The Harvard Endowment Is on the Verge of Losing Its Crown

Summary

Odd Lots Podcast Summary: The Harvard Endowment Is on the Verge of Losing Its Crown

Release Date: November 22, 2024
Hosts: Jill Wiesenthal and Tracy Alloway
Guest: Janet Lauren, Higher Education Finance Reporter at Bloomberg

---

1. Introduction: Shifting Power in University Endowments

In the latest episode of Bloomberg's Odd Lots, hosts Jill Wiesenthal and Tracy Alloway delve into the evolving landscape of university endowments, highlighting a significant shift as the University of Texas endowment edges closer to surpassing Harvard's longstanding financial supremacy.

Jill Wiesenthal [01:22]:
"We've talked about huge institutional players like insurance and family offices, but endowments are massive and distinct entities with their own funding needs and profiles."

2. The Significance of University Endowments

University endowments are vast pools of capital essential for funding various university operations. They invest in a range of assets, including private equity, hedge funds, and real estate, to generate returns that support academic and infrastructural initiatives.

Tracy Alloway [02:12]:
"Endowments have their own funding profiles and schedules for withdrawing and dispersing money, making them key players in the investment landscape."

3. Harvard's Endowment: A Historical Perspective

Janet Lauren provides a comprehensive history of Harvard's endowment, tracing its origins back to the 1600s. Initially managed internally with over 200 traders under leaders like Jack Meyer, Harvard's endowment thrived, setting benchmarks for performance.

Janet Lauren [07:07]:
"Harvard started Harvard Management Company, employing over 200 people. Their strategy was the envy of the world, making substantial profits."

However, controversies arose over executive compensations, leading to managerial instability. Since 2005, Harvard has seen seven CEOs, many with short tenures, resulting in fluctuating strategies and inconsistent performance.

Jill Wiesenthal [02:40]:
"After consistent outperformance, there was backlash over excessive pay, leading to leadership changes and strategic shifts."

4. Comparing Harvard with Yale's Endowment Model

The episode contrasts Harvard's fluctuating internal management approach with Yale's more stable, externally managed endowment under David Swensen. Yale's model emphasizes long-term, diversified investments with minimal managerial turnover.

Janet Lauren [10:48]:
"Yale employs outside managers with an average tenure of 13 years, fostering stability and consistent performance."

In contrast, Harvard's frequent managerial changes and internal focus have hindered its ability to maintain consistent returns.

5. Current Performance Challenges for Harvard

In recent years, Harvard's endowment performance has lagged behind both its historical standards and broader market indices. For instance, FY2024 preliminary returns showed Harvard up by 9.6%, compared to the S&P 500's 22% rise.

Tracy Alloway [04:46]:
"Harvard was up about 9.6% in 2024, while the S&P 500 surged 22%. What's causing this disparity?"

Further compounding issues, Harvard's fundraising efforts have declined by 15% in the fiscal year ending June, amidst controversies and leadership scandals.

Janet Lauren [12:27]:
"Fundraising was down 15%, the lowest since 2015, partly due to dissatisfaction among alumni over handling of campus issues."

6. The Rise of the University of Texas Endowment

Conversely, the University of Texas endowment benefits from historical land allocations that serendipitously overlapped with oil discoveries in 1923, generating substantial revenue.

Janet Lauren [25:34]:
"In 1923, Texas struck oil on its land allocated for higher education, resulting in billions in revenue that continue to bolster the endowment."

This windfall has positioned UT to invest heavily in both traditional and emerging sectors like wind and solar energy, ensuring robust growth and financial stability.

7. Impact of Controversies on Donations and Endowment Growth

Harvard's handling of campus protests and allegations of antisemitism have led to significant backlash from alumni, including major donors like Len Blavatnik and Ken Griffin, who have paused or reduced their contributions.

Janet Lauren [33:34]:
"Alumni, including wealthy donors, are not contributing due to dissatisfaction with Harvard's handling of campus controversies, impacting endowment growth."

These controversies have not only affected immediate donations but also the long-term financial strategies and investor confidence in Harvard's management.

