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장기 가치투자 철학과 하버드 거버넌스 문제를 다룬 인터뷰로, 단기 가격 예측 발언은 거의 없음. 결론: 특정 자산의 1~3개월 가격 방향에 대한 명시적 예측은 없고, 장기 투자 원칙과 정책 이슈에 대한 견해가 중심. 투자 철학: 영구적으로 현금흐름을 낳는 로열티형 사업(타임홀튼, 유니버설뮤직, 힐튼, 우버, 아마존 등)을 선호하며, PER보다 사업 수명 전체의 현재가치가 중요하다고 강조. 치폴레는 식품안전 위기 당시 싸 보이지 않았지만 회복 가능성을 보고 투자해 크게 올랐다고 설명. 하워드휴즈: 퍼싱스퀘어가 지분 47%를 보유하고 있으며, 버크셔 해서웨이 모델처럼 보험사를 인수해 자산을 운용하는 장기 전략을 추진 중. 장기 복리 견해이며 단기 방향 언급 없음. 패니메이·프레디맥: 정부 보유 지분 가치가 약 3,000억 달러로 언급되며, 2025년 현재 conservatorship 탈피 및 민영화 가능성에 낙관적 견해. 신용평가사들이 민영화가 다운그레이드로 이어지지 않을 것이라 밝혔다고 언급. 주가 방향 예측은 없음. 하버드: 13인 이사회의 거버넌스 문제, 과도한 행정 인력 증가, 교수 수 정체, 외국인 학생 비중 확대 등을 비판. 대학 기금이 80%가량 유동성 낮은 자산에 묶여 약 80억 달러의 부채로 운영비를 조달하고 있다고 주장. 행정부와의 갈등에서 하버드가 연방 자금을 잃을 가능성이 크다고 전망. 관세: 무역 질서 붕괴는 피할 수 있다는 낙관적 견해를 밝힘. 출연자 전망: 장기 낙관, 단기 가격 예측 없음.
다듬은 글
Thank you for joining us, Bill. And uh little background, uh even before the word entrepreneur was widely used when you were growing up, you wanted to do things on your own, do business, and uh one of the things you did at Harvard, for example, there was a travel guide there. Tell us about uh how you went in a Harvard basement and made what for a college kid was real money.
Sure. So, I went to work for Let's Go Travel Guides uh that were produced by Harvard students and uh I was a advertising salesperson and they had designed the commission structure for less motivated people and uh I made about $14,000 working for the summer, but they did everything they could to stop me from selling more ads because they were afraid I was making more money than the person, the professional who was running it.
So, it was an interesting life experience. And then I didn't know that kids had to pay taxes. So, I took the 14,000 and I bought like the world's most incredible stereo and then the tax bill came. So, you in favor of a flat tax? Um, say yes. For you? Yes. Uh, probably not. But, but, uh, I'm in favor of meaningful changes in the way taxes are administered.
For sure. So, uh, after college making, uh, that good money before the IRS came, you, uh, went into, uh, you got involved a little bit learning about finance and real estate. Yes. Worked for actually my dad for a little under two years. Uh, he was in the business of arranging financing for real estate developers, investors, and uh, pretty quickly I figured out I wanted to be the investor as opposed to the arranger.
You wanted to be independent, so you wanted to go out on your own. How in the world does a kid raise money? How much did you raise and how did you do it? So, I had a partner, a classmate from business school, and it's a bit like blind dating. You, you know, you can't be afraid of rejection, but you ask enough and, uh, we had a good story to tell.
Uh, at least I thought of it that way. And uh we went to people who had a we basically went through the Forbes 400 list and I cold called and I got meetings and um the Forbes 400's comprised of a lot of entrepreneurs who like the idea of a couple of young guys starting something and they want to be part of it and that's how we raised the money and we asked them for you know a half million bucks and uh I think they like the psychological benefits of being an early investor and uh one of the things uh you did was uh Rockefeller tell us about the most significant and how you uh got uh evaluation from a firm.
