.280 big endowments head losses. I think it was Duke and Mit. 0:15:53.400 --> 0:15:58.000 And Mit is really strong in their returns too that 0:15:58.080 --> 0:16:00.600 we don't sort of use them in their eight schools 0:16:00.640 --> 0:16:02.800 because you know, the Ivy League is a sports conference, 0:16:02.800 --> 0:16:04.760 but it's also a nice group of eight schools that 0:16:04.760 --> 0:16:08.280 you can easily compare. And Harvard, you know, in the 0:16:08.320 --> 0:16:11.280 big year where the in twenty one they were below 0:16:11.280 --> 0:16:14.800 average in the IVY League. Now, they didn't traditionally have 0:16:15.160 --> 0:16:19.200 the allocation to private equity and vcs that say Yale did. 0:16:19.680 --> 0:16:22.840 And Harvard is now at thirty nine percent in private equity, 0:16:22.840 --> 0:16:26.680 but they've ramped up really since twenty sixteen. I'm sorry, 0:16:26.720 --> 0:16:29.800 it was sixteen percent maybe five years ago, six years ago, 0:16:29.840 --> 0:16:32.240 and now they're at thirty nine percent, So they've been 0:16:32.360 --> 0:16:35.080 ramping up sort of not at the best time. And 0:16:35.240 --> 0:16:38.000 keep in mind that Yale has been investing in some 0:16:38.080 --> 0:16:41.880 of these private equity firms and vc for years and 0:16:41.960 --> 0:16:45.160 years and years, and people really want to be Yale's partner, 0:16:45.520 --> 0:16:47.880 and Harvard sort of has a reputation of not being 0:16:47.920 --> 0:16:50.200 the greatest partner because as you saw on the D 0:16:50.320 --> 0:16:53.160 one example, you know, they sell and you know they 0:16:53.200 --> 0:16:55.440 had to unload, you know, a billion dollars worth of 0:16:55.560 --> 0:16:59.480 natural resources assets. So people clamor to be, you know, 0:16:59.520 --> 0:17:02.400 in the Yale and the Princeton Endowment because they're seen 0:17:02.440 --> 0:17:05.679 as just amazing partners, and Harvard doesn't seem to have 0:17:05.680 --> 0:17:07.040 that same reputation lately. 0:17:07.560 --> 0:17:10.080 Yeah, I mean, I don't know that much about the 0:17:10.160 --> 0:17:14.080 Yale endowment model, but I probably should read David Swinston's 0:17:14.080 --> 0:17:16.320 book at some point and all that and really learn 0:17:16.359 --> 0:17:20.240 about it. But I do get the impression that it's 0:17:20.280 --> 0:17:22.879 designed to just be not set it and forget it. 0:17:22.920 --> 0:17:25.280 But like, truly it's all about that sort of all 0:17:25.359 --> 0:17:29.359 cycle portfolio, right that really can just is designed to 0:17:29.480 --> 0:17:32.280 ultimately work across a long cycle of whatever is. 0:17:32.280 --> 0:17:32.960 In and out. 0:17:33.160 --> 0:17:37.160 Well, they will look at firms for years before they 0:17:37.160 --> 0:17:39.280 may make an investment, so they tend to do their 0:17:39.320 --> 0:17:42.760 homework for a long time. And there I think I 0:17:42.800 --> 0:17:45.520 remember on one report they said the average tenure of 0:17:45.840 --> 0:17:50.040 their outside managers is something like thirteen years. So it's 0:17:50.160 --> 0:17:52.359 you know, if you think getting into a school like 0:17:52.440 --> 0:17:55.200 Yale or Princeton is hard, try getting to be one 0:17:55.240 --> 0:17:56.000 of their managers. 0:17:56.040 --> 0:17:58.199 Well just actually, and I want to get into this war. 0:17:58.280 --> 0:18:00.520 But just a very quick question, does Harvard have hedge 0:18:00.520 --> 0:18:03.680 fund allocation? Of course, oh yeah, yeah, you're already talking. Yeah, okay, god, 0:18:03.680 --> 0:18:04.880 they do, okay. 0:18:04.640 --> 0:18:07.600 And it's the second largest allocation now it's at thirty 0:18:07.600 --> 0:18:10.960 two percent. The largest allocation is private equity at thirty 0:18:11.040 --> 0:18:11.520 nine percent. 0:18:11.600 --> 0:18:15.480 And just a very very short question. If Tracy and 0:18:15.520 --> 0:18:18.000 I are starting a hedge fund, and it's like a 0:18:18.080 --> 0:18:20.399 multi strategy hedge fund and all that stuff. Would Harvard 0:18:20.480 --> 0:18:23.159 definitely be one of our stops when we're trying to 0:18:23.160 --> 0:18:24.159 look at raising money. 0:18:24.800 --> 0:18:28.800 Did you go to Harvard? I'm just kidding. Yeah, I 0:18:28.840 --> 0:18:33.000 don't know. It just depends they like niche, really niche stuff. 0:18:33.720 --> 0:18:34.080 Got it. 0:18:34.520 --> 0:18:37.440 So if you're you know, peddling something like a Japanese 0:18:37.760 --> 0:18:41.120 something fun that is really niche that nobody else is doing. Maybe. 