8. Private Equity and Investment Strategies

Both Harvard and Yale maintain significant allocations in private equity and hedge funds, aiming for higher returns through diverse and often illiquid investments. However, Harvard's recent strategic shifts, such as increasing private equity from 16% to 39%, have not yet yielded the expected performance enhancements.

Janet Lauren [30:13]:
"Harvard's private equity allocation has ramped up to 39%, but recent market conditions haven't been favorable, affecting overall returns."

The reliance on private alternatives underscores the challenges endowments face in balancing risk and return, especially in volatile market environments.

9. Personal Reflections on Endowment Donations

In a candid moment, Jill Wiesenthal reflects on her personal stance regarding donations to her alma mater, the University of Texas. She grapples with the moral implications of donating to an institution already rich in resources, considering the broader impact on students and the potential for tailored contributions.

Jill Wiesenthal [35:37]:
"Am I bad for not donating to my college? They have tons of money already, but perhaps I could tailor my donation to something specific like a podcast studio."

Tracy Encourage her to reconsider and explore ways to make meaningful, targeted contributions despite the abundance of the endowment.

10. Conclusion: The Future of University Endowments

The episode concludes by highlighting the contrasting trajectories of Harvard and the University of Texas endowments. While Harvard struggles with internal challenges and external criticisms, the University of Texas leverages its unique historical assets to secure a robust financial future.

Tracy Alloway [39:37]:
"The difference in corporate structure between Harvard and Yale endowments affects transparency and performance, influencing donor perceptions and investment strategies."

As university endowments continue to play a pivotal role in shaping the financial stability and academic prowess of institutions, understanding their management and strategic decisions becomes increasingly crucial.

---

Notable Quotes:

• Jill Wiesenthal [01:22]:
  "Endowments are massive and distinct entities with their own funding needs and profiles."

• Tracy Alloway [04:46]:
  "Harvard was up about 9.6% in 2024, while the S&P 500 surged 22%."

• Janet Lauren [07:07]:
  "Their strategy was the envy of the world, making substantial profits."

• Tracy Alloway [10:48]:
  "Yale employs outside managers with an average tenure of 13 years, fostering stability and consistent performance."

• Tracy Alloway [15:33]:
  "Harvard will say it's so big it's hard to manage $53 billion."

• Jill Wiesenthal [35:37]:
  "Am I bad for not donating to my college? Perhaps I could tailor my donation to something specific like a podcast studio."

---

Key Takeaways:

• Institutional Shifts: University of Texas is poised to surpass Harvard in endowment size due to historical oil revenues and strategic investments.

• Management Stability: Yale's stable, externally managed endowment contrasts with Harvard's frequent leadership changes, impacting performance consistency.

• Controversies Impact: Harvard's handling of campus issues has led to a decline in donations, affecting its financial strategies.

• Investment Strategies: Heavy allocations in private equity and hedge funds present both opportunities and risks for endowment growth.

• Personal Reflections: Donors grapple with the ethics and impact of contributing to already wealthy institutions, seeking meaningful ways to support academic communities.

For more insights and detailed discussions, listen to the full episode of Odd Lots on Bloomberg.

Transcript

[PGIM Fixed Income]

Bonds are back and so is all the credit. PGIM Fixed Income's monthly podcast series. From the latest trends to long term perspectives, you'll get timely fixed income insights from leading economists, research analysts and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to all the credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results.

[Modupe Akinola]

Got a business problem? There's a TED Talk for that. Stay updated on Everything business on TED Business, a podcast hosted by Columbia Business School professor Modupe Akinola. Every week she'll introduce you to leaders with unique insights on work, answering questions like how do four day work weeks work?

[Unknown]

Do?

[Modupe Akinola]

Will a machine ever take my job? Get some surprising answers on TED Business wherever you listen to podcasts.

[Bloomberg Audio]

Bloomberg Audio Studios Podcasts Radio News.

[Jill Wiesenthal]

Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Wiesenthal.

[Tracy Alloway]

And I'm Tracy Alloway.

[Jill Wiesenthal]

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.

[Tracy Alloway]

These huge pools of capital. Yeah, yeah, you're right.

