November 22, 2024 • 37 mins
For years, the Harvard Endowment has easily been the largest endowment of any university. But as of right now, it's at risk of losing its crown to the University of Texas. So what happened? It's a combination of things including organizational tumult, external controversies over the university, controversy about the endowment's model itself, and other factors. And of course, Texas has unique tailwinds -- including a huge energy windfall -- that aren't easily replicated elsewhere. On this episode we speak with Bloomberg's higher education reporter Janet Lorin about what's changed at this huge source of capital.
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Episode Transcript
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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of The Odd Lots Podcast.
Speaker 3 (00:23):
I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2 (00:26):
Tracy, we talk about investing all the time on the show.
We talk about private credit, we talk about hedge funds,
we talk about the market itself. But you know, there
are like a few of these gigantic institutional players out there.
One of them is insurance that like just don't get
a lot of attention.
Speaker 3 (00:43):
These huge pools of capital. Yeah, you're right.
Speaker 2 (00:47):
So you know we've talked about we want to talk
about insurance more, should probably talk about family offices more. Yeah,
Like that's this whole world that I don't think we've
ever really explored, but just this massive and booming source
of capital. Like what the deal is with those?
Speaker 3 (01:02):
Yeah? I remember right around the time that I left
Hong Kong that was such a big story, especially in Singapore,
everyone opening family offices. But there's another category of massive
pools of capital that we need to talk.
Speaker 2 (01:15):
About absolutely, and that one, of course is endowments. They're
huge and they have you know, they're distinct, they're distinct
from banks, they're distinct from insurance companies, they have their
own funding needs and their own funding profiles and the
schedules with which they need to withdraw and disburse their money.
And if you're a hedge fund, or if you're anyone
else looking for money for your investment, at the end
(01:37):
of the line, there's a good chance that, like, at
some point, you're going to be knocking on the door
of a really big endowment.
Speaker 3 (01:43):
Yeah, So I'm really interested in kind of how that
became a thing, because, of course, university endowments nowadays are
known for making investments in things like private equity and
hedge funds and stuff like that, and I'm curious how
all of that began, and then obviously how it's been
working out.
Speaker 2 (02:02):
So, you know what another cool thing, Tracy is, at
least when it comes to university endowments. I believe the
endowment of my alma mater, University of Texas, is on
that I knew that was k Yeah, is on the
verge of becoming the biggest university endowment in the country.
Speaker 3 (02:18):
Right, So for years, Harvard was the biggest, right, but
it looks like it might be superseded by Joe's College.
Congratulations Joe, thank you have you been donating? Is this
all you can.
Speaker 2 (02:30):
I say, I don't. I've never donated. They have so
much money already, they don't need my donation. I probably should.
I don't want to talk about how I avoid the
calls from my university, and I don't know, I feel
a little bad about it.
Speaker 3 (02:43):
I think in this case, well we'll get into why,
but maybe it's okay not to donate. Well we'll talk.
Speaker 2 (02:50):
I don't really want to talk about it. I don't
really you know, And even talking about how big UT
is versus I think there's actually like twenty two universities
or something served by the Texas Endowment and other things.
So I don't even know if it's a true apples
to Apple's comparison, because you know, the student body of
Texas is so jiganting. Nonetheless, if we're just looking at, Okay,
(03:11):
which university endowment is the biggest, at least currently, there's
a very good chance it looks like the Texas could
eclipse Harvard on that front. So we got to understand
what's going on more in endowment world. And then the
other thing is not just that Texas has grown and
that's great and I love to see it, but that
Harvard's performance has been a little bit mediocre in recent years,
even compared to just other ivs, the rest of which
(03:32):
sort of smaller. The Yale Endowment is sort of famous,
actually not necessarily due to its size, but because of
its longtime manager's approach to endowment investing. So we got
to learn more about what's going on with Harvard and
what's how these big institutional pools of capital, how they're performing,
and what they're doing.
Speaker 3 (03:50):
Yeah, it is kind of funny that the Harvard Endowment,
which presumably employs a lot of highly paid smart people.
I think it was up about nine point six percent
in twenty twenty four, that's the preliminary fiscal year. But
of course the S and P five hundred is like
twenty two percent so far. So yeah, what's going on?
Speaker 2 (04:11):
Just hy spy. No, like people will say, oh, you
can't really compare. People love to say people love to
say you can't compare things. Oh you can't compare hedge
funds return to the SMP. You can't compare an endowment
funds return to the SMB. Maybe that's true. I don't
totally get why anyway, should we learn more?
Speaker 3 (04:26):
Let's do it.
Speaker 2 (04:26):
Well, I'm really excited to say we do have the
perfect guest someone here at Bloomberg who I've wanted to
speak to on the podcast for a long time. We're
going to be speaking with Janet Lauren, higher education finance
reporter for Bloomberg. Janet, thank you so much for coming
on odd Laws.
Speaker 4 (04:40):
Thanks for having me.
Speaker 2 (04:41):
How do you get to be the higher ed finance
reporter of Bloomberg? And also, it's like we just have one, Like,
what's the deal there? These institutions are so important. We
probably have, you know, twenty people covering hedge funds. We
just have a higher education finance reporter.
Speaker 4 (04:55):
Well, I've been writing about university finances for almost seventeen
years here at Bloomberg. And it's not just endowments, but
I used to write a lot about student loans back
when they were only about a trillion dollars in outstanding
debt and college admissions and endowments, and it's just a
fun job and there's a lot of money involved, and
there's a lot of nuance that most people have no
(05:17):
idea about. And it's thrilled to talk about Harvard as
well as the University of Texas. It has an amazing story.
Speaker 3 (05:24):
Okay, so talk to us a little bit more about
how significant the space is, Like, how much money are
we actually talking about?
Speaker 4 (05:31):
Off the top of my head, I mean, we're talking
about several hundred billion dollars the universe is. You know,
there aren't too many college endowments that have over a billion.
Maybe it's around fifty. I can get you the exact number,
but there certainly aren't that many the size of Harvard
and Yale and the University of Texas and Harvard, I
(05:53):
included many stories. Is the oldest and richest university. You know,
it goes back to the sixteen hundreds, and Harvard was
actually found, you know, through a donation and as you know, donors, alumni,
rich people in Boston gave them money over hundreds of years.
You know about that thing called compounding interests.
Speaker 2 (06:10):
Yeah, imagine if you just bought spy on sixteen hundred. Sorry.
Speaker 4 (06:14):
So that has certainly helped them. But in the nineteen
sixties college endowment started doing something different. Instead of having
a traditional sixty forty split, you know, with a lot
of plain vanilla type US equities bonds, they pursued a
different model. In the Ford Foundation actually presented this strategy
(06:36):
in schools like Harvard and Yale started using it because
their time horizon is literally in the hundreds of years,
so they liquidity for them is okay because you know,
they have a very long term horizon. So they started
moving things into liquid assets over time, private equity, hedge funds,
(06:57):
you know, eventually venture capital, real estate, you know, now
private credit. But at the time that was a pretty
new strategy. Harvard and Yale did things a little bit differently.
So Harvard started Harvard Management Company, which runs down and
is fifty years old this year. They actually operate not
in Cambridge but in downtown Boston in the Federal Reserve building.
(07:20):
It's actually very close to our Bloomberg office in Boston,
and they employed traders and it was, you know, over
two hundred people working there. They were extremely good at
their job. Their strategy was literally the envy of the world.
They made a ton of money. A guy by the
name of Jack Meyer ran the fund, and there was
some outcry by a group of alumni and people who
(07:41):
thought they were their managers were being paid too much
because they just consistently exceeded the market. And one year
there was a manager trying to remember, paid thirty five
million dollars and people were just aghast at that because
they made too much money. So after a lot of critics,
long story short, that model was disbanded. Jack left in
(08:04):
two thousand and five. They went through a succession of managers,
seven CEOs of the Harvard Management Company. Some only stayed
a short term. There were two less than two years,
several interims, changing strategies, selling off assets. You know, for
a while they were big into agriculture and real assets.
(08:26):
Those perform well, but then they didn't perform well. And
the current CEO has been there since December twenty sixteen.
He eventually sold a lot of those natural resources. You know,
I think, writing off like a billion dollars and you know,
change of strategy. Not at the greatest time. They didn't
have a lot of private equity, and they've ramped that
up now.
Speaker 3 (08:45):
That was a great potted history of Harvard's endowment. I
ought to say, Joe, I started rewatching. Did you ever
watch The Gilmore Girls? Probably not, No, I never did.