Ah okay. So that that was Tim Horton but first Rockefeller. Ah that okay so Rockefeller Center was um there was a public company that owned a $ 1.3 billion mortgage on Rockefeller Center was a time where the Japanese were walking away from US real estate. the mortgage was going to go into default and it created an opportunity to to create an interest in Rockefeller Center for really pennies on the dollar.
And uh we bought a stake and again I went to the not to promote Forbes too much but I literally called every billionaire on the list to see if we could find a partner uh to buy control of this mortgage which would have given us control of Rockefeller Center. I met David Rockefeller and I met uh Jerry Spire.
I met a guy named Joe Steinberg and it ended up becoming very important to me. Um, but so it was a a great uh start to my career. And uh the evaluation was that Tim Horton? Yeah. So, by the way, by the way, Tim Horton makes the best pod coffee just just for the record. Okay, that's good to hear because we're still indirectly a shareholder.
So, basically, the first activist investment of Persing Square was Wendy's. Actually, it was an article in Baron saying how cheap Wendy's stock was and it owned a company called Tim Hortons. And at the time, uh, we bought 10% of Wendy's for a valuation of about four and a half billion for the whole company.
And they owned 100% of Tim Hortons that generated about 450 million of operating income. We thought Tim Hortons was worth a lot more than all of Wendy's. And our thesis was split the two. And so we bought a stake, we called the management, they didn't take our call. Uh, sent an email, they didn't respond.
Uh, so I had a friend who worked at Blackstone and I said, you know, would Blackstone do a fairness opinion, an effect of what Wendy's would be worth if they spun off Tim Hortons. How did you get Blackstone to take you seriously? I mean, um, just a friend who worked there, you know, want to do business.
He was in Blackstone had an investment bank at the time and uh Steve Schwarzmann actually signed off on the fairness opinion for Wendy spinning off Tim Hortons and we mailed it in filed it in a 13D and six weeks later they split the company stock doubled and that was the beginning of our activist career at Persian Square activist.
Uh what is the criteria for your activism? Well, so today I've sort of retired, as I say, from public company activism because you sort of have to be an activist if no one knows who you are because you make it's hard to influence companies when you're a startup hedge fund. We've been around long enough that today we don't have to be an activist.
You know, people take our call. So, but uh my activism sort of I I I remember meeting a CEO actually in the 1990s in my first fund and he said, "Bill, I think you have activist tendencies." And he didn't mean it in a very positive way. I think actually activism is a very positive thing. Um but it, you know, I would say on on X, I've uh kind of transferred my activist tendencies.
Yeah. If there's an issue I'm passionate about, I I've always been a big free speech person. So uh you like what you call super durable companies what you see as super durable. Well the value of a financial asset is the present value of the cash it generates over its life. How can you build a DCF model unless you can predict those cash flows.
So the business has to endure and we try to find things we never need to sell and we try to find businesses that can grow forever. There aren't that many of them. Uh so that's why we own such few companies. say you only get one good idea a year, one or two if we're lucky. Yes. But that's enough. And uh find your royalty concept.
So the best business I believe is one that doesn't have to put up invest capital but earns a perpetuity growth uh annuity, right? Asset management is a great business if you can invest the assets well and you can get paid a fee, you know, off a base of assets of other people's money. But there other businesses that meet that model.
So Tim Hortons is a franchise restaurant tour. They have a brand, they have a system, uh, and then the franchises put up the capital and they get a royalty on every, you know, uh, coffee and donuts, uh, that's sold at, uh, at Tim Hortons. Uh, Universal Music is a royalty on people listening to music.
Hilton is a royalty on people staying in hotels. They own a brand. Other people put up the capital. So most of the companies we invest in can be thought of as annuities or growth royalties and the key is which you know it's predicting which of these royalties will endure and that's a more complicated question.
When you think of a company like Uber, you don't think of an annuity or Amazon an annuity. But I think I think Uber is precisely that, right? They don't pay for the cars and they don't do the driving, right? They have a system. They've got a platform. They've got a user interface and they aggregate all that demand and then they get a royalty, let's call it 20% of the ride in exchange for delivering the demand.