[Jill Wiesenthal]

So, you know, we've talked about, we want to talk about insurance more. Should probably talk about family offices more too. 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.

[Tracy Alloway]

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 about.

[Jill Wiesenthal]

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 disperse their money. And if you're a hedge fund or if you're anyone else looking for money for your investment at the end 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.

[Bloomberg Audio]

Yeah.

[Tracy Alloway]

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.

[Jill Wiesenthal]

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 the verge.

[Tracy Alloway]

I knew that was coming.

[Jill Wiesenthal]

Yeah, yeah. Is on the verge of becoming the biggest university endowment in the country.

[Tracy Alloway]

Right. So for years, Harvard was the biggest. Right. But it looks like it might be superseded by Joe's college. Congratulations, Jo.

[Jill Wiesenthal]

Thank you.

[Tracy Alloway]

Have you been donating? Is this all you.

[Jill Wiesenthal]

Can I just say 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.

[Tracy Alloway]

I think in this case. Well, we'll get into why, but maybe it's okay not to donate. Well, we'll talk about.

[Jill Wiesenthal]

I don't really want to talk about it. I don't really want to. You know, and even talking about how big UT is versus, I think there's actually like 22 universities or something served by the Texas endowment and other things. So I don't even know if it's a true apples to apples comparison because, you know, the student body of Texas is so gigantic. Nonetheless, if we're just looking at, okay, 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 gotta 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 Ivies, the rest of which 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 how these big institutional pools of capital, how they're performing and what they're doing.

[Tracy Alloway]

Yeah, it is kind of funny that the Harvard endowment, which presumably employs a lot of highly paid, smart, smart people, I think it was up about 9.6% in 2024. That's the preliminary fiscal year. But of course, the s and P500 is up like 22% so far. So. Yeah, what's going on?

[Jill Wiesenthal]

Just by spy, no, 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 of the S and P. You can't compare an endowment funds return to S and P. Maybe that's true. I don't totally get why. Anyway, should we learn more?

[Tracy Alloway]

Let's do it.

[Jill Wiesenthal]

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 lots.

[Bloomberg Audio]

Thanks for having me.

[Jill Wiesenthal]

How do you get to be the higher ed finance reporter of Bloomberg? And also, it's like we just have one. What's the deal? These institutions are so important. We probably have, you know, 20 people covering hedge funds. We just have a higher education finance reporter.

[Bloomberg Audio]

Well, I've been writing about university finances for almost 17 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 $1 trillion 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 idea about. And I'm thrilled to talk about Harvard as well as University of Texas. It has an amazing story.

[Jill Wiesenthal]

Great.

[Tracy Alloway]

Okay, so talk to us a little bit more about how significant this space is. Like, how much money are we actually talking about?

[Bloomberg Audio]

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 50. 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 include in many stories, is the oldest and richest university. You know, it goes back to the 1600s and Harvard was actually founded, 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 interest?

[Jill Wiesenthal]

Yeah. Imagine if you just bought spy in 1600. Sorry, Kubecta.

[Bloomberg Audio]

So that has certainly helped them. But in the 1960s, college endowments started doing something different. Instead of having a traditional 60, 40 split, you know, with a lot of plain vanilla type US equities, bonds, they pursued a different model. And the Ford foundation actually presented this strategy in schools like Harvard and Yale started using it because their time horizon is literally in the hundreds of years. So liquidity for them is okay because they have a very long term horizon. So they started moving things into illiquid assets over time. Private equity, hedge funds, eventually venture capital, real estate, 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 the endowment, is 50 years old this year. They actually operate not in Cambridge, but in downtown Boston in the Federal Reserve building. It's actually very close to our Bloomberg office in Boston. And they employed traders, and it was over 200 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 thought their managers were being paid too much because they just consistently exceeded the market. And one year there was a manager, I'm trying to remember, who paid $35 million. And people were just aghast at that because they made too much money. So after a lot of criticism, long story short, that model was disbanded. Jack left in 2005. They went through a succession of managers. Seven CEOs of the Harvard Management Company. Some only stayed a short term. There were less than two years, several interims, changing strategies, selling off assets. For a while, they were big into agriculture and real assets. Those performed well, but then they didn't perform well. And the current CEO has been there since December 2016. He eventually sold a lot of those natural resources. You know, I think writing off like a billion dollars in, 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.

