A real piece of the action

Alan Ryan wishes Oxford's big donors would share their financial expertise

August 7, 2008

The University of Oxford ends the academic year with a grand party; why it is called Encaenia is a mystery to me. The term relates to the inauguration of an imperial basilica at Tyre in 317. But this year's interesting oddity is financial rather than etymological or cultural-historical. At the back of the elegant programme that everyone is given, the most substantial benefactions to the university over the past year are listed. This year, the list kicked off with thanks to Harriet Heyman and Michael Moritz for their gift in support of the endowment of Christ Church - so far, so usual - but went on to note that "the gift will be invested in Oxford University Asset Management (OUAM). Christ Church will simultaneously place the major share of its current liquid assets under OUAM's management".

That sentence will have baffled most readers, but behind it is an interesting story. It is a standing complaint against UK universities, and against the Oxbridge colleges, that they consistently get lower returns from their investments than the big hitters in the Ivy League. The complaint is not wholly justified. When looking at the endowments of Harvard, Yale and Princeton universities, with which comparisons are usually made, you need to do things that aren't as easy as they look, such as stripping out additions to the endowment from donations and the effect of their subsequent growth. When comparing US and UK performance, you also need to allow for the fact that 20 years ago the pound was worth about $1.20, but is now about $2.00.

Michael Moritz is a very remarkable man; he runs a firm called Sequoia Securities, and he had the vision - or good luck - to be one of the two venture capitalists who bet on Google when it was not much more than a bright idea by two Stanford University graduate students. The other was John Doerr, of Kleiner Perkins; Moritz and Doerr alternate in the top two spots of the American list of "wildly successful venture capitalist of the year". They have vastly different views on how to spot a good prospect, but that's not uncommon among highly successful gamblers in all walks of life.

Moritz has been advertised by the university as though he was a case of rags to riches; it has emphasised that he went to a comprehensive school in Cardiff, Howardian High School, and then to Christ Church. The university has been less quick to point out that his father, Alfred, was professor of Classics at Cardiff University from 1961 to 1979. Moritz himself began adult life as a graduate student in history at the University of Pennsylvania, switched to an MBA, became a journalist on Time, and joined Sequoia in 1986. The rest, as they say, is the history of Google, and you can google for it.

So, Moritz is a man who knows about investment, and he decided that if he was going to give Christ Church £25 million, the college was going to invest it as he instructed. It is nonetheless highly unusual for gifts to come accompanied with demands that a college should invest most of its other liquid resources as a donor tells it that it should. Moritz was quoted as saying: "I made it clear to Christ Church that, despite all its best efforts, noble intentions and hard work, its money needed to be managed in a much-improved fashion."

But why should he think that that means Christ Church should put £100 million into the newly created OUAM? Its track record is, for good reasons, non-existent. The explanation comes back to complaints about the investment returns in UK higher education. The received doctrine is that you need £1 billion to get really high returns. The university has for years wanted to set up a £1 billion investment fund, but has not had £1 billion to invest. The colleges have - or had until recently - more than £2 billion between them. Some of them, including Christ Church, have set up a smaller asset management fund - Oxford Investment Partners - to see if they can reap the gains of investing in something other than the usual sample of bonds, equities and property. The university would like the colleges to stick their money into the university's new investment management entity rather than one of their own; most colleges want to see if the university's fund is any good at its job.

Moritz has evidently been recruited to drum up business for it. I hope his confidence in OUAM pays off as handsomely as his confidence in Google. But it doesn't explain something that has always puzzled me. The point of a big fund is that you can give a lot of money to venture capitalists. Moritz is the sort of venture capitalist with whom you pray to have invested everything you own. So why doesn't he look after Christ Church's money himself? If he ran £10 million of his own against £10 million invested by Oxford, his would surely come in ahead.

It is one of the great mysteries of university finance that so many donors who are accustomed to making 25 per cent a year on their own investments are happy to give their money to institutions that will make much less; why don't they cut them in on the action?

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