Transcription
Nothing to discuss. But thank you for joining us, Bill. And of course, a little background, even before the word entrepreneur was widely used, when you were growing up, you wanted to do things on your own, do business. And one of the things you did at Harvard, for example, there was a travel guide there. Tell us about how you went into Harvard basement and made for a college kid was real money.
>> Sure. So I went to work for Let's Go Travel guides that were produced by Harvard students, and I was an advertising salesperson, and they had designed the commission structure for less motivated people. And 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 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?
>> Say yes.
>> For you?
>> Yes.
>> Probably not.
>> But but.
>> I'm in favor of meaningful changes in the way taxes are administered, for sure.
>> So after college, making that good money before the IRS came, you went into you got involved a little bit in learning about finance and real estate.
>> Yes. Worked for actually my dad for a little under two years. He was in the business of arranging financing for real estate developers, investors, and 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 know, you can't be afraid of rejection, but you ask enough. And we had a good story to tell. At least I thought of it that way. And we went to people who had. We basically went through the Forbes 400 list, and I cold called and I got meetings, and Forbes 400 is comprised of a lot of entrepreneurs who liked 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 a million bucks. And I think they liked the psychological benefits of being an early investor.
>> And one of the things you did was Rockefeller.
>> The.
>> Tell us.
>> About significant.
>> And how you got valuation from a firm.
>> Okay, so.
>> That was Tim Horton. But first Rockefeller.
>> Oh, okay. So Rockefeller Center was it was a public company that owned a $1.3 billion mortgage in Rockefeller Center. It 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 create an interest in Rockefeller Center for really pennies on the dollar. And 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 to buy control of this mortgage, which would have given us control of Rockefeller Center. And I met David Rockefeller and I met Jerry Speyer. I met a guy named Joe Steinberg and ended up becoming very important to me. But so it was a great start to my career.
>> And the valuation 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 in Pershing Square was Wendy's. Actually, it was an article in Barron's saying how cheap Wendy's stock was, and it owned a company called Tim Hortons. And at the time, we bought 10% of Wendy's for a valuation of about 4.5 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, sent an email, they didn't respond. So I had a friend who worked at Blackstone and I said, you know, would Blackstone do a fairness opinion, in effect, what Wendy's would be worth if they spun off Tim Hortons?
>> How did you get Blackstone to take you seriously?
>> Just a friend who worked there, you know, want to do business. He was a Blackstone, had an investment bank at the time. And Steve Schwarzman actually signed off on the fairness opinion for Wendy's spinning off Tim Hortons. And we mailed it in filed it in a 13 D. And six weeks later they split, the company stock doubled. And that was the beginning of our activist career at Pershing Square.
>> Activist. What is the criteria for your activism?
>> Well, so today I sort of retired, as I say, from public company activism, because you sort of have to be an activist of 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. People take our call. So but my activism sort of. 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. But, you know, I would say on on X, I've kind of transferred my activist tendencies. Yeah. If there's an issue I'm passionate about, I've always been a big free speech person.
>> So you like what you call super durable companies? Yes. What you see is 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. So that's why we own such few companies.
>> Say you only get one good idea a year.
>> 1 or 2, if we're lucky. Yes, but that's enough.
>> And 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 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 are other businesses that meet that model. So Tim Hortons is a franchise restaurateur. They have a brand, they have a system. And then the franchisees put up the capital and they get a royalty on every, you know, coffee and donuts. That's sold at at Tim Hortons. 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 is 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 you 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 sometimes you don't buy what cheap you think. It's a good value, but it doesn't look cheap. Chipotle.
>> Yeah. So Polly didn't look cheap. So people use kind of a rubric for valuing businesses. Right. The P/E ratio is kind of very simple way to think about a business. But a stock can be expensive at ten 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 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 nine fold 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 we did a cover story on you a few years ago.
>> It's actually a decade ago.
>> And my version is a few years ago.
>> But I'm not encouraging another one. A lot of bad things happened after that cover story, so it's like a bit of a bit of a curse. A curse being on the cover. But yes.