[Tracy Alloway]

That was a great potted history of Harvard's endowment. I gotta say, Jo, I started rewatching. Did you ever watch the Gilmore Girls? Probably not.

[Jill Wiesenthal]

No, I never did.

[Tracy Alloway]

I started rewatching Gilmore Girls.

[Jill Wiesenthal]

And so how are you gonna tie this in?

[Tracy Alloway]

Well, so it's all about rich people in Boston, basically. And one of the main characters has to decide between Harv and Yale. She eventually goes to Yale. I guess she was lured by the performance of the endowment.

[Jill Wiesenthal]

Janet, you gave us the broad history of Harvard's endowment. I want to talk about actually what happened in those years, from how you have one stable management company that goes all the way to 2005, more or less, and then you run through, I think, what did you say, seven CEOs since then or something. Then Tracy mentioned the Yale Endowment with their famous endowment manager for several years, David Swensen. Can you talk about the 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.

[Bloomberg Audio]

So Harvard management company files a tax return, and because of their nonprofit status, they have to disclose how much they pay their top 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 because they're using outside managers, you think of the 2 in 20 model that's not showing up in the tax return. Whereas Harvard, 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 that's really a simple explanation of why Harvard's managers got so much more scrutiny.

[Tracy Alloway]

So you talked about the criticism of how much they're getting paid. What's the benchmark for Harvard's performance? What are they actually comparing themselves to?

[Bloomberg Audio]

Well, many endowments create their own benchmark.

[Jill Wiesenthal]

Surprise.

[Bloomberg Audio]

So I don't 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 based 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 got paid quite a lot of money.

[Jill Wiesenthal]

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 issues and the performance. What has it been? 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.

[Bloomberg Audio]

Well, I think some insiders, especially some of their really famous economists, they know what's going on. But in the last year, the performance was overshadowed by some other issues, especially their president being thrown before Congress. The president resigned. She had a plagiarism scandal. People have been very upset about how Harvard has handled antisemitism. The story I had last week said their fundraising was down, their cash gifts was the lowest. It fell 15%. It was the lowest since 2015. They famously raise a huge amount of money. They're known for the endowment, but they're also known for being prolific fundraisers, and they did get to a billion dollars last year. But I'm sure it wasn't easy considering people are upset. Len Blavatnik, Ken Griffin, both alums, said they're not giving money. They've paused their gifts to Harvard because of the way things are.

[Unknown]

Direct lending has been one of the most dynamic areas of the private alternative space these last few years, having grown massively as a source of capital for both corporate borrowers, but also financial sponsors that have kept going from strength to strengthen and have needed that private capital to foster the growth that they've been.

[PGIM Fixed Income]

Experiencing for leading alternative investing insights. Listen to Speaking of Alternatives from pjim.

[Unknown]

Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums at Webb, and every week senior reporter John Stepek and I answer your questions about personal finance, and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families.

[Marin Sums]

My question is whether you think maxing out my company Pension Match is enough for when it comes to saving for my pension, should I attempt to pay my child's university fees and living costs?

[Unknown]

My partner and I have excess savings, so should we overpay on our mortgage? Or should we put the money into.

Stocks from Bloomberg podcasts, tune into Marin Talks Money, follow Merrin Talks Money on Apple podcasts, Spotify or wherever you listen.

[Tracy Alloway]

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 like the best deals. It should have some sort of edge. So is size here a net pro or con?

[Bloomberg Audio]

I think that's a very fair question. And you know, Harvard will say it's so big it's hard to manage $53 billion. Now, keep in mind the size hasn't been that big ever. They had a huge $11 billion gain in fiscal 21. You know, when everybody had a crazy year. You know, some Endowments had gains at 50%. Harvard was on the low end at 34%. 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 10 year performance is Brown, and that has 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. If you go back and read all the Harvard alumni, I'm sorry, the Harvard financial reports, as I did, the current CEO talks a lot about risk. He mentions more than once that Harvard takes less risk than its large peers. And it still could be a vestige from 2008 when they had a huge liquidity problem.

