Kicking out Harvard

I’m back after the surviving the UK heatwave and the kiddies being home from school. I’m not sure which of those factors has been more taxing.

My last post started to analyze how the three largest university endowments (Harvard, Stanford and Yale) are allocating their investments as reported for 2017.

Unfortunately, the largest endowment in the world at Harvard has run into a few years of bad performance resulting from incompetence bordering onscandal. It’s scary that despite the glamorous trustees and brain power, safeguarding the endowment fell through the cracks. They’re currently not reporting their investments as they rejig their investments, so I’ve kicked Harvard out of the analysis and brought MIT in instead.

Here’s the chart comparing how the three endowments are investing. I’ve had to take some liberties in classifying investments as they don’t use the same criteria. Also for MIT I’ve had to use my own dodgy math to calculate the figures out of their financial report.

The endowment management essentially have to answer the same questions you and I have to think about for our own personal portfolios.

  • How much do we outsource to outside managers, how much do we trust ourselves to invest internally?

  • Is there any homegrown advantage we can rely on to manage part of our portfolio (see observations below)

  • How do we decide between investing domestically and in foreign stocks?

  • What part of my portfolio do I invest in safer bets like cash and bonds?

  • Are hedge fund (absolute return) and private equity fees worth it?

Ivies.PNG

Some observations:

  • The universities do use their homegrown expertise. Stanford gets a good chunk yearly from the rents at the Stanford Shopping Center. MIT is widely invested in the housing market surrounding the university.

  • The US shares might seem tiny and counterintuitive, but remember that many of the Absolute Return funds will be invested in US shares as well.

  • Absolute return - or funds that aren’t compared to peers - are a shorthand for hedge funds. Since hedge funds have become a controversial category since the 2008 crisis with some pension funds and wealthy individuals staying away from them, its interesting to see that the big endowments are still big believers. There are as I’ve believed for a while, some excellent managers out there if you know where to look.

  • Natural resources - funds that invest in things like timber, oil and coal are supposed to store their value even in a crisis.

  • All the endowments are aggressive on foreign investments.

  • The reports don’t go into individual manager selection or fees. Things I’d be asking about.

  • They do address social and environmental issues from their investing which is a step in the right direction, but don’t give out too much information as they might have student protests on their hands.

Data Sources

Stanford:

https://smc.stanford.edu/what-we-do/

Yale:

https://news.yale.edu/2017/10/10/investment-return-113-brings-yale-endowment-value-272-billion

MIT:

https://vpf.mit.edu/sites/default/files/downloads/Treasurer's Report/MITTreasurersReport2017.pdf

Thanks,

Mallika