That's an amazing business. Again, if you can have confidence that the Uber platform will be the platform a decade from now and two decades from now. So, you've made the point these are things that aren't easy to replicate. Yes. No one's going to reinvent Amazon anytime soon. That's right. And uh sometimes you don't buy what cheap.
You think it's a good value, but it doesn't look cheap. Chipotle. Yeah. So, Chipotle didn't look people use kind of a rubric for valuing businesses, right? The PE ratio. It's kind of a very simple way to think about a business. But a stock can be expensive at 10 times earnings and it can be cheap at 50 times earnings.
What matters is not next year's earnings. What matters is the present value of the cash over the life of the business. At the time we bought Chipotle, they had a food safety crisis. Sales were getting crushed. People thought the company was going out of business and on it didn't look cheap. But if you could if you believed you could change the course of Chipotle's history, fix the food safety issues, it was extremely cheap.
And the stock is up, you know, probably ninefold from the time we bought it. It's amazing. Chipotle is now going into Mexico. Everyone sort of assumed it was from Mexico, but anyway, about images. Yes. So, uh, we did a cover story on you a few years ago. Actually, a decade ago and, uh, my version is a few years ago.
Um, but not I'm not encouraging another one. A lot of bad things happened after that cover story. It's a bit of a bit of a curse. uh a curse being on the cover but yes but but uh uh Howard Hughes u that is uh describe what you want to do now with Howard Hughes you're making a big investment and so how you're dealing with it is a little different from your other aspects of persing so my day job our day job as a firm is we buy minority stakes in companies and we help make them more successful like to own them for long periods of time but we're not buying in control.
We're buying 5% 10% 2% of business, but we're pretty influential shareholder. Um, but I've always had, you know, always admired Mr. Buffett. Um, you look at the Berkshire Buffett's history. 1955 he started a small partnership. Um, by 1962 he started buying a stake in this crappy textile company because it was really cheap.
Um, by 1968 he had control of a of a not particularly good business and he was sort of stuck. Um, and he sort of got tired of managing money where the money could disappear, where people could add and subtract. And he kind of wound up his hedge fund. He was an activist hedge fund manager if you go back and follow his history.
And he took control of this business and he used it uh initially first he bought an insurance company, bought a bank, and then over time he built obviously trillion dollar uh business. And I've always, you know, he's been a unofficial mentor of mine. And I've always thought when you were a youngster, you read his letters.
You read Graham Dodd and you read Forbes, right? Yes. All of the above. True story. Yeah. Good. I'm a loyal subscriber. Thank you. Yeah. You helped pay for this today. The return on the subscription has been very high. It's it's, you know, it's disappointing that media companies don't do better because, you know, particularly business media can be a very profitable uh read, I would say.
But so uh in terms of Howard Hughes in terms of Howard Hughes so today we own 47% of the company like Buffett you set up a different kind of company than uh you did with the rest bit like what we're trying to accomplish is really what Buffett's accomplished but instead of starting with a a textile business that was going out of business.
Howard Hughes is a company that basically builds and owns cities. a very unusual public company, one that has not been recognized, I would say, properly by the market like Buffett is very cheap and so we own a big stake in the company and we're in the process of either buying or building an insurance company and the plan is over time to you know compound at a high rate over a long period of time buy companies as opposed to buy stocks.
We'll buy stocks in the insurance company portfolio. You know, one of the interesting things about Berkshire, um, there are insurance companies that do a good job in insurance and there are investment firms that do a good job in investing. What's unique about Berkshire is in the inside of Berkshire is one of the world's most profitable insurance companies, but where the assets of the insurance company are invested in in common stocks.
Uh, and so this this is very important that if an insurance company's on its own has got all sorts of regulations about how you can invest. Yes. But explain to us how if it's owned by a company, you have a lot more flexibility. That's true. So the the regulators set kind of minimum capital levels, but the the relevant measure is the really how the rating agencies think of the business.
And that affects your ratings are critical. No one's going to buy insurance from you unless you're a highly rated enterprise. If you're a pure play insurance company, you're much riskier than if you're part of a diversified holding company. So the benefit that Buffett has brought to his insurance subsidiaries is this parent company that is not directly exposed to the insurance industry and is highly diversified with the profitable kind of good businesses.