[Jill Wiesenthal]

Let me ask another way of thinking about the benchmark. Setting 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. And then there's the money that the endowment throws off. What does Harvard University need from the Harvard Endowment?

[Bloomberg Audio]

Well, the Harvard Endowment is the largest provider of money to the university. 37%.

[Jill Wiesenthal]

Okay.

[Bloomberg Audio]

And that's grown over time. 10 years ago it was 31% and 20 years ago it was 21%. In other words, Harvard University is becoming a lot more reliant on the Harvard endowment.

[Tracy Alloway]

You mentioned this idea of investing in alts, and I think Harvard was a backer of D1 in particular, a hedge fund. And I'm curious, the sales pitch from hedge funds is always uncorrelated returns. What happened in downyear years for Harvard, like in 2022, 2023 when markets were like. Or sorry, in 2023 when markets were falling, did they manage to post above average returns?

[Bloomberg Audio]

So over time in, in 2023, I think they had a 2.9% gain, which was not bad. You know, among the Ivy League schools, a couple of big endowments had losses. I think it was Duke and mit. And MIT is a really strong in their returns to that. We don't use them in their eight schools because the Ivy League is a sports conference. But it's also a nice group of eight schools that you can easily compare Harvard in the big year. In 21, 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. Harvard is now at 39% in private equity, but they've ramped up really since 2016. I'm sorry, it was 16% maybe five years ago, six years ago. And now they're at 39%. 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. And Harvard sort of has a reputation of not being the greatest partner because as you saw in the D1 example, they, they sell and they had to unload a billion dollars worth of natural resources assets. So people clamor to be in the Yale and the Princeton endowment because they're seen as just amazing partners. And Harvard doesn't seem to have that same reputation lately.

[Jill Wiesenthal]

Yeah, I mean, I don't know that much about the Yale endowment model and I probably should read David Swinson'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 ultimately work across a long cycle of whatever's in and out.

[Bloomberg Audio]

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 they're. I think I remember in one report they said the average tenure of their outside managers is something like 13 years.

[Jill Wiesenthal]

Wow.

[Bloomberg Audio]

So it's, you know, if you think getting into a school like Yale or Princeton is hard, try getting to be one of their managers.

[Jill Wiesenthal]

Well, just actually. And I want to get into this more. But just a very quick question. Does Harvard have hedge fund allocation? Of course. Oh, yeah, you already talked about it. Okay, got it.

[Bloomberg Audio]

They do.

[Jill Wiesenthal]

Okay.

[Bloomberg Audio]

And it's the second largest allocation now. It's at 32%. The largest allocation is private equity at 39%.

[Jill Wiesenthal]

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 of that stuff, would Harvard definitely be one of our stops when we're trying to look at raising money?

[Bloomberg Audio]

Did you go to Harvard? I'm just kidding. I don't know. It just depends. They like really nichey stuff.

[Jill Wiesenthal]

Got it.

[Bloomberg Audio]

So if you're peddling something like a Japanese, something fun that is really niche that nobody else is doing, Maybe.

[Tracy Alloway]

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 11 years, something like that. Can you describe the new CEO? Like where does he come from and is his style different to predecessors? I think he's done some restructuring of the company and things like that.

[Bloomberg Audio]

Yes. So he came in December 2016 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 is doing. And as I mentioned before, they used to employ more than 200 people traders. 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 of Jane Mandillo, 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 a manager and you did great in your own asset 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.

[Jill Wiesenthal]

Let's talk about. Actually, you mentioned Natural Resources, which could be code for a few things. So I seem to recall. I just remembered another thing that I remembered about David Swensen, which is I think he was like really into timber for a while and he was like sort of like famously into timber. But then there's another natural resource issue and this will eventually allow 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 always controversial when it comes to 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 the unique politics of Harvard affect those choices?

