Harvard’s Endowment Beats the University of Texas’s Despite Texas’s Oil and Gas Riches

From a Wall Street Journal story by Spencer Jakab headlined “Harvard Beats Texas Despite Oil Riches”:

You don’t need a fancy Ivy League education to have heard of schadenfreude.

Oil has practically been a four-letter word for those funding the educations of America’s future elite, with Harvard University’s endowment pledging last year that it wouldn’t invest in fossil-fuel companies. It was the first university endowment to make a “net-zero” pledge.

But now it might be overtaken in total size by a fund that has assumed, through historical accident, the opposite exposure: The University of Texas system was seeded 146 years ago with vast but seemingly not very valuable scrubland to fund its operations—perhaps good for cattle grazing. Today it sits atop America’s most prolific oil and natural-gas patch, the Permian Basin, pumping cash into its coffers that outstrips the tax-deductible donations of millionaires and billionaires hoping to help their alma mater in Cambridge, and to perhaps give their progeny a leg up in the admissions process.

Until recently, avoiding oil and gas was a way to do well by supposedly doing good: During the 2021 fiscal year, which covered part of the washout calendar year of 2020 for oil prices, Harvard’s endowment had a fantastic return of 33.6%. This year, with its heavy exposure to hedge funds and indirectly to tech stocks, that is likely to be a lot lower. At the same time, Texas raked in royalties with crude-oil prices topping $100 a barrel.

However justified avoiding fossil fuels might have been, though, Harvard made a mistake from an investing perspective. If one wants to maximize returns then narrowing down the list of what one can own isn’t a good idea—especially when the missing asset is as unloved as oil was a couple of years ago.

But while Texans deserve to gloat a little at Harvard’s pointy-headed underperformers, they aren’t really in a better position. Their university system’s financial performance is highly exposed to volatile commodities and, indirectly, so are the finances of its state and of the families of many in-state students. Moreover, having the largest endowment would be great for bragging rights, but it is spread over about 13 times as many undergraduate and graduate students combined as Harvard’s fund.

Even if oil and gas keep booming for now, Harvard got a 247-year head start over UT Austin and 240 years over Texas A&M, which is also funded by the same land. Those extra years of compound interest, and being the alma mater of the most billionaires on the Forbes 400—not even including dropouts like Bill Gates and Mark Zuckerberg—confer a financial advantage that happy geological accidents just can’t overcome.

Texans should enjoy the good times while they last and can console themselves with the knowledge that, if they ever met on the gridiron, Harvard would need a massive head start to come out on top.

Five Biggest University Endowments:

Harvard – $42 Billion

Yale – $31 Billion

University of Texas System – $ 30 Billion

Stanford – $29 Billion

Princeton – $26 Billion

Speak Your Mind