So with that kind of credit support and running a relatively low leverage insurance company, they're writing a relatively small amount of premiums relative to the equity of the insurance company. he's given a lot more flexibility investing the assets of the insurance company and our business plan is the same.
So we own 47% of Howard Hughes Persing Square and Persing Square itself is very well capitalized about 30 billion of assets controlling this 47% stake in the company. So Howard Hughes has the benefit of a rich parent so to speak supporting it. Howard Hughes itself is a very good business with about 5 billion of equity capital.
And then we started an insurance subsidiary in the context of Howard Hughes and we have the similar kind of flexibility as Mr. Buffett does to invest the assets. If you look at the 21-year history of Purging Square without fees, it's been about a 23% compounded return. Since we've had permanent capital, it's been about a 27 or 28% compounded return over the last uh 8 years.
So you take our investment track record and you combine it with an insurance executive who's can build a profitable insurance company and you make money on on both sides. You make money on the liability side of the business, the insurance business creating lowcost liabilities and you make money on the asset side.
And that's how you can compound at a very nice rate over a long period of time. And we're going to use Howard Hughes to, you know, follow that playbook. And what's the ownership of Howard Hughes? uh part of it since uh so it's 47% held by myself other Persian Square affiliates and the balance is the public and uh the stock today is going through a transition where what we're pure play real estate investors are largely selling and they're being replaced by investors I would say are more open to the idea of what we're planning to do and uh another thing you're interested in is Fanny and Freddy yes Fanny May We've been a long-term shareholder.
Yeah. And uh they went they did go bust. They're bailed out back in the crisis of 0809. Yes. We were actually short going into the crisis, Fanny and Freddy. Good. Good for you. In 2012, we bought it back because we and and and uh is the government going to give it up? They get what 20 billion a year they suck out of them.
The government's not going to give it up. uh you know the good news we're going through you know uh a time with very large government deficits and it's not clear how we're going to work our way out of 36 trillion of debt and I think Scott Besson to his credit has said you know look we got to focus not just on the our expense side the liability side we got to focus on the asset side and the US government today is the 80% shareholder and a preferred stockholder of Fanny May and Freddy Mack and these are two remarkable businesses the numbers they throw around are huge 300 so this billion.
Yeah, this the government's interest in Fanny and Freddy is worth approaching $300 billion. The path to the government realizing the 300 billion is today these entities are in conservatorship and conservatorship is you know what is meant to be a temporary place where the government puts a financial institution that goes into gets into trouble until it can recapitalize and emerge.
By the way, this temporary conservatorship is what a generation old now. Yeah. 16 years in or something like this. Um and Trump has been talking about first starting with Secretary Minutuchin in his first term and now I think they're going to finish the job is the companies will come out of conservatorship and they need to come out in a way that of course protects uh the 30-year mortgage and make sure that the cost of mortgages doesn't go up.
But it can emerge how do you prevent that? Because one of the wraps against privatizing or changing the status quo is that uh mortgage rates are going to go up. The guarantee fees have to go up. How do you answer that? Yeah. So Fanny May and Freddy Mack today are vastly better capitalized than they were for the first 60 years of their existence.
They were only required to hold four5% equity against their guarantees. And by the way, 045% would have been enough during the financial crisis had they not got into subprime, but it was still a thin level of capital. When they emerge from conservativeship, assuming they do, they'll emerge with at least 2 and a.5% of equity relative to their guarantees.
And if you think about their business, it's not a bank. People are confused by this. Fanny Freddy business is they buy conforming mortgages. Mortgages that meet a very safe standard. Mortgages first mortgages on middle-ass homes from creditworthy borrowers that are not that likely to default. And if they default, there's unlikely small losses.
They buy those mortgages. They package them up in these trusts. They sell securities backed by them. And they guarantee the securities. But the probability of default is very low on this kind of highly diversified, very safe collection of mortgages. and they collect a fee, a guarantee fee for doing this.