I started rewatching Gilmore Girls.
Speaker 2 (08:57):
And so are you going to tie this in?
Speaker 3 (08:59):
Well, so it's all about rich people in Boston basically,
and one of the main characters has to decide between
Harvard and Yale. She eventually goes to Yale. I guess
she was lured by the performance of the endowment.
Speaker 2 (09:15):
So, Jenny, you gave us the broad history of Harvard's endowment,
and I want to talk about actually like what happened
in those years from like how you have one stable
management company that goes all the way to two thousand
and five more or less, and then you run through
I think, what'd you say, like seven CEOs since then
or something, and then Tracy mentioned the Yale endowment with
their famous endowment manager for several years. David Swinton, can
(09:38):
you talk about like the sort of compare and contrast
between the strategic volatility and I'm not even talking about
price volatility, but the strategic management volatility of Harvard versus
the Yale model that I think David wrote a whole
book about.
Speaker 4 (09:52):
So, Harvard management company files a tax return and because
of their nonprofit status, they have to disclose how much
they pay their top p people. And Yale the Investment
Office is part of Yale University. They employ outside managers
and they have a much smaller number of employees and
only a handful of listed in the tax return. And
(10:14):
because they're using outside managers, you know, you think of
the two and twenty model, that's not showing up in
the tax return, whereas Harvard, you know, you could see
how much they were getting paid, and people read that
and it was a big deal how much they were
getting paid. And you know, that's really a simple explanation
of why Harvard's manager's got so much more scrutiny.
Speaker 3 (10:34):
So you talked about the criticism of you know, how
much they're getting paid. What's the benchmark for Harvard's performance, Like,
what are they actually comparing themselves to?
Speaker 4 (10:46):
Well, many endowments create their own benchmark, surprise, so I
don't know, you know, they come up with it. And
one of the big criticisms of Harvard's pay was the
managers who did extremely well in their own asset class
would get paid base on their own performance, not the
overall performance of the endowment. So if they had a
middling return, which they have, some of these managers still
(11:07):
got paid quite a lot of money.
Speaker 2 (11:09):
Well, then let me ask you another question. Let's say, Okay,
we don't really know what the benchmark is. So you
wrote this piece for Bloomberg a few weeks ago talking
about like issues and the performance.
Speaker 1 (11:20):
What has it been?
Speaker 2 (11:20):
Why now are people saying, Look, Harvard's performance is not
that great, there's some reason to be concerned. There's some
falling off in the what they're able to generate for
the university.
Speaker 4 (11:31):
Well, I think some insiders, especially you know, some of
their really famous economists, they know what's going on. But
the last year the performance was overshadowed by some other issues,
especially you know, their president being thrown before Congress. You know,
the president resigned, she had plagiarism scandal. People have been
(11:51):
very upset about how Harvard has handled anti semitism. The
story had last week said their fundraising was down. You know,
their cash gifts was the lowest in it fell fifteen percent.
It was the lowest since twenty fifteen. You know, they
famously raise a huge amount of money. You know, they're
known for the endowment, but they're also known for being
prolific fundraisers. And you know, they did get to a
(12:13):
billion dollars last year. But I'm sure it wasn't easy.
Considering people are upset when Plovotnik Ken Griffin both alum
said they're not giving money that they've paused their gifts
to Harvard because the way things are going there.
Speaker 3 (12:41):
So one thing I'm trying to wrap my head around is,
as we've mentioned a number of times, Harvard is a
huge pot of money. And I've heard people say stuff
like because of its size, it makes it harder to
move positions around, it can't be as nimble. But then
I think, well, it's huge, so it should be getting
(13:02):
like the best deals. It should have some sort of edge.
So is size here a net pro or con.
Speaker 4 (13:10):
I think that's a very fair question, And you know,
Harvard will say it's so big it's hard to manage
fifty three billion dollars. Now, keep in mind the size
hasn't been that big.
Speaker 1 (13:22):
Ever.
Speaker 4 (13:22):
They had a huge eleven billion dollar gain in fiscal
twenty one, you know, when everybody had a crazy year.
You know, some endowments had gains of fifty percent. Harvard
was on the low end at thirty four percent, And
of course they had a huge decrease during the financial crisis,
so they've been building back up. Now. The school with
the best ten year performance is Brown and that has
(13:43):
the smallest endowment size, and they're definitely more nimble but
they seem to take more risk. You know, they're into
you know, you've heard maybe there's some cryptocurrency or there's
some other risk there. And if you go back and
read all the Harvard alumni the Harvard financial reports, as
I did, the current CEO talks a lot about risk.
(14:04):
He mentions more than once that Harvard takes less risk
than its large peers. And you know it still could
be a vestige from two thousand and eight when they
had a huge liquidity problem.
Speaker 2 (14:15):
Let me ask another way of thinking about the benchmark
sitting aside. What is a good return in a given
year or a good return over five years? What is
the importance of the Harvard Endowment to the Harvard University budget?
And because there's multiple ways of financing the university, there's tuition,
there's alumni giving, there's probably other grants and stuff like that,
(14:38):
and then there's the money that the endowment throws off.
What does Harvard University need from the Harvard Endowment?
Speaker 4 (14:45):
Well, the Harvard Endowment is the largest provider of money
to the university thirty seven percent, okay, and that's grown
over time. Ten years ago it was thirty one percent,
and twenty years ago it was twenty twenty one percent.
So in other words, Harvard University is becoming a lot
more reliant on the Harvard endowment.
Speaker 3 (15:07):
So you mentioned this idea of investing in alts, and
I think Harvard was like a backer of D one
in particular a hedge fund. And I'm curious the sales
pitch from hedge funds is always uncorrelated returns. So what
happened in down years for Harvard, like in twenty twenty two,
(15:29):
twenty twenty three when markets were like or sorry in
twenty twenty three, when markets were falling? Did they manage
to post above average returns?
Speaker 4 (15:40):
So over time in twenty twenty three, I think they
had a two point nine percent gain, which was not bad.
You know, among the Ivy League schools, a couple of
big endowments head losses. I think it was Duke and Mit.
And Mit is really strong in their returns too that
we don't sort of use them in their eight schools
because you know, the Ivy League is a sports conference,
(16:02):
but it's also a nice group of eight schools that
you can easily compare. And Harvard, you know, in the
big year where the in twenty one they were below
average in the IVY League. Now, they didn't traditionally have
the allocation to private equity and vcs that say Yale did.
And Harvard is now at thirty nine percent in private equity,
(16:22):
but they've ramped up really since twenty sixteen. I'm sorry,
it was sixteen percent maybe five years ago, six years ago,
and now they're at thirty nine percent, So they've been
ramping up sort of not at the best time. And
keep in mind that Yale has been investing in some
of these private equity firms and vc for years and
years and years, and people really want to be Yale's partner,
(16:45):
and Harvard sort of has a reputation of not being
the greatest partner because as you saw on the D
one example, you know, they sell and you know they
had to unload, you know, a billion dollars worth of
natural resources assets. So people clamor to be, you know,
in the Yale and the Princeton Endowment because they're seen
as just amazing partners, and Harvard doesn't seem to have
(17:05):
that same reputation lately.
Speaker 2 (17:07):
Yeah, I mean, I don't know that much about the
Yale endowment model, but I probably should read David Swinston's
book at some point and all that and really learn
about it. But I do get the impression that it's
designed to just be not set it and forget it.
But like, truly it's all about that sort of all
cycle portfolio, right that really can just is designed to
(17:29):
ultimately work across a long cycle of whatever is.
Speaker 3 (17:32):
In and out.
Speaker 4 (17:33):
Well, they will look at firms for years before they
may make an investment, so they tend to do their
homework for a long time. And there I think I
remember on one report they said the average tenure of
their outside managers is something like thirteen years. So it's
you know, if you think getting into a school like
Yale or Princeton is hard, try getting to be one
(17:55):
of their managers.
Speaker 2 (17:56):
Well just actually, and I want to get into this war.
But just a very quick question, does Harvard have hedge
fund allocation? Of course, oh yeah, yeah, you're already talking. Yeah, okay, god,
they do, okay.
Speaker 4 (18:04):
And it's the second largest allocation now it's at thirty
two percent. The largest allocation is private equity at thirty
nine percent.
Speaker 2 (18:11):
And just a very very short question. If Tracy and
I are starting a hedge fund, and it's like a
multi strategy hedge fund and all that stuff. Would Harvard
definitely be one of our stops when we're trying to
look at raising money.