[Bloomberg Audio]

So for a long time, most schools 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 you know what it means to allow things to roll off. You're not going to make. 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. Typically, endowments don't have direct holdings, or maybe they have a tiny amount. Maybe it was a gift and they still have held onto it. But typically, endowments today do not have direct holdings in companies. That's how they used to in the 70s and 80s. And in the 80s, when you heard about schools divesting from 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 22, when they had a loss, the CEO said Harvard had missed out on strong returns in the energy sector, and that decision contributed marginally to the loss that 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 is this a good time to bring up their history?

[Jill Wiesenthal]

Yeah, yeah, let's. Yeah, there's a good one.

[Tracy Alloway]

There's a good point. Where does the. How did the oil money kind of start?

[Bloomberg Audio]

So it was kind of a fluke in a lucky stroke of history. In the late 1870s, 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 2.1 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 1923, something happened. Joe, do you know what happened?

[Jill Wiesenthal]

Well, black gold was struck. No, there's a. They're at the University of Texas campus. There's this little. I don't know if it's still there.

[Bloomberg Audio]

But it is still there.

[Jill Wiesenthal]

Yeah. 20 years ago, there's this little, like, sort of, I don't know, exhibit. And they play this audio. It's like, spindle top, black gold. And it has, like. With this, like, really, like, exaggerated Texas accent. And there's like, a fake oil derrick or oil well or something like that, and it sort of shows, like, where it all came from.

[Bloomberg Audio]

So in 1923, 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 the land. And that year they got something like $2 billion in cash. And it's completely separate from their endowment. It's not generated from investments. It's just cash that comes in. And the crazy thing about it is you hear, oh, well, at some point, energy is not going to be is not going to be as valuable, which it's still going to be around for 20, 30 years, generating a lot of money for Texas. But they're in the best position for wind and solar also, which is a really nascent industry there. But when you're ready for that, they're going to make a lot of money, too.

[Tracy Alloway]

It is kind of crazy to think that that decision to set aside land in the 1800s 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 cur about is we're talking about all this money that's flowing into universities. What's the breakdown of, like, where colleges get their money? So I imagine it's a mix of donations, returns from endowments. Are sports, like, part of that, too?

[Bloomberg Audio]

I don't 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 somewhat of a. I don't want to say a profit, but generate revenue. But many schools have weird histories of how they made their money. Like Emory, for example, in Atlanta. They're one of the richest schools. And part of the reason is because of the Coke 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 they became one of the richest schools.

[Jill Wiesenthal]

Sorry, I'm just thinking more about that little exhibit on the Texas campus. There's the other thing. They're like black gold Texas tea, which they also said, I love that Texas tea.

[Tracy Alloway]

Why didn't we go see that exhibit.

[Unknown]

When we were young?

[Jill Wiesenthal]

Yeah, I don't know, but it's like one of those things where it's like, if you're a college student, you're, like walking around and you maybe like, drunk at 11pm at night and you're walking through campus. Like, you stop there and the audio is playing, if I recall, like 247 next to this pump. And it's like.

[Tracy Alloway]

I'm sure you're not speaking from personal experience.

[Jill Wiesenthal]

No, not really. But that's like a thing that you do. Okay, I get like. Texas has this big advantage because of this fluke gift from over 100 years ago, and they discovered all the oil and the wind and Solar coming up. But it's not just that. They've done a good job too, right?

[Bloomberg Audio]

Well, they're huge. I mean, it's a huge campus. And initially that money only funded two campuses. UT Austin. And we can't forget about Texas A and M in College Station. They share that land. Two thirds goes to University of Texas at Austin, one third goes to Texas am and they pool that money together and it's invested in a company called utimco. Yeah, they follow the Harvard management company model and they created a separate company and utimco is based in Austin. And if you're a hedge fund and you're visiting the big Texas pension funds, utimco is there in Austin. So it would just be another place.

[Jill Wiesenthal]

So, Tracy, because of my Texas roots and we're starting our odd lots multi strategy hedge fund, we would stop at utimco rather than Harvard. That would be our first stop. Rather than Harvard.

[Tracy Alloway]

It sounds like you just want to go to Texas.

[Jill Wiesenthal]

Yeah, but I also want the money.

[Tracy Alloway]

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 was a big piece in the Guardian about how private equity is like ruining the economy and things like that. Do you think there's going to be any pressure to divest from pe?

