The school’s soon to be retired Chief Investment Officer grew the endowment nearly thirty times in over thirty years.
During his tenure, Notre Dame’s endowment grew to $12.5 billion as of June 30, 2019, from $425 million in 1989, with endowment spending increasing to $425.7 million from $19.5 million over the same period. The endowment supports scholarship and research, academic programs and institutes, hundreds of faculty chairs, athletics and fully one-third of all student financial aid.
A few years ago Scott Malpass shared that he knew nothing about venture before he met with Don Valentine back in 1990. Since then Notre Dame made over $1.5 billion from its investment in Sequoia Capital’s venture funds.
ORIGIN OF NOTRE DAME INVESTING IN VENTURE CAPITAL & PRIVATE EQUITY
“When I began, I didn’t know anything about Venture Capital or Private Equity,” Malpass related. He then told of a chance meeting in 1990 with Don Valentine of the Sequoia Capital Group out of Menlo Park, California. Notre Dame’s investment into Sequoia’s Venture Capital Group funds has netted the University over one-and-a-half billion dollars. That is where the Notre Dame involvement with VC and PE funds began.
“What this type of investing has done for big endowments has been extraordinary in the last thirty years,” Malpass continued, “and it will continue to be a significant part of our strategy.” He went on to talk about how although the industries are more institutionalized, and although Venture Capital is no longer a cottage industry it was, innovations and technologies are not slowing down. He noted there is still a lot to do, and Notre Dame will continue to be committed to the both the VC and PE asset classes, as much any other asset class in the endowment portfolio.
He also defined the endowment model as investing in equities for the long-term to get high yield returns.
GROWTH OF THE NOTRE DAME ENDOWMENT FUND
As a background, Malpass talked about the “Endowment Model.” This model was invented by Cambridge Associates in the 1970s, when 15 schools got together to invest in equities, and be long-term investors to get high yield returns. It was based on diversification and a smooth spending policy, because they would spend 5% of the returns per year in their institutions. Because of the spending, they needed to be conscious of risk. Diversification and building relationships with long-term investment firms evolved to become the ‘Endowment Model,’ which began with the Ivy League schools, and then became something that Notre Dame latched onto.
“Our investment objectives are the same as any other endowment fund,” Malpass went on to state. He gave characteristics of ambition, high-yield returns (goal of 5-10% per year), proper staffing and a steady stream of distributions, and there is a lot more integration with a spending policy. He went on to say that only 50 or 60 institutions worldwide can handle these types of objectives.
It takes at least a decade to build a portfolio similar to Notre Dame’s endowment. But it’s a competitive advantage in a world full of short-term investing.
Q: There is a perception in the marketplace that you are the preferred LP, and that you get into a lot of oversubscribed funds that other folks can’t get into, so it would be hard to replicate what your returns are. But what kind of time frame would you estimate it would take to build what you have built over the years?
A: At least a decade, maybe longer. It’s going to take some time, so you have to take that perspective. Unfortunately the short term-ism in markets today are what investors are thinking about, it’s at the worst point I’ve ever seen. It’s exacerbated by the financial media, the social media and our overall culture. Everything is now short term, but investing can’t be, if you do it right. You just have to have that mindset. So yes, it’s at least a decade.
Of course, it’s easy to think long-term when you are in the business of cathedrals.
Post by Marcelino Pantoja