Speaker 4 (18:24):
Did you go to Harvard? I'm just kidding. Yeah, I
don't know. It just depends they like niche, really niche stuff.
Speaker 3 (18:33):
Got it.
Speaker 4 (18:34):
So if you're you know, peddling something like a Japanese
something fun that is really niche that nobody else is doing. Maybe.
Speaker 3 (18:41):
So you mentioned the sort of turmoil at the upper
levels of the Harvard Endowment and I think we're on
the fifth CEO in like eleven years something like that.
Can you describe the new CEO? Like where does he
come from? And is his style different to predecessors. I
(19:04):
think he's done somewhere structuring of the company and things
like that.
Speaker 4 (19:08):
Yes. So he came in December twenty sixteen from Columbia,
where he had excellent performance, and that was one of
the reasons why he was hired, because the performance at
Columbia used to be pretty good. But he came in
and had to steer a very large ship in a
ship that's very scrutinized. Everybody wants to know how Harvard
(19:29):
is doing, and as I mentioned, before they used to
employ more than two hundred people traders, and they had
a different model than Yale because they had a huge
internal presence, and they slashed that. He also reversed course
on natural resources, where that had been a huge interest
(19:49):
of Jane Mendillo, the previous longer term CEO of Harvard Management.
But they didn't do as well, so he sold a
lot of those off. They restructured pay again. We talked
about you know, if you're manager and you did great
in your own ASCID class, you would get handsomely rewarded,
but if the endowment as a whole was not performing well,
that didn't really matter. So he made a lot of changes.
Speaker 2 (20:13):
Let's talk about Actually, you mentioned natural resources, which could
be code for a few things, so I remember I
seem to recall I just remembered another thing that I
remembered about David Swenson, which is I think he was
like really into timber. Yeah, for a while, and there
was like sort of like famously into timber. But then
there's another natural resource issue, and this will eventually allow
(20:33):
us to talk about what I really want to talk about,
which is the University of Texas. But of course resource
politics and resource investing is also always controversial when it
comes to you know, carbon fuels like oil and stuff
like that. So before we get into Texas and all
their oil money, what is the status of Harvard's own
investments in things like oil, et cetera. And how does
(20:54):
like the sort of unique politics of Harvard affect those choices.
Speaker 4 (20:58):
So for a long time, most schools, you know, were
asked by their students to divest from anything related to
fossil fuels. Harvard did not divest from anything. I think
sometimes that's not understood. Well, divest means selling things, and
Harvard said, we're not going to make new investments. So
(21:19):
you know what it means to allow things to roll off,
You're not going to make you know, when this next
private equity fund is raising money, that means they may
not go into it. They're not selling on the secondary market.
You know, typically endowments don't have direct holdings, or you know,
maybe they have a tiny amount, maybe it was a
gift and they still have held on to it. But
(21:40):
typically endowments today do not have direct holdings and companies.
Speaker 3 (21:44):
That's how they used.
Speaker 4 (21:44):
To in you know, in the seventies and eighties and
in the eighties when you heard about schools divesting from,
you know, investments related to apartheid. They were literally selling
US companies that operated in South Africa. So that's a
huge change. So they stopped making new fossil fuel investments.
And NARV wrote in one of the reports in twenty
(22:05):
two when they had a loss, the CEO said Harvard
had missed out on strong returns in the energy sector
and that decision contributed, you know, marginally to the loss
a year. But at the same time, you look at
a place like Texas which has huge amounts of cash
coming in because of oil, and let's is this a
(22:26):
good time to bring up their history? Yeah?
Speaker 1 (22:28):
Yeah, yeah, there's a good way.
Speaker 3 (22:29):
Good Where does the how did the oil money kind
of start?
Speaker 4 (22:33):
So it was kind of a fluke in a lucky
stroke of history. In the late eighteen seventies, the state
of Texas set aside land for higher education, and it
was supposed to be near the railroad, but it was
too valuable and it got moved to West Texas, and
eventually higher education in Texas was allotted something like two
(22:55):
point one million acres in West Texas and they were
supposed to generate money by agriculture or grazing rights, and
the plan was eventually to sell it. But then in
nineteen twenty three, something happened. Joe, do you know what happened?
Speaker 2 (23:11):
Well, black Gold yet struck. Now there's a there at
the University of Texas campus, there's this little I don't
know if it's still there, but yeah, twenty years ago
there's this little like sort of I don't know, exhibit,
and they played this audio. It's like spinble top black
Gold and it has like with this like really like
exaggerated Texas accent, and there's like a fake oil derrick
(23:32):
or oil well or something like that. This sort of
shows like where it all came from.
Speaker 4 (23:36):
So in nineteen twenty three they literally started getting all
this revenue from oil. And I did a story a
couple of years ago. I went down to Midland and
I went on on the land and that year they
got something like two billion dollars in cash. And it's
it's completely separate from their endowment. It's not generated from investments.
(23:57):
It's just cash that comes in. And the crazy thing
about it is, you know they're you know you hear, oh, well,
at some point energy is not going to be you
know is not going to be as valuable, which you know,
it's still going to be around for twenty thirty years
generating a lot of money for Texas. But they're in
the best position for wind and solar also, which is
(24:19):
a really you know, nascent industry there. But you know,
when when you're ready for that, they're going to make
a lot of money too.
Speaker 3 (24:26):
It is kind of crazy to think that that decision
to set aside land in like the eighteen hundreds is
really paying off now. So every once in a while,
Joe will tweet something about the Texas Longhorns, the football team,
and so one thing I'm curious about is we're talking
about all this money that's flowing into universities. What's the
(24:48):
breakdown of like where colleges get their money. So I
imagine it's a mix of donations, returns from endowments, or
sports like part of that too.
Speaker 4 (24:59):
I don't think I think it's a huge amount. I mean
unless you're you know, one of the schools like Texas
that actually makes money on sports. But it's a very
small number of schools actually collect you know, somewhat of
a I don't want to say a prophet, but generate revenue.
But you know, many schools have weird histories of how
they made their money, like Emery for example, in Atlanta.
(25:21):
They're one of the richest schools and part of the
reason is because of the Koch stock that was given
to them and they eventually sold. Northwestern is one of
the richest schools because a drug called Lyrica was developed
in the chemistry department one of their presidents a few
years a few presidents back, decided to sell half of
the royalties and that's you know why they had why
(25:43):
they became one of the richest schools.
Speaker 2 (25:45):
Sorry, I'm just thinking more about that little exhibit on
the Texas camp.
Speaker 3 (25:49):
But there's the other thing.
Speaker 2 (25:49):
They're like black Goal Texas c which they also said,
I love that Texas ce.
Speaker 3 (25:54):
Why didn't we go see that exhibit?
Speaker 2 (25:57):
Yeah, I don't know, but it's like one of those
things where it's like if you're college student, you're like
walking around and you may be like drunken eleven pm
at night and you're like walking through campus like you
stopped there and the audio is playing. If I recall
like twenty four to seven next to this pump, and.
Speaker 3 (26:11):
I'm sure you're not speaking from personal experience.
Speaker 2 (26:13):
I don't see, not really, but that's like a thing
that you do, Okay, I get like Texas has this
big advantage because of this flute gift from over one
hundred years ago, and they discovered all the oil and
you know, and the wind and solar coming up. But
like it's not just that they've done a good job too, right, Well.
Speaker 4 (26:29):
They're huge. I mean it's a huge campus. And initially
that money only funded two campuses, U T Austin, and
we can't forget about Texas A and M in college station.
They share, they share that land. Two thirds goes to
University of Texas at Austin, one third goes to Texas
A and M. And they pull that money together and
(26:51):
it's invested in a company called you Timco. They followed
the Harvard Management company model and they created a separate company.
And you tim is based in Austin. And you know,
if you're a hedge fund and you're visiting, you know,
the big Texas pension funds, you Timco is there in Austin,
so it would just be another place.
Speaker 2 (27:09):
So Tracy, because of my Texas roots and we're starting
our odd lots multi strategy hedge fund we would stop
at you, Timco rather than Harvard. That would be our
first stop rather than Harvard.
Speaker 3 (27:19):
It sounds like you just want to go to Texas.
Speaker 2 (27:22):
Yeah, but I also want the money.
Speaker 3 (27:23):
Yeah, Okay. One thing I'm wondering is so endowments are
invested heavily in private equity, which we talked about, and
it feels to me like there's a little bit more
criticism of private equity right now than there used to be.
There is a big piece in the Guardian about how
private equity is like ruining the economy and things like that.
(27:45):
Do you think there's going to be any pressure to
divest from PE?