[Bloomberg Audio]

Well, I don't know that they would want to sell anything on the secondary market, but perhaps they may not want to re up and increase their allocation because at this point they're quite large. Harvard and Yale and Princeton, they're all around the 39% ish percentage. Part of the reason is, again, I keep going back to 2021 when they had these crazy returns, but the value of their private equity books just really increased with those returns. So it's a bigger share of their endowment. And plus they've had great returns up until recently. And when you think of when David Swensen started investing in private equity decades ago, there wasn't that much money, so it was easier to get crazy returns as they did.

[Unknown]

Direct lending has been one of the most dynamic areas of the private alternative space these last few years, having grown massively as a source of capital for both corporate borrowers, but also financial sponsors that have kept going from strength to strength and have needed that private capital to foster the growth that they've been.

[PGIM Fixed Income]

Experiencing for leading alternative investing insights. Listen to speaking of alternatives from pjym.

[Unknown]

Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money, whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums that well. And every week senior reporter John Stepek and I answer your questions about personal finance and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families.

[Marin Sums]

My question is whether you think maxing out my company Pension Match is enough for when it comes to saving for my pension, Should I attempt to pay my Charles University fee and living costs?

[Unknown]

My partner and I have excess savings. So should we overpay on our mortgage or should we put the money into stocks?

From Bloomberg podcasts, tune into Marin Talks Money. Follow Marin Talks Money on Apple Podcasts, Spotify or wherever you listen.

[Jill Wiesenthal]

So where are we in terms of the biggest? How close are we towards my Utimco eclipsing Harvard Management Company? Like, what do we talk about here?

[Bloomberg Audio]

Well, it's hard to tell. I mean, if you look at how Harvard did in the last 10 years in their annualized returns, in the year that ended 2023, they were in the bottom 20%. 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.

[Jill Wiesenthal]

But like how many, how much literally is the gap? Like, what do we know in terms of their size?

[Bloomberg Audio]

I don't know if I've seen what utimco's size is right now, but you know, a couple billion here and there.

[Jill Wiesenthal]

So we're close.

[Tracy Alloway]

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.

[Bloomberg Audio]

So Harvard has been at the forefront of protests on campus. Like many schools, they had encampments. Theirs 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 antisemitism on campus protests, encampments. And alumni really mobilized and said we're not donating. And alumni, very wealthy ones like Len Blavatnik and just sort of your average Harvard alum 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 2014. They usually raise the most, although Stanford has raised more in some years and donations were down 15% 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 5th with the presidents of Penn, MIT and Harvard. They were in the news nonstop until the end of December. She ultimately stepped down. Claudine Gay, the president on January 2. 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.

[Jill Wiesenthal]

I just have one last question, and it's a little bit philosophical. Am I bad for not donating to my college? I had an amazing time at Texas. I mean this seriously. I had an amazing time 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 that have happened in my life were roughly from that time that I spent there. Like, should I, like, think about this differently? Because when I look at it, it's like, here's, they have tons of money. They don't really need any more. Like, pitch me that. It's like a good idea.

[Bloomberg Audio]

Well, do you want to help students have a similar experience that you do?

[Jill Wiesenthal]

They have tons of money.

[Bloomberg Audio]

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 things.

[Tracy Alloway]

The podcast course.

[Bloomberg Audio]

Yeah, well, that's one of the things that Harvard, you know, complains about is a lot of their money is they say it's restricted.

[Jill Wiesenthal]

Oh, yeah, right.

[Bloomberg Audio]

So if you give money to the crew team, they can't spend it in theory, on the tennis team.

[Jill Wiesenthal]

Right.

[Bloomberg Audio]

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.

[Jill Wiesenthal]

Maybe a little podcast studio at the J School.

[Bloomberg Audio]

There you go.

[Tracy Alloway]

Wiesenthal podcast. Yeah. All right.

[Bloomberg Audio]

There you go.

[Jill Wiesenthal]

Maybe that could work.

[Bloomberg Audio]

And one thing about these gifts is they're multi year, so you could make a pledge over 10 years or whatever the case.