>> But but Howard Hughes, yes. That is, describe what you want to do now with Howard Hughes. You're making a big investment. And so how are you dealing with it? It's a little different from your other aspects of Pershing.
>> Sure. 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 control. We're buying 5%, 10%, 2% of the business. But we're pretty influential shareholder. But I've always had always admired Mr. Buffett. You look at the Berkshire Buffett's history, 1955. He started a small partnership. By 1962, he started buying a stake in this crappy textile company because it was really cheap. By 1968, he had control of a not particularly good business, and he was sort of stuck, and he sort of got tired of managing money where the money could disappear, where people could add and subtract, and it 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 initially. First he bought an insurance company, he bought a bank, and then over time he built, obviously $1 trillion business. And I've always, you know, he's been an 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. I'm a loyal subscriber.
>> Thank you. Yeah. You helped pay for this today.
>> The return on the subscription has been very high. You know, it's disappointing that media companies don't do better because, you know, particularly business media can be very profitable. Read I would say.
>> But so in terms of Howard Hughes.
>> In terms of Howard Hughes, so today we own 47% of the company. So like.
>> Buffett, you set up a different kind of company than you did with the rest.
>> A bit like what we're trying to accomplish is really what Buffett's accomplished. But instead of starting with 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 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. And one of the interesting things about Berkshire, there are insurance companies that do a good job in insurance, and they're 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 common stocks.
>> And so this this is very important that if an insurance company is on its own, has got all sorts of regulations about how you can invest. But explain to us how if it's owned by a company, you have a lot more flexibility.
>> That's true. So the regulators set kind of minimum capital levels, but the relevant measure is 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 profitable kind of good businesses. So with that kind of credit support and running a relatively low leverage insurance company, we'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. Pershing Square and Pershing 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 insurance subsidiary in the context of Howard Hughes. And we have a similar kind of flexibility as Mr. Buffett does to invest the assets. If you look at the 21 year history of Pershing 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 eight 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 both sides. You make money on the liability side of the business, the insurance business creating low cost liabilities. And you make money on the asset side, and that's how you can compound it at a very nice rate over a long period of time. And we're going to use Howard Hughes to follow that playbook.
>> And what's the ownership of Howard Hughes part of it since?
>> So it's 47% held by myself, other Pershing Square affiliates. And the balance is the public. And the stock today is going through a transition where what we're a pure play. Real estate investors are largely selling, and they're being replaced by investors who I would say are more open to the idea of what we're planning to do.
>> And another thing you're interested in is Fannie and Freddie.
>> Yes.
>> Fannie Mae, and.
>> We've been a long term shareholder.
>> And 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. Fannie and Freddie.
>> Good. Good for you.
>> In 2012 we bought it back.
>> And 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. You know the good news we're going through, you know, 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 Bessent, to his credit, has said, look, we've got to focus not just on the our expense side and the liability side. We've got to focus on the asset side. And the US government today is the 80% shareholder and a preferred stockholder of Fannie Mae and Freddie Mac. And these are two remarkable businesses.
>> The numbers they throw around are huge 300. So this is.
>> Yeah, the government's interest in Fannie and Freddie 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.
>> And by the way, this temporary conservatorship is, what, a generation old now.
>> Yeah, 16 years in or something like this. And Trump has been talking about first starting with Secretary Mnuchin and 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 the 30 year mortgage and makes sure that the cost of mortgages doesn't go up. But it can emerge in.
>> A how do you prevent that? Because one of the raps against privatizing or changing the status quo is that mortgage rates are going to go up, the guarantee fees have to go up. Not true. How do you answer that?
>> Yeah. So Fannie Mae and Freddie Mac today are vastly better capitalized than they were for the first 60 years of their existence. They were only required to hold 0.45% equity against their guarantees. And by the way, 0.45% would have been enough during the financial crisis had they not gone into subprime. But it was still a thin level of capital when they emerged from conservatorship. Assuming they do, they'll emerge with at least 2.5% of equity relative to their guarantees. And if you think about their business, it's not a bank. People are confused by this Fannie Freddie business is they buy conforming mortgages, mortgages that meet a very safe standard mortgages, first mortgages on middle class homes from creditworthy borrowers that are not that likely to default. And if they default, there's unlikely to be small losses. They buy those mortgages, they package them up in these trusts, and 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 guaranteed 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, and they're going to emerge with a couple of hundred billion dollars of equity.