Speaker 4 (27:49):
Well, I don't know that they would want to sell
anything on the secondary market, but they you know, perhaps
you know, they may not want to re up and
increase their allocation because at this point they're quite large,
you know, Harvard and Yale and Princeton, they're all around
the thirty nine percent ish percentage. And part of the
reason is, again I keep going back to twenty twenty
one when they had these crazy returns, but you know
(28:11):
the value of their private equity books just really increased
with those returns, So you know, it's just a it's
a bigger share of their endowment. And plus you know,
they've had great returns up until recently. And you know,
when you think of when David Swinston started investing in
private equity decades ago, there wasn't that much money, so
(28:31):
it was easier to get crazy returns as they did.
Speaker 2 (28:50):
So where are we in terms of the biggest How
close are we towards my U Timco eclipsing a Harvard
management company? Like what are we talking about here?
Speaker 4 (28:58):
Well, it's hard to tell. I mean if you look
at how Harvard did in the last ten years in
their annualized returns and the year that ended twenty twenty three,
they were in the bottom twenty percent. So it's hard
to tell. I mean, if you get another banner year
with energy and they keep getting a couple billion dollars
in cash, But.
Speaker 2 (29:17):
Like Hony, how much literally is the gap? Like what
do we know of in terms of their size?
Speaker 4 (29:20):
I don't know if I've seen what U Timco size
is right now, but you know, a couple billion here
and there, so we're close.
Speaker 3 (29:28):
Okay. So the other thing that's going on, speaking of
public criticism, is some of the Israel Palestine controversy that's
happened at Harvard over the past year. Talk to us
about that and what impact that's been having on donations.
Speaker 4 (29:44):
So Harvard has been at the forefront of protests on campus,
like many schools, they had encampments. There's ended in the
spring without police arrests. I think everybody was very happy
about that. But there was a tremendous amount of criticism
over the last year about how they've handled anti semitism
on campus, protests, encampments, and alumni really mobilized and said
(30:08):
we're not donating, and you know in alumni, very wealthy
ones like Lenn Blovotnik and just sort of your average
Harvard alum, you know, said we're not going to do this.
And they're known for being amazing fundraisers. They've raised over
a billion dollars every year since twenty fourteen. They usually
(30:29):
raised the most, although Stanford has raised more in some years.
And donations were down fifteen percent and in the year
ended in June, and when you think about when they
were in the news so much at the end of December,
remember there was that congressional hearing in December fifth with
the presidents of Penn MIT and Harvard. They were, you know,
(30:51):
in the news NonStop until the end of December. She
ultimately stepped down, clutting gay the president on January second.
But when do most people make their gifts to colleges.
They make their gifts at the end of the calendar year,
and that was not a great time for Harvard.
Speaker 2 (31:10):
I just have one last question, and it's a little
bit philosophical. Am I bad for donating to my college?
I had an amazing time at Texas. I mean this seriously.
I had an amazing time at Texas. Nothing I actually
learned led directly to a job, but it was a
formative experience. I look back on it fondly. I've been
very fortunate in my career since then. Many good things
(31:33):
that have happened in my life were roughly from that
time that I spent there. Like, should I think about
this differently? Because when I look at it's like they
have tons of money, they don't really need anymore. Like
pitch me that.
Speaker 4 (31:45):
It's like a good idea, Well, do you want to
help students have a similar experience that you do.
Speaker 2 (31:51):
They have tons of money.
Speaker 4 (31:52):
I don't know, maybe there's something in particular you can
tailor your donation to something specifically, I mean, and that's
one of the podcasts.
Speaker 1 (32:00):
Yeah.
Speaker 4 (32:00):
Well, that's one of the things that Harvard complains about
is a lot of their money is they say it's restricted.
Oh yeah, right, so if you give money to the
crew team, they can't spend it in theory on the
tennis team.
Speaker 1 (32:11):
Right.
Speaker 4 (32:11):
So you could say I want to you know, I
want to give it to something, and then there you go.
It could be named after you if you want.
Speaker 2 (32:20):
Yeah, maybe a little maybe a little podcast studio at
the j School.
Speaker 3 (32:25):
There you guysenthal podcast.
Speaker 2 (32:26):
Yea there, maybe maybe that.
Speaker 4 (32:28):
And they you know, one thing about these gifts is
you know, their multi year so you could make up
pledge over ten years or whatever the case.
Speaker 2 (32:36):
But I'm open to changing my mind on this. So
I just but you know, I wrestle with it because
I just between the three of us here in the room,
like I think I have the number that like they
call me on like I either haven't blocked or like
I have like it says like do not answer.
Speaker 1 (32:52):
I'm open to.
Speaker 2 (32:52):
I'm open to like kind of cruel. That's yeah, I know,
That's what I'm saying. I have a little issue I have.
I have some misgivings, and I'm open to rethinking this
question at this stage in my life. Janet Lauren, thank
you so much for coming on. I really appreciate it.
Speaker 1 (33:05):
Thanks for having me, Tracy.
Speaker 2 (33:21):
I am going to use this podcast for the most
nakedly egregious self serving purpose ever right now, and I
just want everyone to be aware of that.
Speaker 3 (33:30):
Okay, Wait, is it urging listeners to continue to support
the pod so that you can make donations to Steve?
Speaker 2 (33:37):
No? No, no, I'm like open to rethinking my philosophy
on donations because I probably when I blocked the number,
I was like, you know, much younger and earlier in
my career. No, you know what I've thought. I can't
believe I'm going to say this out loud. I've thought
that a nice, I quote retirement job for me would
be being some sort of adjunct professor at the journalism
(34:00):
school at UT And like, you know, I've done a
lot in digital media and like maybe through donations or something,
find a way back into that community.
Speaker 3 (34:07):
Yeah, start laying the ground right now.
Speaker 2 (34:09):
Basically, start prepaying my salary, make a bunch of donations
so that you know, twenty years from now, when we
stop doing odd lots. There's like this pool of money
that can fund my adjunct degree.
Speaker 3 (34:21):
Yeah.
Speaker 2 (34:22):
Absolutely, but maybe someone will hear that. And like I'm
just saying.
Speaker 3 (34:27):
Don't go to Texas, Joe.
Speaker 4 (34:29):
No I'm not.
Speaker 2 (34:30):
I'm just yeah, I won't, Okay, but I but yeah,
maybe someone will listen and at the University of Texas
Journalism School and hear about.
Speaker 3 (34:37):
My twenty years twenty year Yeah. You know.
Speaker 2 (34:40):
One other thing though, for real, though, I think it's
really interesting about this, and I hadn't realized, is the
difference in the corporate structure between the Harvard Endowment and
the Yale Endowment. And so you can and so anyone
can just look at the Harvard endowments. Why are you
paying all these people so much? Have you heard? Passive
is the future? All these fees And yet you could
(35:02):
have another institution that's doing fantastically and no one sees
how much they're paying managers or how much individual star
traders are getting because those independent star traders are at
the hedge funds that no one actually gets to see
because they don't file some independent return you know.
Speaker 3 (35:17):
Speaking of transparency, I saw this really great chart in
the Harvard Crimson the student newspaper, and it's the word
count of the annual message. I love that from the
Harvard Management Company CEO, the Endowment CEO, and I think
it used to be like over three thousand words typically
(35:37):
and now it's gone down to a little over one thousand.
So interesting. That's where a lot of the criticism of
lack of transparency at Harvard comes from.
Speaker 2 (35:47):
Yeah, well you just get rid of all, you know,
don't have any in house traders talking your thing, and
you let the third party managers, the hedge funds be
let them write the words in the letters. That's their
job is to write words in the letters.
Speaker 3 (35:59):
That's right. We leave it there. Let's leave it there,
all right. This has been another episode of the Authots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (36:08):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Janet Lauren at Janet Lauren and check
out her recent big take on the Harvard Endowment on
Bloomberg dot com. Follow our producers Carmen Rodriguez at Kerman
armand Dashel Bennett at Dashbot and Kilbrooks at Kilbrooks and
Thank you to our producer Moses onam form our Odd
Lots content. Go to Bloomberg dot com slash odd Lots,
(36:30):
where have transcripts, a blog and a newsletter and you
can chat about all of these topics twenty four to
seven in our discord Discord dot gg slash od Lots.
Speaker 3 (36:38):
And if you want more odd Lots content, you should
check out an offer that we have running right now.
You can become a Bloomberg subscriber at a special introductory rate.