So the protections they have against, you know, their inability to meet the guarantee is one, they start with a huge amount of capital. They're going to merge with a couple hundred billion dollars of equity. If if they went private, would they still keep their line of credit with the treasury? So is what how manyund as a so they've got about 7 trillion of guarantees?
uh and they have enormous cash flow that comes in from the 65 basis points perom they charge on those guarantees. Um so if that we went through another financial crisis first they have to blow through all their equity then they have the benefit of almost 400 billion of the ability to call upon preferred senior preferred stock from the government and they also have this enormous earning power that continues even when they go through a challenging period.
So there there's the belt, there's suspenders, there's another belt, there's suspenders, there's a huge amount of equity, and then beyond that, because of the systemically important nature of Fanny and Freddy, they do have an implied government back stop. And so like JP Morgan, uh, you know, if JP Morgan were to fail, the government will come in in some form.
But the but there's a huge amount, unlike in the past where there's a relatively small amount of investor money at risk before the government stepped in. here is there's massive amounts of government of I'm sorry private sector capital and there'll be more if they emerge. So I think and actually these have been wards of the state for 16 years.
They've done a very good job but they can be run much more effectively as true profit you know profitable enterprises. They've been limited in what they can pay their management teams because of the congress and uh with that uh so do you think politically you can overcome the obstacles because the critics say oh it's going to wreck the mortgage market you're going to have 9% mortgages because the guarantee fee and all of that demagogueryy's already started.
Yeah. Look, I would say one, the rating agencies here have already come out and said that privatization would not lead to a downgrade. That's a pretty good indicator and investors in fixed income securities are very sophisticated. These are among the safest. You could argue that Fanny May Freddy Mack uh securizations are safer than even US government guarantees because it's secured and on top of it you get the guarantee whereas we're of course unsecured when we face the US government on a US Treasury.
Yeah. So uh in terms of uh investing you like uh the companies that can't be replicated that are in effect royalty uh generators but uh going through your career I think people find it would find it inspiring. Uh you've made the point life does not go in a straight line. Yes. First you had the Gotham experience.
You quickly explained that. And then around 2014 or so, you went through an experience where they were after you. Activist investor was out to destroy you and almost did. Sure. But what came to the rescue, if you could explain it, was the structure you'd put in previously, otherwise would have been over.
Yes, that's true. Walk walk us through how uh how you went through that. Uh so basically uh one of the points that you learn when you follow Warren Buffett is he started out his career operating a partnership where people could pull their money. And the problem with operating you know if you're a long-term investor but your capital can leave overnight.
You're like a bank where the deposits we can have a run at the bank and every hedge fund is largely structured that way where within some period of time people can kind of take their money. So we made a bad investment in a company called Valiant Pharmaceuticals. It was down 85%. And the media narrative was obviously very negative, appropriately negative.
And then the industry, if you will, sort of ganged up on us, led by my friend Mr. Icon. You know, the assumption was, okay, these guys are going to get a lot of redemptions from their investors. Let's put the squeeze on them. Elliot too came after there. There were a bunch of others and uh people sold went short the stocks we were we owned and they went long a stock we were short uh company called Urbal Life which put a lot of pressure on us.
Now we had the benefit of a few years earlier launching this public entity uh our version of Warren Buffett our first step toward permanent capital and what we did is uh I borrowed a bunch of money and I bought control of our investment vehicle and once we had control I knew we would be fine. That's quite a story.
You were able your your speculation is going down. Yeah. Your personal life, which we'll get to in a moment, is going through, say, be polite, a transition. So, you have all that kind of pressure. How are you able to get JP Morgan to lend to you when it looks like your assets were disappearing? What was it 300 million where you could actually buy in your stock and beat back the Yes.
So uh you know I had always I had never defaulted on the loan. Uh I hadn't frankly borrowed a lot of money but I was always even the way I managed through my first fund. We never defaulted on a counterparty. You know when we shook hands we did what we said we were going to do. Um and I went through a time of need okay which is I was going through a divorce which is creates financial pressure.
The fund was down 30ome%. We had uh a lot of very negative press. Um but uh you know I sat down with uh JP Morgan and I don't know if Jamie himself signed off on it but we were I I found out years later I was the largest unsecured borrower from JP Morgan as an individual uh for that for that moment.