>> If they went private, would they still keep their line of credit with the Treasury?
>> Yeah.
>> So is what how many hundreds of billions.
>> As a so they've got about 7 trillion of guarantees. And they have enormous cash flow that comes in from the 65 basis points per annum. They charge on those guarantees. So if 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 a belt or 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 Fannie and Freddie, they do have an implied government backstop. And so, like JPMorgan, if JPMorgan were to fail, the government will come in in some form. But 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, 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 with that, 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, I mean, the demagoguery has 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 Fannie Mae, Freddie Mac securitizations are safer than even US government guarantees, because it's secured. And on top of it, you get the guarantee, whereas recourse unsecured. When we face the US government on a US Treasury. Yeah.
>> So in terms of investing, you like the companies that can't be replicated that are in effect royalty generators. But going through your career, I think people find it would find it inspiring. 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, an activist investor, was out to destroy you and almost did. 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 us through how how you went through that.
>> So basically, 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, if you're a long term investor, but your capital can leave overnight, you're like a bank where the deposits, you can have a run of 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 Valeant 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. Icahn, the assumption was, okay, these guys are going to get a lot of redemptions from their investors. Let's put the squeeze on them.
>> Elliott two came.
>> After there were a bunch of others and people sold. Went short the stocks we were we owned and they went long a stock. We were short a company called Herbalife which put a lot of pressure on us. Now we had the benefit of a few years earlier launching this public entity, our version of Warren Buffett, our first step toward permanent capital. And what we did is 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. Your personal life. We can get to in a moment. It's going to say be polite at transition. So you have all that kind of pressure. How are you able to get JP Morgan to lend you when it looks like your assets are disappearing? What was it, 300 million, where you could actually buy in your stock and beat back the.
>> Yes. So, you know, I had always I had never defaulted on a loan. 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. When we shook hands, we did what we said we were going to do. 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 30 something percent. We had a lot of very negative press. But, you know, I sat down with JP Morgan and I don't know if Jamie himself signed off on it, but we were I found out years later I was the largest unsecured borrower from JP Morgan as an individual for that for that moment.
>> Morgan about you lend on character.
>> You could say that and.
>> I'll say it.
>> You can't okay. And you know, we pay them back. 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 it's kind of one of those never forget moments, you know? So I've been an incredibly loyal JP Morgan, you know, customer for actually, there came a time, not recently where I had actually a line of credit with JP Morgan, and the bank said, you know, what, 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 so it goes both ways.
>> And on that after after you went through that, you described, first of all, what you call how you make progress. Yes. Walk us through this personal but how you you're down.
>> So look.
>> I don't want to look at the mountain fallen. How do you what should you do each day? What did you do each day?
>> I, I sort of teach this to students.
>> They say Ben Franklin, you know.
>> Yeah. So basically, when you're going through a very high pressure situation, you know, so the fund was down 30 something percent. 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 very negative press. There was some litigation in connection with that valiant investment. And I was in the middle of a divorce, so it was bad. I was about as bad as it gets, but I didn't have a health issue. So one important to keep perspective, 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 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 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, 0.1% 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 then they look like Covid and they sort of eventually kind of take off. And the other key success factor going through a challenging period of time is just to be really healthy. So, you know, 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 physical. You know, just everything about it is a positive, you know, exercise, nutrition, sleep, kind of the basics and then surrounding yourself with people you you love and who love you. And if you do that, I think you can work yourself through almost any problem. And I met my wife, now wife, at the absolute bottom, almost to the day. I had a first date with her and I was this. I think love saves us all. It's very true.
>> The this gets to I know we're running out of time, but describe your Brad Pitt moment with with your.
