Interview with Mr. Thruston Morton(1)

2007-03-06 14:23:38 Zong Xing[ Big Normal Small ]

　　
　　
　　Just like Alan Greenspan was to the US Federal Reserve Bank, Mr. Morton has been to Duke University for the past 6 ½ years. Usually in U.S. top universities, the chief investment officer’s decisions affect everyone from the professor seeking to expand a research program to a parent writing a tuition check. The former (he retired in December, 2006) chief investment officer’s performance is nothing less than spectacular. Under his stewardship, the investment has gained 20.2% in fiscal year 2006, 3rd among the top 50 US college and university endowments. Over the past 10 years, Duke’s return of 16.3% p.a. ranks 2nd.
　　 Nowadays, how to manage money becomes a pressing issue for most Chinese universities as well many other non-profit sectors. With this question in mind, recently, Xing Zong, of Duke University Chinese students and scholars association, held an exclusive interview with Mr. Morton.

　　Z: Mr. Morton, thanks for taking my interview. You were a managing director for J. P. Morgan before coming to Duke in 2000. A safe bet was that you would earn more on Wall Street. Why did you choose to serve a non-profit organization?

　　M: Well, having worked for J. P. Morgan for 22 years. I thought that one day I would retire, and work in the non-profit area in the same field--investment management. Then in Spring 2000, the Duke CIO job opened up and, with my wife Patty being a Duke graduate, we just decided that it was a good time and a good opportunity. Money was not my chief concern; it was more about the opportunity to take an interesting job at a very fine non-profit institution. I thought I could broaden by own horizons but also apply in the university context some of the skills I learned about money management at J. P. Morgan. I was also impressed with the Duke investment team and the board.

　　Z: It was the year 2000 when you arrived. In your own words, that period of time was a just as a heck of party was ending in the markets. The equity markets had peaked and were headed down, culminating in the bear market and recession of 2001-2002. Did you feel a lot of pressure and how did you handle it?

　　M: Yes, I have to admit that my first two years were a bit challenging. I guess I handled it basically by making sure our board (of directors) understood what we needed to do and having confidence that I could count on their support. The very same portfolio that caused our performance to be up 58.8% in the fiscal year ended June 2000 was taking us south quickly once the tech bubble had burst.
　　 We had a heavy commitment to early stage venture capital and growth equity, which had benefited us greatly up to that point. But when the tide turns, you can’t just get rid of these sorts of investments -- typically, you’re locked in to the commitments for many years. So we had to do something else within the portfolio to mitigate the down side.
　　 The main thing we did was increase very aggressively the investments we had in hedge funds. As you know, hedge funds tend to be less correlated with the direction of the market and they are generally opportunistic in their approach, which gives them great flexibility and nimbleness. In addition to adding substantially to our hedge funds exposure, both in dollars invested and number of managers, we also put a lot of effort into repositioning our public equities portfolio.
　　Still, our total portfolio returns were negative in my first two years – a very disappointing result. But at least we were down much less than the markets, so we did protect our capital better than the average portfolio would have. Then we crawled our way back into positive territory, with the past three years averaging over 18%, and last year of course over 20%.