Morgan about you lend on character. I you could say that. And uh I'll say it. You can. Okay. And we you know we pay them back. Um, and look, if everything had gone badly, you could say continued to go badly, it would have been a risky loan, but I had significant assets and, you know, I was committed to pay them back.
And and it's a kind of one of those never forget moments, you know. So, I've been an incredibly loyal uh JP Morgan, you know, customer for actually there came a time, not u recently, where I had actually a line of credit with JP Morgan and the bank said, you know what, Bill, the the um would you mind paying us more?
And I had an agreement with JP Morgan where the line was good at whatever the spread was for another couple of years and you know because of changes in bank regulation or otherwise it wasn't a profitable line for us and they said would you mind paying us 25 basis points more and I said no I think that sounds fair and uh so it it goes both ways.
Yeah. and and uh on that uh a after uh you you went through that you describe first of all um what you call how you make progress. Yes. Walk us through this is personal but how how how you you're you're down to look at don't want to look at the mountain fallen uh how how do you what should you do each day?
What did you do each day? I teach I sort of teach this to students very Ben Franklin you know. Yeah. So basically um when you're going through a very high pressure situ you know so the fund was down 30 something%. The press you know loves you on the way up and loves you even more to write about you on the way down.
So there was a lot of uh very negative press. There was some litigation in connection with uh that valiant uh investment and I was in the middle of a divorce. So it was bad about as bad as it gets but I didn't have a health issue. So one important to keep perspective um but the way you manage through that kind of stressful situation all of us are going to have a moment like this unfortunately it's going to be you know a health issue it's going to be you're fired from your job your startup fails you you will you will you know and it's even harder when you've fallen from a high place to a low place so my method uh was just you know what I'm going to make a little progress every day compounding is the solution to the vast majority of progress in the world and personal compounding is even more powerful because you make, you know,.1% progress every day.
It doesn't sound like a lot, but annualized, you know, it's a huge amount. And so what I said to myself going through this period is each day I'm going to make progress. I'm not going to look back to where I was because if I look there, I'm going to get discouraged. I'm just going to focus on the next step and then the next step and the next step.
And you don't notice any meaningful change for the first few weeks. But about 90 days in, you're like, "Okay, I'm here. Here's where I was now. I used to be up there, but I'm just going to keep compounding. And the curves of compounding, which I'm sure you know well, start like this. They don't look like much.
And and then they bit look like co and they sort of eventually kind of take off. And the other key success factor going through a a challenging period of time is just to be really healthy. So, you know, I I I decided a while ago to go zero sugar. I highly recommend zero sugar. It's good for everything from mental acuity to the way you look to phys, you know, just everything about it is is is a positive.
um you know, exercise, nutrition, sleep, kind of the basics, and then surrounding yourself with people you uh you love and love you. And if you do that, I think you can work yourself through almost any problem. And I I met my wife, now wife, at the absolute uh bottom, almost to the day. I had my first date with her.
And I think love saves us all. It's very true. the the the the gets to a I know we're running out of time, but describe your Brad Pitt moment with with with your uh sounds like you've done some due diligence. So, I I described like my deepest darkest moment was, you know, the funds down 35%. Investors are redeeming, you know, we got a court case that's going poorly.
We're I'm joining severally personally liable with Valiant Pharmaceuticals, a company going bankrupt on on the shareholder litigation. Um, and uh, there's not a lot of good going on. But then I meet this woman uh, Ner Oxman, and she's just gorgeous and brilliant and like the most loving, warm person in the world.
And it's like she's my savior and things start and also my working through through the divorce and all this mess. And I finally get through, you know, starting to make some progress and completely fall in love with her. Uh, but she's at MIT and I'm in New York. A little long-distance relationship. And then she one day she calls me.
She says, "Oh, Bill, guess who's coming to visit me at my lab?" I'm like, "I don't know who who's coming." Brad Pitt. I'm like, "That's great, sweetheart." Um, I didn't know Brad Pitt was interested in architecture. No, he's really interested in architecture and design. I like that's fantastic. We would text all WhatsApp like all the time.