0:18:41.680 --> 0:18:46.080 So you mentioned the sort of turmoil at the upper 0:18:46.359 --> 0:18:50.399 levels of the Harvard Endowment and I think we're on 0:18:51.040 --> 0:18:55.160 the fifth CEO in like eleven years something like that. 0:18:56.000 --> 0:18:58.960 Can you describe the new CEO? Like where does he 0:18:59.080 --> 0:19:04.639 come from? And is his style different to predecessors. I 0:19:04.680 --> 0:19:07.640 think he's done somewhere structuring of the company and things 0:19:07.680 --> 0:19:08.040 like that. 0:19:08.320 --> 0:19:11.919 Yes. So he came in December twenty sixteen from Columbia, 0:19:12.200 --> 0:19:15.399 where he had excellent performance, and that was one of 0:19:15.400 --> 0:19:18.399 the reasons why he was hired, because the performance at 0:19:18.400 --> 0:19:21.440 Columbia used to be pretty good. But he came in 0:19:21.520 --> 0:19:25.320 and had to steer a very large ship in a 0:19:25.440 --> 0:19:29.080 ship that's very scrutinized. Everybody wants to know how Harvard 0:19:29.200 --> 0:19:32.080 is doing, and as I mentioned, before they used to 0:19:32.240 --> 0:19:36.000 employ more than two hundred people traders, and they had 0:19:36.000 --> 0:19:38.280 a different model than Yale because they had a huge 0:19:38.280 --> 0:19:45.080 internal presence, and they slashed that. He also reversed course 0:19:45.359 --> 0:19:49.679 on natural resources, where that had been a huge interest 0:19:49.720 --> 0:19:54.200 of Jane Mendillo, the previous longer term CEO of Harvard Management. 0:19:54.240 --> 0:19:56.359 But they didn't do as well, so he sold a 0:19:56.359 --> 0:20:00.520 lot of those off. They restructured pay again. We talked 0:20:00.520 --> 0:20:03.240 about you know, if you're manager and you did great 0:20:03.280 --> 0:20:06.200 in your own ASCID class, you would get handsomely rewarded, 0:20:06.240 --> 0:20:09.680 but if the endowment as a whole was not performing well, 0:20:09.720 --> 0:20:12.560 that didn't really matter. So he made a lot of changes. 0:20:13.520 --> 0:20:16.520 Let's talk about Actually, you mentioned natural resources, which could 0:20:16.520 --> 0:20:18.480 be code for a few things, so I remember I 0:20:18.560 --> 0:20:20.840 seem to recall I just remembered another thing that I 0:20:20.840 --> 0:20:24.480 remembered about David Swenson, which is I think he was 0:20:24.520 --> 0:20:26.359 like really into timber. Yeah, for a while, and there 0:20:26.480 --> 0:20:29.320 was like sort of like famously into timber. But then 0:20:29.359 --> 0:20:33.720 there's another natural resource issue, and this will eventually allow 0:20:33.800 --> 0:20:35.480 us to talk about what I really want to talk about, 0:20:35.520 --> 0:20:38.560 which is the University of Texas. But of course resource 0:20:38.600 --> 0:20:41.800 politics and resource investing is also always controversial when it 0:20:41.840 --> 0:20:44.840 comes to you know, carbon fuels like oil and stuff 0:20:44.880 --> 0:20:47.520 like that. So before we get into Texas and all 0:20:47.600 --> 0:20:50.920 their oil money, what is the status of Harvard's own 0:20:51.600 --> 0:20:54.280 investments in things like oil, et cetera. And how does 0:20:54.359 --> 0:20:58.120 like the sort of unique politics of Harvard affect those choices. 0:20:58.600 --> 0:21:03.040 So for a long time, most schools, you know, were 0:21:03.080 --> 0:21:06.720 asked by their students to divest from anything related to 0:21:06.720 --> 0:21:10.440 fossil fuels. Harvard did not divest from anything. I think 0:21:10.560 --> 0:21:15.760 sometimes that's not understood. Well, divest means selling things, and 0:21:16.040 --> 0:21:19.160 Harvard said, we're not going to make new investments. So 0:21:19.400 --> 0:21:21.840 you know what it means to allow things to roll off, 0:21:21.880 --> 0:21:23.760 You're not going to make you know, when this next 0:21:23.760 --> 0:21:26.800 private equity fund is raising money, that means they may 0:21:26.840 --> 0:21:30.720 not go into it. They're not selling on the secondary market. 0:21:31.080 --> 0:21:35.080 You know, typically endowments don't have direct holdings, or you know, 0:21:35.119 --> 0:21:37.520 maybe they have a tiny amount, maybe it was a 0:21:37.560 --> 0:21:40.080 gift and they still have held on to it. But 0:21:40.160 --> 0:21:43.920 typically endowments today do not have direct holdings and companies. 0:21:44.080 --> 0:21:45.080