0:28
The story begins in Oxford 20 years ago.
0:31
Now.
0:32
Oxford is a very federal university.
0:34
There are 39 colleges and each of them is independent, which in turn means that each of their endowments is managed independent of the others.
0:44
There are benefits to doing things that way.
0:47
It means ultimately you're responsible for the performance of your own endowment.
0:52
Goes well, goes badly, the buck stops with you.
0:56
There are, however, we argued a number of downsides to doing things that way and that was the message that we delivered to those colleges and the people responsible for managing the endowments.
1:07
Firstly, we said broadly speaking, your return targets and your risk measures are quite similar.
1:14
You all want to grow well in excess of inflation over time.
1:18
4 or 5% more was the target return, but you also have spending needs and therefore to try and dampen down the volatility of return, particularly when equity markets perform poorly was equally important.
1:33
So broadly, the risk return characteristics quite similar.
1:37
The things we felt that they were missing out on were essentially three in number, the first economies of scale within our industry.
1:46
It's always going to be cheaper to manage more, not less.
1:50
The prices you'll get from fund managers will be lower almost inevitably.
1:55
If you're managing a billion pounds relative to 100 or even 10, and the average size endowment at that stage was about 40 million sterling.
2:04
They simply weren't benefiting from those economies of scale.
2:09
Secondly, the broad opportunity set, the larger the pot of money, the broader the opportunity set will get.
2:17
Most of those endowments were managed with the combination of equities and bonds, maybe a little bit of real estate.
2:24
And we argued that by broadening out the opportunity set to include, for example, private markets, infrastructure, other types of real estate, hedge funds and other diversifiers was a good thing.
2:38
If you have 8 or 9 levers to pull, then probably over time you're going to do a better job than just having 1-2 because there are periods of time, we've experienced one in the last two or three years where both equities and mainstream bond markets go down in sync.
2:55
Finally, risk management, managing a multi-asset growth portfolio and understanding the types of risks you're taking is actually a bit more complicated than many of them may be understood at the time.
3:08
If you take, for example, the equity risk premium, of course, you have some of that in public equities.
3:13
You may have some of that in your long short equity portfolio and you absolutely do have some in your private equity.
3:21
But trying to determine quite how much, that's easier said than done.
3:26
And it's clearly very important because if you're looking at the totality of equity risk in portfolio and how that might perform across a range of economic scenarios, that's something you absolutely need to know.
3:38
So that was our proposition to them 20 years ago and things broadly speaking have worked out well.
3:44
We're happy to have relationships with many of those colleges today.
3:49
The final point I'd leave you with is that the applicability of endowment style fund management and we believe this strongly doesn't end with universities.
3:58
It's something that other types of long-term institutional investors should also be interested in, people like foundations, family offices and charities.
4:08
We think that they all should take a look at this way of improving over time the quality of the portfolio that they own and the likelihood of that portfolio achieving its risk and return objectives.