>> It sounds like you've done some due diligence. So I describe like my deepest, darkest moment was, you know the funds down 35%. Investors are redeeming. You know, we've got a court case that's going poorly. I'm joining severally personally liable with Valeant Pharmaceuticals, a company going bankrupt on on the shareholder litigation. And there's not a lot of good going on. But then I meet this woman, Neri 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 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. But she's at MIT and I'm in New York, a little long distance relationship. And then she one day she calls me and she says, oh, Bill, guess who's coming to visit me at my lab? I'm like, I don't know who's coming. Brad Pitt like, that's great, sweetheart. I didn't know Brad Pitt was interested in architecture. No, he's really interested in architecture and design. He said, that's fantastic. We would text WhatsApp like all the time. Brad showed up at lab at 10 a.m. And then I kind of whatsapped her probably at around 11. No response. Send her 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. And so now it's 9:00, nothing. 10:00 she calls me back. And of course they had a great day at the lab and then went out for dinner. And so, you know, again, this was like a pretty dark period for me. So I'm thinking, okay, I'm going to lose the litigation. The fun 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. So it's like, that was the bottom. Okay. Oh, and yes, and Elliott Associates had built a stake in my public vehicle, which we didn't yet control because I hadn't yet 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 but the whole thing was very motivational. And maybe, maybe that's why Jamie lent me the money. He just didn't want to see me go down like that.
>> Talk about activism. You become very active, obviously, on the education front at Harvard, you've described Harvard as, I think, a trust fund kid who's never had to really work. Describe the revelation you had after October 7th and 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 educational experience at Harvard. I went to Harvard Business School, and periodically I would go back to campus and I'd talk to students, but I wasn't that close to the campus. I had a daughter who graduated from Harvard, and that was sort of my first clue that the place had changed. And literally for the first year or two after she graduated, any time something related to capitalism that would come up, she'd have a very negative reaction, you know? And I thought this was strange. And again, not everyone has to believe in all the tenets of capitalism, but but she was very sort of negative on capitalism. And October 7th happened, 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 on Israeli soil. I thought this was obviously surprising and strange. I went up to campus, I met with students, met with faculty. You know, we're 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 and what I heard was that this, this sort of an ideology that has emerged in at Harvard, but in higher education generally, the world is a bicameral world. There are oppressors and they're the oppressed. You're either in one category or another, and that your oppression relates to where you fit on this hierarchy of intersectionality. You know, if you're if you're a woman, you're part of the oppressor class, oppressed class, if you're a person of color, if you're an 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 and other institutions. And it's led to and a lot of it was driven by kind of this DEI. And I always thought of DEI as 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 Pershing to be a place where everyone feels comfortable. I want everyone to have the same opportunity. 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 that I thought was very harmful. One and.
>> And what, what what you've discovered about the governance, so to speak, of Harvard and these other institutions 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 illiquid assets, and they need their they need cash. How did they get themselves in a position like that? They look rich, but they're cash poor.
>> Yeah. So basically Harvard is 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 of 1640 graduating class this year was 1700. They've grown 4% over 3536 years. So in terms of the service they're offering to the country, 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. The result being that in terms of Harvard being a place to educate American leaders, they're not really satisfying, that 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. So now how have they been funding this? They've been funding this with an endowment, but also a huge amount of federal funding, a much larger amount over the last whatever number of years. And they're very reliant on philanthropy 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. The problem they have is 80% of the endowment assets are in illiquid 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, 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. So they've been financing their operating expenses by borrowing money, and they've gone from almost no debt to now 8 billion of debt. They've borrowed a couple billion in the last, I think, 18 months. And, you know, the I even question whether 53 billion is the accurate value. You know, if they go to sell their illiquid assets they're not going to get PA.
>> And so.
>> They found themselves. And so why why have they done this. The answer is people who manage endowments don't want private equity. Assets look less volatile than market assets because they don't get mark to market as often. And I think really by reason of many people wanting to keep their jobs, 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 illiquid assets.
>> And since we're out of time, 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 and outside challenge.
>> So 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. Know, the, the shareholders would have thrown them out by now, but the same chair continues to manage the institution.
>> So in closing, then 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.