[Jill Wiesenthal]

I'm open to changing my mind on this, but I wrestle with it because 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 have it blocked or like I have, like, it says, like, do not answer. I'm open to, I'm open to, like.

[Bloomberg Audio]

That's kind of cruel.

[Jill Wiesenthal]

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 of my life. Janet, Lauren, thank you so much for coming on. I really appreciate it.

[Bloomberg Audio]

Thanks for having me.

[Jill Wiesenthal]

It was a lot of fun. Thank you so much.

[Tracy Alloway]

Thank you, Janet.

[Jill Wiesenthal]

Tracy, 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.

[Tracy Alloway]

Okay, wait, is it urging listeners to continue to support the POD so that you can make donations to students?

[Jill Wiesenthal]

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 retirement job for me would be being some sort of adjunct professor at the journalism school at ut. And I've done a lot in digital media and may, through donations or something, find a way back into that community.

[Tracy Alloway]

Yeah. Start laying the groundwork now.

[Jill Wiesenthal]

Basically start prepaying my salary, make a bunch of donations so that 20 years from now when we stop doing odd lots, there's like this pool of money that can fund my adjunct degree.

[Tracy Alloway]

Yeah, absolutely.

[Jill Wiesenthal]

But maybe someone will hear that and reach out.

[Tracy Alloway]

I'm just saying, don't go to Texas, Joe.

[Jill Wiesenthal]

No, I'm not going. Yeah, No, I won't. Okay. But, but yeah, maybe someone will listen and at the University of Texas Journalism School and hear about my career in 20 years. In 20 years. Yeah. You know, one other thing though, for real, though, I think is 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. Oh, why are you paying all these people so much? Have you heard Passive is the future? All these fees, and yet you could 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.

[Tracy Alloway]

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.

[Jill Wiesenthal]

I love that.

[Tracy Alloway]

From the Harvard Management Company CEO. CEO, the endowment CEO. And I think it used to be like over 3,000 words typically, and now it's gone down to a little over a thousand. Oh, interesting. That's where a lot of the criticism of lack of transparency at Harvard comes from.

[Jill Wiesenthal]

Yeah. Well, you just get rid of all, you know, don't have any in house traders talking a thing and you just, you let the third party managers, the hedge funds, pe let them write the words in the letters. That's their job is to write words in the letters.

[Tracy Alloway]

That's right. Shall we leave it there?

[Jill Wiesenthal]

Let's leave it there.

[Tracy Alloway]

All right. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Jill Wiesenthal]

And I'm Jill Wiesenthal. You can follow me at the Stalwart, follow our guest Janet Lauren, Annette Lauren and check out her recent big take on the Harvard Endowment on bloomberg.com Follow our producers, Carmen Rodriguez, CarmenArman Dashiell Bennett at Dashbot and Kel Brooks at Kale Brooks. And thank you to our producer Moses Andam. For more Odd Lots content, go to bloomberg.com oddlots where we have transcripts, a blog and a newsletter and you can chat about all of these topics 24. 7 in our discord, discord, ggotlots and.

[Tracy Alloway]

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.com podcast offer and then click on the link in the show notes. And if you do that, you will get ad free Odd Lots episodes as well as access to our new daily newsletter. Thanks for listening.

[Unknown]

Not everybody likes talking about money. Some people find it awkward. Sometimes they even find it a little embarrassing. I do not. I like talking about money. Whether it's the boardroom, the newsroom, the trading floor. I've spent the last 30 years talking about money, writing about money and talking about it and writing about it a little bit more. I'm Marin Sums at Webb and every week senior reporter John Stepek and I answer your questions about personal finance and we discuss the best strategies for making the most of your money. Listen in for the kind of insights and explanations everyone can use to help them make better saving and investment choices for themselves and their families.

[Marin Sums]

My question is whether you think maxing out my company Pension Match is enough for when it comes to saving for my pension, should I attempt to pay my child's university fees and living costs?

[Unknown]

My partner and I have excess savings. So should we overpay on our mortgage or should we put the money into stocks?

From Bloomberg podcasts, tune into Marin Talks Money. Follow Marin Talks Money on Apple Podcasts, Spotify or wherever you listen.