Uh, Brad showed up at the lab at 10 a.m. Uh, and then I kind of, you know, WhatsAppapped her probably at around 11. No response. Center another note around 12. No response. Two. No response. And it was probably for the period of time from the beginning of our relationship to that moment. It was the biggest gap in unresponded.
Not just the texts were unresponded to. You know how they like the checks go blue when she reads it? They didn't even go blue. Okay. Uh and so now it's 9:00. nothing. 10:00 she calls me back. Um, and of course they had a great day at the lab and then went out for dinner. And so, you know, again, this is like a pretty dark period for me.
So, I'm thinking, okay, I'm going to lose the litigation. The fund is going to get liquidated, a judge is going to find me guilty of some kind of crime, and Brad Pitt's going to steal my girlfriend. It's like this. That was the bottom. Okay. Oh, and and yes, and Elliot Associates had built a stake in my public vehicle, which we didn't yet control because I hadn't yet uh borrowed that money from JP Morgan, and they were another activist was going to put me out of business.
It was like if you make the list of horribles of a terrible way to go out. I mean, Forbes would have had an incredible field day with the story. And and but I the whole thing was very motivational. And maybe maybe that's why Jaime let me the money. He just didn't want to see me go down like that. Um, talk about activism.
You've become very active obviously on the education front at Harvard. Uh, you've described Harvard as, I think, a trust fund kid who's never had to really work. Uh, describe the revelation you had after October 7th. Sure. And, uh, made you realize there is rot in higher education and what you want to do about it.
Yeah. So, you know, I had a very positive education experience at Harvard. I went to Harvard Business School and periodically I would go back to campus and I talked to students. Um, but I wasn't that close to the campus. Uh, I had a daughter who graduated from Harvard and uh that was sort of my first clue that this you place had changed and literally for the first year or two after she graduated, anytime something related to capitalism uh would come up, she'd have a very negative reaction.
um you know and uh I thought this was strange and again not everyone has to uh believe in all the tenants of capitalism but but she was very sort of negative on capitalism and October 7th happened uh which was a very bad day obviously but October 8th on campus was worse because of how a meaningful subset of the students responded.
34 Harvard student organizations came out and said that Israel was entirely responsible for the acts of Hamas solely responsible at a time when the terrorism terrorists were still killing people, you know, on Israeli soil. I thought this was obviously surprising and strange. I went up to campus. I like met with students, met with faculty.
You know, where is like why are so many students taking the side of the terrorists? you know, you can criticize Israel for lots of things, but this is a case where clearly um and what I heard was that this is sort of an ideology that has emerged in at Harvard but in higher education generally that the world is is a bicamal.
There are oppressors uh and there are the oppressed. You're either in one category or another and that your oppression relates to where you fit on sort of this hierarchy of intersectionality. You know, if you're if you're a woman, you you're part of the oppressor cl oppressed class. If you're a person of color, if you're an LB LGBTQ person, if you're a successful person or you're a white male or you're Jewish or you're Asian, well, you're you're an oppressor because so this notion that you're only successful if you got there by in effect pushing down other people where capitalism is a zero- sum game.
If Jeff Bezos has 100 billion that means that means other people have 100 billion less and this ideology is really something that has permeated certainly Harvard uh and other institutions and it's led to and it a lot of it was driven by kind of this DEI now I always thought of DEI as you know diversity being good thing equity you know I thought of this as fairness and inclusion I thought of course we want to you know I want Persian to be a place where everyone feels comfortable.
I want everyone to have the same opportunity. Uh and it's great. I think there are lots of benefits in having a diverse university, diverse workforce, you know, etc. But what the this ideology became was a view of the world uh that I thought was very harmful one and and and what what what you've discovered about the uh governance so to speak of Harvard and these other institutions uh quickly do on endowment I mean a little background back in 2008 2009 everyone had followed the Yale model and they suddenly discovered they didn't have liquidity yet here we are today.