All you have to do is go to Bloomberg dot
com Forward slash Podcast offer and then click on the
link in the show notes, and if you do that,
(37:00):
you will get ad free Odd Lots of episodes as
well as access to our new daily newsletter. Thanks for listening.
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of The Odd Lots Podcast.
Speaker 3 (00:23):
I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2 (00:26):
Tracy, we talk about investing all the time on the show.
We talk about private credit, we talk about hedge funds,
we talk about the market itself. But you know, there
are like a few of these gigantic institutional players out there.
One of them is insurance that like just don't get
a lot of attention.
Speaker 3 (00:43):
These huge pools of capital. Yeah, you're right.
Speaker 2 (00:47):
So you know we've talked about we want to talk
about insurance more, should probably talk about family offices more. Yeah,
Like that's this whole world that I don't think we've
ever really explored, but just this massive and booming source
of capital. Like what the deal is with those?
Speaker 3 (01:02):
Yeah? I remember right around the time that I left
Hong Kong that was such a big story, especially in Singapore,
everyone opening family offices. But there's another category of massive
pools of capital that we need to talk.
Speaker 2 (01:15):
About absolutely, and that one, of course is endowments. They're
huge and they have you know, they're distinct, they're distinct
from banks, they're distinct from insurance companies, they have their
own funding needs and their own funding profiles and the
schedules with which they need to withdraw and disburse their money.
And if you're a hedge fund, or if you're anyone
else looking for money for your investment, at the end
(01:37):
of the line, there's a good chance that, like, at
some point, you're going to be knocking on the door
of a really big endowment.
Speaker 3 (01:43):
Yeah, So I'm really interested in kind of how that
became a thing, because, of course, university endowments nowadays are
known for making investments in things like private equity and
hedge funds and stuff like that, and I'm curious how
all of that began, and then obviously how it's been
working out.
Speaker 2 (02:02):
So, you know what another cool thing, Tracy is, at
least when it comes to university endowments. I believe the
endowment of my alma mater, University of Texas, is on
that I knew that was k Yeah, is on the
verge of becoming the biggest university endowment in the country.
Speaker 3 (02:18):
Right, So for years, Harvard was the biggest, right, but
it looks like it might be superseded by Joe's College.
Congratulations Joe, thank you have you been donating? Is this
all you can.
Speaker 2 (02:30):
I say, I don't. I've never donated. They have so
much money already, they don't need my donation. I probably should.
I don't want to talk about how I avoid the
calls from my university, and I don't know, I feel
a little bad about it.
Speaker 3 (02:43):
I think in this case, well we'll get into why,
but maybe it's okay not to donate. Well we'll talk.
Speaker 2 (02:50):
I don't really want to talk about it. I don't
really you know, And even talking about how big UT
is versus I think there's actually like twenty two universities
or something served by the Texas Endowment and other things.
So I don't even know if it's a true apples
to Apple's comparison, because you know, the student body of
Texas is so jiganting. Nonetheless, if we're just looking at, Okay,
(03:11):
which university endowment is the biggest, at least currently, there's
a very good chance it looks like the Texas could
eclipse Harvard on that front. So we got to understand
what's going on more in endowment world. And then the
other thing is not just that Texas has grown and
that's great and I love to see it, but that
Harvard's performance has been a little bit mediocre in recent years,
even compared to just other ivs, the rest of which
(03:32):
sort of smaller. The Yale Endowment is sort of famous,
actually not necessarily due to its size, but because of
its longtime manager's approach to endowment investing. So we got
to learn more about what's going on with Harvard and
what's how these big institutional pools of capital, how they're performing,
and what they're doing.
Speaker 3 (03:50):
Yeah, it is kind of funny that the Harvard Endowment,
which presumably employs a lot of highly paid smart people.
I think it was up about nine point six percent
in twenty twenty four, that's the preliminary fiscal year. But
of course the S and P five hundred is like
twenty two percent so far. So yeah, what's going on?
Speaker 2 (04:11):
Just hy spy. No, like people will say, oh, you
can't really compare. People love to say people love to
say you can't compare things. Oh you can't compare hedge
funds return to the SMP. You can't compare an endowment
funds return to the SMB. Maybe that's true. I don't
totally get why anyway, should we learn more?
Speaker 3 (04:26):
Let's do it.
Speaker 2 (04:26):
Well, I'm really excited to say we do have the
perfect guest someone here at Bloomberg who I've wanted to
speak to on the podcast for a long time. We're
going to be speaking with Janet Lauren, higher education finance
reporter for Bloomberg. Janet, thank you so much for coming
on odd Laws.
Speaker 4 (04:40):
Thanks for having me.
Speaker 2 (04:41):
How do you get to be the higher ed finance
reporter of Bloomberg? And also, it's like we just have one, Like,
what's the deal there? These institutions are so important. We
probably have, you know, twenty people covering hedge funds. We
just have a higher education finance reporter.
Speaker 4 (04:55):
Well, I've been writing about university finances for almost seventeen
years here at Bloomberg. And it's not just endowments, but
I used to write a lot about student loans back
when they were only about a trillion dollars in outstanding
debt and college admissions and endowments, and it's just a
fun job and there's a lot of money involved, and
there's a lot of nuance that most people have no
(05:17):
idea about. And it's thrilled to talk about Harvard as
well as the University of Texas. It has an amazing story.
Speaker 3 (05:24):
Okay, so talk to us a little bit more about
how significant the space is, Like, how much money are
we actually talking about?
Speaker 4 (05:31):
Off the top of my head, I mean, we're talking
about several hundred billion dollars the universe is. You know,
there aren't too many college endowments that have over a billion.
Maybe it's around fifty. I can get you the exact number,
but there certainly aren't that many the size of Harvard
and Yale and the University of Texas and Harvard, I
(05:53):
included many stories. Is the oldest and richest university. You know,
it goes back to the sixteen hundreds, and Harvard was
actually found, you know, through a donation and as you know, donors, alumni,
rich people in Boston gave them money over hundreds of years.
You know about that thing called compounding interests.
Speaker 2 (06:10):
Yeah, imagine if you just bought spy on sixteen hundred. Sorry.
Speaker 4 (06:14):
So that has certainly helped them. But in the nineteen
sixties college endowment started doing something different. Instead of having
a traditional sixty forty split, you know, with a lot
of plain vanilla type US equities bonds, they pursued a
different model. In the Ford Foundation actually presented this strategy
(06:36):
in schools like Harvard and Yale started using it because
their time horizon is literally in the hundreds of years,
so they liquidity for them is okay because you know,
they have a very long term horizon. So they started
moving things into liquid assets over time, private equity, hedge funds,
(06:57):
you know, eventually venture capital, real estate, you know, now
private credit. But at the time that was a pretty
new strategy. Harvard and Yale did things a little bit differently.
So Harvard started Harvard Management Company, which runs down and
is fifty years old this year. They actually operate not
in Cambridge but in downtown Boston in the Federal Reserve building.
(07:20):
It's actually very close to our Bloomberg office in Boston,
and they employed traders and it was, you know, over
two hundred people working there. They were extremely good at
their job. Their strategy was literally the envy of the world.
They made a ton of money. A guy by the
name of Jack Meyer ran the fund, and there was
some outcry by a group of alumni and people who
(07:41):
thought they were their managers were being paid too much
because they just consistently exceeded the market. And one year
there was a manager trying to remember, paid thirty five
million dollars and people were just aghast at that because
they made too much money. So after a lot of critics,
long story short, that model was disbanded. Jack left in
(08:04):
two thousand and five. They went through a succession of managers,
seven CEOs of the Harvard Management Company. Some only stayed
a short term. There were two less than two years,
several interims, changing strategies, selling off assets. You know, for
a while they were big into agriculture and real assets.
(08:26):
Those perform well, but then they didn't perform well. And
the current CEO has been there since December twenty sixteen.
He eventually sold a lot of those natural resources. You know,
I think, writing off like a billion dollars and you know,
change of strategy. Not at the greatest time. They didn't
have a lot of private equity, and they've ramped that
up now.
Speaker 3 (08:45):
That was a great potted history of Harvard's endowment. I
ought to say, Joe, I started rewatching. Did you ever
watch The Gilmore Girls? Probably not, No, I never did.
I started rewatching Gilmore Girls.
Speaker 2 (08:57):
And so are you going to tie this in?
Speaker 3 (08:59):
Well, so it's all about rich people in Boston basically,
and one of the main characters has to decide between
Harvard and Yale. She eventually goes to Yale. I guess
she was lured by the performance of the endowment.
