Interview with Mr. Thruston Morton(2)

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

　　
　　Z: I would like to make an analogy. You are the Coach K (Duke basketball head coach) of Duke Management Company. Coach K also had a losing streak in his first few years at Duke, then he had a stellar professional career.

　　M: (A hearty laugh) I wish I could say I’ve won several national championships!.

　　Z: Under your stewardship, DUMAC’s performance has been nothing less than spectacular. Last year, the investment has gained 20.2%, 3rd among the top 50 US college and university endowments. Over the past 10 years, Duke’s 16.3% is 2nd. What is the secret of success?

　　M: I have to say that investors should admit part of their success is always luck, no matter how smart they think they are. Duke has made some very good bets over the years. We were very big in the IT (information technology) venture capital space in the 90’s, and we shifted well into hedge funds and more niche public equity investments in the past 6 years. We placed big bets in emerging market equities, with large exposures to Russia, India and Africa for example, and these worked out very well. We also started adding to our energy and real estate investments several years ago and these of course have worked out very well in he past couple of years.
　　Finally, the leveraged buyout area has been very hot in the past few years and we have been consistent investors in that space. So it was not any one thing, but a combination of strategies and exposures that generated our those returns.

　　Z: The heart of the endowment manager’s job is to allocate assets to different classes of investments. In Duke’s case, what is the approximate percentage of these classes?

　　M: Well, I’m not sure my colleagues and successor would appreciate me disclosing to many specifics here, but directionally we have about 1/3 of our portfolio in global equities, with most of that in non-US markets. About ¼ of the portfolio is in pure hedge fund exposure, about 15% or so in real assets (real estate and natural resources), about 15% in private equity and around 10% in fixed income.

　　Z: For entrepreneurs, do they also go to university fund to seek money?

　　M: Usually they go to venture capitalists. Occasionally, they will come to us. We’ve had a few entrepreneurs who are Duke graduates come talk to us about their firms. But building a start-up company requires a very different skill set from pure investing. Assessing the market opportunity, building the management team, developing the marketing plan – these are all things good VCs will do for startups besides just providing funding. So I think entrepreneurs are better served if they seek the help of good venture capitalists, rather than just money investors.

　　Z: Now in China, for most universities, they don’t really know how to manage money. Administrators are eager to learn from U.S. universities. So what would you tell them?

　　M: Good question. Let me say that building an in-house investment management capability is difficult, time consuming and expensive. Everyone looks at the leading endowments’ returns, like Yale, Harvard, Duke, etc., and they say: “we want to earn these returns too”. The hitch is obviously that it’s easy to say and hard to do.
　　Duke Management Co, for example, is a separate company owned by Duke University. We have a separate board of directors and a 26 person staff, with 11 investment professionals. The Duke Trustees empower our board of directors, who in turn delegate limited, but meaningful, authority to our staff to make totally independent investment decisions. Duke President Brodhead and EVP Tallman Trask represent the University on our board, but most of our board are investment professionals. So we start from the point that our governing body comprises active investment professionals who understand what we are doing, and who allow the professional staff to make decisions within an approved framework.