These institutions go quickly through Harvard have a lot of illlquid assets and they need they're they need cash. How how did they get themselves in a position like that? They they look rich but they're cash poor. Yeah. So basically, you know, Harvard has really mismanaged itself. You know, if you think about the two places Harvard should be investing money, one is in they should be growing their student body over time.
I graduated my class was 1640 graduating class this year was 1,700 they've grown 4% over 35 36 years so in terms of the service they're offering to the country uh the number of slots relative to the growth in the population has declined percentage of US students versus foreign students went from a small percentage of foreign students to 27% of the most recent class result being that in terms of Harvard being a place to educate American leaders they're not really satisfying that you know they've made no progress whatsoever.
If you look at the growth in the administration however there's been massive growth in both overhead and kind of staffing. The faculty has been flat for the last 15 years. It's not like they're growing the faculty appointments. Uh so now how have they been funding this? They've been funding this with an endowment uh but also a huge amount of federal funding uh a much larger amount over the last whatever number of years.
Um and they're very reliant on uh philanthropy u from their alums and what's happened is philanthropy is $8 billion of debt. Is that true? That is true. So anyway, so the but they had a $53 billion endowment. Everything seemed fine. Uh the problem they have is 80% of the endowment assets are in liquid assets.
Real estate, private equity, venture, and the probably most liquid of the 80% are hedge funds. But even those, they're required to lock up their capital. uh they rely on short-term funding from the government and from donors. The government funding has been largely turned off. The donor funding is, you know, if you're a donor today, you know, so they've they've been financing their operating expenses by borrowing money.
They've gone from almost no debt to now 8 billion of debt. They borrowed a couple billion in the last uh I think 18 months. Uh and you know the I I even question whether 53 billion is the accurate value. you know, if they go to sell their illquid assets, they're not going to get par. And so they found themselves.
And so why why have they done this? The answer is um people who manage endowments don't want, you know, private equity assets look less volatile than market assets because they don't get marked to market as often. And I think really by reason of many people wanting to keep their jobs, uh, you know, you put assets in assets that don't mark as often, you're less likely to look stupid, at least for some period of time.
And I think that's led to a lot of endowments investing in illquid assets. And uh, since we're out of time, uh, the whole governing structure of Harvard is done in a way and I guess institutions do their variations of it where you can't mount easily an outside challenge. So the Harvard is managed by a 13 person board that elects itself and if any other company had been mismanaged in this fashion and had dealt with the issues in the way they have and allowed ideologies to develop and eliminated free speech on campus you know no viewpoint diversity etc.
you know the the the shareholders would have thrown them out by now but the same uh chair continues to manage the institution. So in closing uh you've taken the controversial position that uh what is emanating from Washington is not uh the barbarians it's uh how you get change through money. Look the unfortunate thing is I don't blame the science faculty at Harvard for the problems of the institution but ultimately the faculty have to be responsible for themselves.
It's a subset of the faculty and a subset of the students that have been taking the place down and it's the you know the board not stepping in and saying look you know when the when the administration said look there are series of issues free speech issues safety issues anti-semitism you know they you know waste and if we're you we're going to give you taxpayer dollars we want you to fix these problems that's what the administration said Harvard said no and they sued the administration Trump doesn't like that and he responded you know as would expected very very aggressively and they've put themselves into a very they self-inflicted spot which they could get out of but it would require the chairman of the board to resign uh and the president of Harvard to go to the White House and apologize and say look we're prepared to fix ABC and D uh and yes Mr.
President you were a little overreaching on this but let let us come to an agreement that makes sense. I think the administration would love to have kind of a template solution. My guess is they're going to bit like with tariffs, they're going to announce a deal with some other university other than Harvard on issues of free speech and anti-semitism and viewpoint diversity that aren't going to violate issues of academic freedom.
Uh and it's going to make another institution look really good and they're going to get this federal funding and Harvard's going to lose it. I think that's where it's going to end up. So, uh in closing then, uh you see the same thing happening with tariffs. Are we going to get out of this nightmare where we actually know what the rules of the road are and we haven't blown up the global trading system?
Yeah, I'm an optimist. Let's leave it there. Good. Since you're an optimist, now you can have your free lunch. Thank you. Thank you.
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