Speaker 2 (09:15):
So, Jenny, you gave us the broad history of Harvard's endowment,
and I want to talk about actually like what happened
in those years from like how you have one stable
management company that goes all the way to two thousand
and five more or less, and then you run through
I think, what'd you say, like seven CEOs since then
or something, and then Tracy mentioned the Yale endowment with
their famous endowment manager for several years. David Swinton, can
(09:38):
you talk about like the sort of compare and contrast
between the strategic volatility and I'm not even talking about
price volatility, but the strategic management volatility of Harvard versus
the Yale model that I think David wrote a whole
book about.
Speaker 4 (09:52):
So, Harvard management company files a tax return and because
of their nonprofit status, they have to disclose how much
they pay their top p people. And Yale the Investment
Office is part of Yale University. They employ outside managers
and they have a much smaller number of employees and
only a handful of listed in the tax return. And
(10:14):
because they're using outside managers, you know, you think of
the two and twenty model, that's not showing up in
the tax return, whereas Harvard, you know, you could see
how much they were getting paid, and people read that
and it was a big deal how much they were
getting paid. And you know, that's really a simple explanation
of why Harvard's manager's got so much more scrutiny.
Speaker 3 (10:34):
So you talked about the criticism of you know, how
much they're getting paid. What's the benchmark for Harvard's performance, Like,
what are they actually comparing themselves to?
Speaker 4 (10:46):
Well, many endowments create their own benchmark, surprise, so I
don't know, you know, they come up with it. And
one of the big criticisms of Harvard's pay was the
managers who did extremely well in their own asset class
would get paid base on their own performance, not the
overall performance of the endowment. So if they had a
middling return, which they have, some of these managers still
(11:07):
got paid quite a lot of money.
Speaker 2 (11:09):
Well, then let me ask you another question. Let's say, Okay,
we don't really know what the benchmark is. So you
wrote this piece for Bloomberg a few weeks ago talking
about like issues and the performance.
Speaker 1 (11:20):
What has it been?
Speaker 2 (11:20):
Why now are people saying, Look, Harvard's performance is not
that great, there's some reason to be concerned. There's some
falling off in the what they're able to generate for
the university.
Speaker 4 (11:31):
Well, I think some insiders, especially you know, some of
their really famous economists, they know what's going on. But
the last year the performance was overshadowed by some other issues,
especially you know, their president being thrown before Congress. You know,
the president resigned, she had plagiarism scandal. People have been
(11:51):
very upset about how Harvard has handled anti semitism. The
story had last week said their fundraising was down. You know,
their cash gifts was the lowest in it fell fifteen percent.
It was the lowest since twenty fifteen. You know, they
famously raise a huge amount of money. You know, they're
known for the endowment, but they're also known for being
prolific fundraisers. And you know, they did get to a
(12:13):
billion dollars last year. But I'm sure it wasn't easy.
Considering people are upset when Plovotnik Ken Griffin both alum
said they're not giving money that they've paused their gifts
to Harvard because the way things are going there.
Speaker 3 (12:41):
So one thing I'm trying to wrap my head around is,
as we've mentioned a number of times, Harvard is a
huge pot of money. And I've heard people say stuff
like because of its size, it makes it harder to
move positions around, it can't be as nimble. But then
I think, well, it's huge, so it should be getting
(13:02):
like the best deals. It should have some sort of edge.
So is size here a net pro or con.
Speaker 4 (13:10):
I think that's a very fair question, And you know,
Harvard will say it's so big it's hard to manage
fifty three billion dollars. Now, keep in mind the size
hasn't been that big.
Speaker 1 (13:22):
Ever.
Speaker 4 (13:22):
They had a huge eleven billion dollar gain in fiscal
twenty one, you know, when everybody had a crazy year.
You know, some endowments had gains of fifty percent. Harvard
was on the low end at thirty four percent, And
of course they had a huge decrease during the financial crisis,
so they've been building back up. Now. The school with
the best ten year performance is Brown and that has
(13:43):
the smallest endowment size, and they're definitely more nimble but
they seem to take more risk. You know, they're into
you know, you've heard maybe there's some cryptocurrency or there's
some other risk there. And if you go back and
read all the Harvard alumni the Harvard financial reports, as
I did, the current CEO talks a lot about risk.
(14:04):
He mentions more than once that Harvard takes less risk
than its large peers. And you know it still could
be a vestige from two thousand and eight when they
had a huge liquidity problem.
Speaker 2 (14:15):
Let me ask another way of thinking about the benchmark
sitting aside. What is a good return in a given
year or a good return over five years? What is
the importance of the Harvard Endowment to the Harvard University budget?
And because there's multiple ways of financing the university, there's tuition,
there's alumni giving, there's probably other grants and stuff like that,
(14:38):
and then there's the money that the endowment throws off.
What does Harvard University need from the Harvard Endowment?
Speaker 4 (14:45):
Well, the Harvard Endowment is the largest provider of money
to the university thirty seven percent, okay, and that's grown
over time. Ten years ago it was thirty one percent,
and twenty years ago it was twenty twenty one percent.
So in other words, Harvard University is becoming a lot
more reliant on the Harvard endowment.
Speaker 3 (15:07):
So you mentioned this idea of investing in alts, and
I think Harvard was like a backer of D one
in particular a hedge fund. And I'm curious the sales
pitch from hedge funds is always uncorrelated returns. So what
happened in down years for Harvard, like in twenty twenty two,
(15:29):
twenty twenty three when markets were like or sorry in
twenty twenty three, when markets were falling? Did they manage
to post above average returns?
Speaker 4 (15:40):
So over time in twenty twenty three, I think they
had a two point nine percent gain, which was not bad.
You know, among the Ivy League schools, a couple of
big endowments head losses. I think it was Duke and Mit.
And Mit is really strong in their returns too that
we don't sort of use them in their eight schools
because you know, the Ivy League is a sports conference,
(16:02):
but it's also a nice group of eight schools that
you can easily compare. And Harvard, you know, in the
big year where the in twenty one they were below
average in the IVY League. Now, they didn't traditionally have
the allocation to private equity and vcs that say Yale did.
And Harvard is now at thirty nine percent in private equity,
(16:22):
but they've ramped up really since twenty sixteen. I'm sorry,
it was sixteen percent maybe five years ago, six years ago,
and now they're at thirty nine percent, So they've been
ramping up sort of not at the best time. And
keep in mind that Yale has been investing in some
of these private equity firms and vc for years and
years and years, and people really want to be Yale's partner,
(16:45):
and Harvard sort of has a reputation of not being
the greatest partner because as you saw on the D
one example, you know, they sell and you know they
had to unload, you know, a billion dollars worth of
natural resources assets. So people clamor to be, you know,
in the Yale and the Princeton Endowment because they're seen
as just amazing partners, and Harvard doesn't seem to have
(17:05):
that same reputation lately.
Speaker 2 (17:07):
Yeah, I mean, I don't know that much about the
Yale endowment model, but I probably should read David Swinston's
book at some point and all that and really learn
about it. But I do get the impression that it's
designed to just be not set it and forget it.
But like, truly it's all about that sort of all
cycle portfolio, right that really can just is designed to
(17:29):
ultimately work across a long cycle of whatever is.
Speaker 3 (17:32):
In and out.
Speaker 4 (17:33):
Well, they will look at firms for years before they
may make an investment, so they tend to do their
homework for a long time. And there I think I
remember on one report they said the average tenure of
their outside managers is something like thirteen years. So it's
you know, if you think getting into a school like
Yale or Princeton is hard, try getting to be one
(17:55):
of their managers.
Speaker 2 (17:56):
Well just actually, and I want to get into this war.
But just a very quick question, does Harvard have hedge
fund allocation? Of course, oh yeah, yeah, you're already talking. Yeah, okay, god,
they do, okay.
Speaker 4 (18:04):
And it's the second largest allocation now it's at thirty
two percent. The largest allocation is private equity at thirty
nine percent.
Speaker 2 (18:11):
And just a very very short question. If Tracy and
I are starting a hedge fund, and it's like a
multi strategy hedge fund and all that stuff. Would Harvard
definitely be one of our stops when we're trying to
look at raising money.
Speaker 4 (18:24):
Did you go to Harvard? I'm just kidding. Yeah, I
don't know. It just depends they like niche, really niche stuff.
Speaker 3 (18:33):
Got it.
Speaker 4 (18:34):
So if you're you know, peddling something like a Japanese
something fun that is really niche that nobody else is doing. Maybe.
Speaker 3 (18:41):
So you mentioned the sort of turmoil at the upper
levels of the Harvard Endowment and I think we're on
the fifth CEO in like eleven years something like that.
Can you describe the new CEO? Like where does he
come from? And is his style different to predecessors. I
(19:04):
think he's done somewhere structuring of the company and things
like that.
Speaker 4 (19:08):
Yes. So he came in December twenty sixteen from Columbia,
where he had excellent performance, and that was one of
the reasons why he was hired, because the performance at
Columbia used to be pretty good. But he came in
and had to steer a very large ship in a
ship that's very scrutinized. Everybody wants to know how Harvard
(19:29):
is doing, and as I mentioned, before they used to
employ more than two hundred people traders, and they had
a different model than Yale because they had a huge
internal presence, and they slashed that. He also reversed course
on natural resources, where that had been a huge interest
(19:49):
of Jane Mendillo, the previous longer term CEO of Harvard Management.
But they didn't do as well, so he sold a
lot of those off. They restructured pay again. We talked
about you know, if you're manager and you did great
in your own ASCID class, you would get handsomely rewarded,
but if the endowment as a whole was not performing well,
that didn't really matter. So he made a lot of changes.
Speaker 2 (20:13):
Let's talk about Actually, you mentioned natural resources, which could
be code for a few things, so I remember I
seem to recall I just remembered another thing that I
remembered about David Swenson, which is I think he was
like really into timber. Yeah, for a while, and there
was like sort of like famously into timber. But then
there's another natural resource issue, and this will eventually allow
(20:33):
us to talk about what I really want to talk about,
which is the University of Texas. But of course resource
politics and resource investing is also always controversial when it
comes to you know, carbon fuels like oil and stuff
like that. So before we get into Texas and all
their oil money, what is the status of Harvard's own
investments in things like oil, et cetera. And how does
(20:54):
like the sort of unique politics of Harvard affect those choices.
Speaker 4 (20:58):
So for a long time, most schools, you know, were
asked by their students to divest from anything related to
fossil fuels. Harvard did not divest from anything. I think
sometimes that's not understood. Well, divest means selling things, and
Harvard said, we're not going to make new investments. So
(21:19):
you know what it means to allow things to roll off,
You're not going to make you know, when this next
private equity fund is raising money, that means they may
not go into it. They're not selling on the secondary market.
You know, typically endowments don't have direct holdings, or you know,
maybe they have a tiny amount, maybe it was a
gift and they still have held on to it. But
(21:40):
typically endowments today do not have direct holdings and companies.
Speaker 3 (21:44):
That's how they used.
Speaker 4 (21:44):
To in you know, in the seventies and eighties and
in the eighties when you heard about schools divesting from,
you know, investments related to apartheid. They were literally selling
US companies that operated in South Africa. So that's a
huge change. So they stopped making new fossil fuel investments.
And NARV wrote in one of the reports in twenty
(22:05):
two when they had a loss, the CEO said Harvard
had missed out on strong returns in the energy sector
and that decision contributed, you know, marginally to the loss
a year. But at the same time, you look at
a place like Texas which has huge amounts of cash
coming in because of oil, and let's is this a
(22:26):
good time to bring up their history? Yeah?
Speaker 1 (22:28):
Yeah, yeah, there's a good way.
Speaker 3 (22:29):
Good Where does the how did the oil money kind
of start?
Speaker 4 (22:33):
So it was kind of a fluke in a lucky
stroke of history. In the late eighteen seventies, the state
of Texas set aside land for higher education, and it
was supposed to be near the railroad, but it was
too valuable and it got moved to West Texas, and
eventually higher education in Texas was allotted something like two
(22:55):
point one million acres in West Texas and they were
supposed to generate money by agriculture or grazing rights, and
the plan was eventually to sell it. But then in
nineteen twenty three, something happened. Joe, do you know what happened?
Speaker 2 (23:11):
Well, black Gold yet struck. Now there's a there at
the University of Texas campus, there's this little I don't
know if it's still there, but yeah, twenty years ago
there's this little like sort of I don't know, exhibit,
and they played this audio. It's like spinble top black
Gold and it has like with this like really like
exaggerated Texas accent, and there's like a fake oil derrick
(23:32):
or oil well or something like that. This sort of
shows like where it all came from.
Speaker 4 (23:36):
So in nineteen twenty three they literally started getting all
this revenue from oil. And I did a story a
couple of years ago. I went down to Midland and
I went on on the land and that year they
got something like two billion dollars in cash. And it's
it's completely separate from their endowment. It's not generated from investments.
(23:57):
It's just cash that comes in. And the crazy thing
about it is, you know they're you know you hear, oh, well,
at some point energy is not going to be you
know is not going to be as valuable, which you know,
it's still going to be around for twenty thirty years
generating a lot of money for Texas. But they're in
the best position for wind and solar also, which is
(24:19):
a really you know, nascent industry there. But you know,
when when you're ready for that, they're going to make
a lot of money too.
Speaker 3 (24:26):
It is kind of crazy to think that that decision
to set aside land in like the eighteen hundreds is
really paying off now. So every once in a while,
Joe will tweet something about the Texas Longhorns, the football team,
and so one thing I'm curious about is we're talking
about all this money that's flowing into universities. What's the
(24:48):
breakdown of like where colleges get their money. So I
imagine it's a mix of donations, returns from endowments, or
sports like part of that too.
Speaker 4 (24:59):
I don't think I think it's a huge amount. I mean
unless you're you know, one of the schools like Texas
that actually makes money on sports. But it's a very
small number of schools actually collect you know, somewhat of
a I don't want to say a prophet, but generate revenue.
But you know, many schools have weird histories of how
they made their money, like Emery for example, in Atlanta.
(25:21):
They're one of the richest schools and part of the
reason is because of the Koch stock that was given
to them and they eventually sold. Northwestern is one of
the richest schools because a drug called Lyrica was developed
in the chemistry department one of their presidents a few
years a few presidents back, decided to sell half of
the royalties and that's you know why they had why
(25:43):
they became one of the richest schools.
Speaker 2 (25:45):
Sorry, I'm just thinking more about that little exhibit on
the Texas camp.
Speaker 3 (25:49):
But there's the other thing.
Speaker 2 (25:49):
They're like black Goal Texas c which they also said,
I love that Texas ce.
Speaker 3 (25:54):
Why didn't we go see that exhibit?
Speaker 2 (25:57):
Yeah, I don't know, but it's like one of those
things where it's like if you're college student, you're like
walking around and you may be like drunken eleven pm
at night and you're like walking through campus like you
stopped there and the audio is playing. If I recall
like twenty four to seven next to this pump, and.
Speaker 3 (26:11):
I'm sure you're not speaking from personal experience.
Speaker 2 (26:13):
I don't see, not really, but that's like a thing
that you do, Okay, I get like Texas has this
big advantage because of this flute gift from over one
hundred years ago, and they discovered all the oil and
you know, and the wind and solar coming up. But
like it's not just that they've done a good job too, right, Well.
Speaker 4 (26:29):
They're huge. I mean it's a huge campus. And initially
that money only funded two campuses, U T Austin, and
we can't forget about Texas A and M in college station.
They share, they share that land. Two thirds goes to
University of Texas at Austin, one third goes to Texas
A and M. And they pull that money together and
(26:51):
it's invested in a company called you Timco. They followed
the Harvard Management company model and they created a separate company.
And you tim is based in Austin. And you know,
if you're a hedge fund and you're visiting, you know,
the big Texas pension funds, you Timco is there in Austin,
so it would just be another place.
Speaker 2 (27:09):
So Tracy, because of my Texas roots and we're starting
our odd lots multi strategy hedge fund we would stop
at you, Timco rather than Harvard. That would be our
first stop rather than Harvard.
Speaker 3 (27:19):
It sounds like you just want to go to Texas.
Speaker 2 (27:22):
Yeah, but I also want the money.
Speaker 3 (27:23):
Yeah, Okay. One thing I'm wondering is so endowments are
invested heavily in private equity, which we talked about, and
it feels to me like there's a little bit more
criticism of private equity right now than there used to be.
There is a big piece in the Guardian about how
private equity is like ruining the economy and things like that.
(27:45):
Do you think there's going to be any pressure to
divest from PE?
Speaker 4 (27:49):
Well, I don't know that they would want to sell
anything on the secondary market, but they you know, perhaps
you know, they may not want to re up and
increase their allocation because at this point they're quite large,
you know, Harvard and Yale and Princeton, they're all around
the thirty nine percent ish percentage. And part of the
reason is, again I keep going back to twenty twenty
one when they had these crazy returns, but you know
(28:11):
the value of their private equity books just really increased
with those returns, So you know, it's just a it's
a bigger share of their endowment. And plus you know,
they've had great returns up until recently. And you know,
when you think of when David Swinston started investing in
private equity decades ago, there wasn't that much money, so
(28:31):
it was easier to get crazy returns as they did.
Speaker 2 (28:50):
So where are we in terms of the biggest How
close are we towards my U Timco eclipsing a Harvard
management company? Like what are we talking about here?
Speaker 4 (28:58):
Well, it's hard to tell. I mean if you look
at how Harvard did in the last ten years in
their annualized returns and the year that ended twenty twenty three,
they were in the bottom twenty percent. So it's hard
to tell. I mean, if you get another banner year
with energy and they keep getting a couple billion dollars
in cash, But.
Speaker 2 (29:17):
Like Hony, how much literally is the gap? Like what
do we know of in terms of their size?
Speaker 4 (29:20):
I don't know if I've seen what U Timco size
is right now, but you know, a couple billion here
and there, so we're close.
Speaker 3 (29:28):
Okay. So the other thing that's going on, speaking of
public criticism, is some of the Israel Palestine controversy that's
happened at Harvard over the past year. Talk to us
about that and what impact that's been having on donations.
Speaker 4 (29:44):
So Harvard has been at the forefront of protests on campus,
like many schools, they had encampments. There's ended in the
spring without police arrests. I think everybody was very happy
about that. But there was a tremendous amount of criticism
over the last year about how they've handled anti semitism
on campus, protests, encampments, and alumni really mobilized and said
(30:08):
we're not donating, and you know in alumni, very wealthy
ones like Lenn Blovotnik and just sort of your average
Harvard alum, you know, said we're not going to do this.
And they're known for being amazing fundraisers. They've raised over
a billion dollars every year since twenty fourteen. They usually
(30:29):
raised the most, although Stanford has raised more in some years.
And donations were down fifteen percent and in the year
ended in June, and when you think about when they
were in the news so much at the end of December,
remember there was that congressional hearing in December fifth with
the presidents of Penn MIT and Harvard. They were, you know,
(30:51):
in the news NonStop until the end of December. She
ultimately stepped down, clutting gay the president on January second.
But when do most people make their gifts to colleges.
They make their gifts at the end of the calendar year,
and that was not a great time for Harvard.
Speaker 2 (31:10):
I just have one last question, and it's a little
bit philosophical. Am I bad for donating to my college?
I had an amazing time at Texas. I mean this seriously.
I had an amazing time at Texas. Nothing I actually
learned led directly to a job, but it was a
formative experience. I look back on it fondly. I've been
very fortunate in my career since then. Many good things
(31:33):
that have happened in my life were roughly from that
time that I spent there. Like, should I think about
this differently? Because when I look at it's like they
have tons of money, they don't really need anymore. Like
pitch me that.
Speaker 4 (31:45):
It's like a good idea, Well, do you want to
help students have a similar experience that you do.
Speaker 2 (31:51):
They have tons of money.
Speaker 4 (31:52):
I don't know, maybe there's something in particular you can
tailor your donation to something specifically, I mean, and that's
one of the podcasts.
Speaker 1 (32:00):
Yeah.
Speaker 4 (32:00):
Well, that's one of the things that Harvard complains about
is a lot of their money is they say it's restricted.
Oh yeah, right, so if you give money to the
crew team, they can't spend it in theory on the
tennis team.
Speaker 1 (32:11):
Right.
Speaker 4 (32:11):
So you could say I want to you know, I
want to give it to something, and then there you go.
It could be named after you if you want.
Speaker 2 (32:20):
Yeah, maybe a little maybe a little podcast studio at
the j School.
Speaker 3 (32:25):
There you guysenthal podcast.
Speaker 2 (32:26):
Yea there, maybe maybe that.
Speaker 4 (32:28):
And they you know, one thing about these gifts is
you know, their multi year so you could make up
pledge over ten years or whatever the case.
Speaker 2 (32:36):
But I'm open to changing my mind on this. So
I just but you know, I wrestle with it because
I just between the three of us here in the room,
like I think I have the number that like they
call me on like I either haven't blocked or like
I have like it says like do not answer.
Speaker 1 (32:52):
I'm open to.
Speaker 2 (32:52):
I'm open to like kind of cruel. That's yeah, I know,
That's what I'm saying. I have a little issue I have.
I have some misgivings, and I'm open to rethinking this
question at this stage in my life. Janet Lauren, thank
you so much for coming on. I really appreciate it.
Speaker 1 (33:05):
Thanks for having me, Tracy.
Speaker 2 (33:21):
I am going to use this podcast for the most
nakedly egregious self serving purpose ever right now, and I
just want everyone to be aware of that.
Speaker 3 (33:30):
Okay, Wait, is it urging listeners to continue to support
the pod so that you can make donations to Steve?
Speaker 2 (33:37):
No? No, no, I'm like open to rethinking my philosophy
on donations because I probably when I blocked the number,
I was like, you know, much younger and earlier in
my career. No, you know what I've thought. I can't
believe I'm going to say this out loud. I've thought
that a nice, I quote retirement job for me would
be being some sort of adjunct professor at the journalism
(34:00):
school at UT And like, you know, I've done a
lot in digital media and like maybe through donations or something,
find a way back into that community.
Speaker 3 (34:07):
Yeah, start laying the ground right now.
Speaker 2 (34:09):
Basically, start prepaying my salary, make a bunch of donations
so that you know, twenty years from now, when we
stop doing odd lots. There's like this pool of money
that can fund my adjunct degree.
Speaker 3 (34:21):
Yeah.
Speaker 2 (34:22):
Absolutely, but maybe someone will hear that. And like I'm
just saying.
Speaker 3 (34:27):
Don't go to Texas, Joe.
Speaker 4 (34:29):
No I'm not.
Speaker 2 (34:30):
I'm just yeah, I won't, Okay, but I but yeah,
maybe someone will listen and at the University of Texas
Journalism School and hear about.
Speaker 3 (34:37):
My twenty years twenty year Yeah. You know.
Speaker 2 (34:40):
One other thing though, for real, though, I think it's
really interesting about this, and I hadn't realized, is the
difference in the corporate structure between the Harvard Endowment and
the Yale Endowment. And so you can and so anyone
can just look at the Harvard endowments. Why are you
paying all these people so much? Have you heard? Passive
is the future? All these fees And yet you could
(35:02):
have another institution that's doing fantastically and no one sees
how much they're paying managers or how much individual star
traders are getting because those independent star traders are at
the hedge funds that no one actually gets to see
because they don't file some independent return you know.
Speaker 3 (35:17):
Speaking of transparency, I saw this really great chart in
the Harvard Crimson the student newspaper, and it's the word
count of the annual message. I love that from the
Harvard Management Company CEO, the Endowment CEO, and I think
it used to be like over three thousand words typically
(35:37):
and now it's gone down to a little over one thousand.
So interesting. That's where a lot of the criticism of
lack of transparency at Harvard comes from.
Speaker 2 (35:47):
Yeah, well you just get rid of all, you know,
don't have any in house traders talking your thing, and
you let the third party managers, the hedge funds be
let them write the words in the letters. That's their
job is to write words in the letters.
Speaker 3 (35:59):
That's right. We leave it there. Let's leave it there,
all right. This has been another episode of the Authots podcast.
I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2 (36:08):
And I'm Jill Wisenthal. You can follow me at the Stalwart.
Follow our guest Janet Lauren at Janet Lauren and check
out her recent big take on the Harvard Endowment on
Bloomberg dot com. Follow our producers Carmen Rodriguez at Kerman
armand Dashel Bennett at Dashbot and Kilbrooks at Kilbrooks and
Thank you to our producer Moses onam form our Odd
Lots content. Go to Bloomberg dot com slash odd Lots,
(36:30):
where have transcripts, a blog and a newsletter and you
can chat about all of these topics twenty four to
seven in our discord Discord dot gg slash od Lots.
Speaker 3 (36:38):
And if you want more odd Lots content, you should
check out an offer that we have running right now.
You can become a Bloomberg subscriber at a special introductory rate.
All you have to do is go to Bloomberg dot
com Forward slash Podcast offer and then click on the
link in the show notes, and if you do that,
(37:00):
you will get ad free Odd Lots of episodes as
well as access to our new daily newsletter. Thanks for listening.
Hosts And Creators
Joe Weisenthal
Tracy Alloway
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