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Each and every week we provide in depth research and data on some of the two thousand companies and one hundred and thirty industries are analysts covered worldwide.
Today, we'll look at why the chip giant Envidia invested two billion dollars more in the AI cloud computing startup Core Week.
Plus a look at why a turnaround planet the coffee giant Starbucks is starting to take hold.
But first we begin in the auto sector this week, General Motors release earnings that eat analysts expectations.
The company also said it expects profits to grow as much as two billion dollars this year and plans to return more of that money to shareholders with a higher dividend and buybacks for.
More We were joined by Steve Man Bloomerg Intelligence, Global Autos and Industrials analyst.
We began by asking Steve to break down GM's EV versus gas engine portfolio.
Oh, it's actually ice engine is much greater. I know they have a full portfolio of EV's, but you're talking about like eighty five ninety percent ICE versus ten fifteen percent evs. So you know they do have a big portfolio, but it was just at the beginning of rolling them out.
You know, they do have still they do still have one more major rollout coming out, which is the Chevy Bolt of smaller vehicles, which the industry and GM thinks that that's where the market is going, a cheaper, more convenient ev Steve.
It's almost to the point where the street rewards these companies if they not just not fully back away, but at least slow down the evolution to evs and just focus on what's making money today? Is that kind of what where the industry is today?
Yeah, exactly, like Trump actually did the auto industry a major favor by relaxing the miles per gallon the mandate. So basically every vehicle in the Big Three's portfolio are currently meeting those mandates. And what it means is less penalties right and no need to buy EV credits going forward, huge savings. And what that means is it could translate into a slower increase in car prices for consumers, especially
for big trucks. Makes the big trucks a lot more attractive to sell for the Big Three, So they're going to sell as many as possible given this opportunity. I know we talked about hybrid for GM, it's going to be a huge a sinkhold for them if they invest in that technology today. So let's let's not do that. Maintain whatever they can do with evs and really push the ice vehicles.
Maintain what they can with ev so that you know, small ten to fifteen percent of their overall portfolio. Forget about hybrids and just focus on the mammoth gas guzzling vehicles. What happens then if gas prices do turn up higher unexpectedly, and I know that the administration is doing all it can to prevent that from happening. But I'm looking at triple A gas prices and they bottomed at around two seventy nine and have now made their way back up towards two ninety.
Yeah.
I mean historically, when gas prices go up, it does impact ice sales, and you know, it may it may push some buyers into evs, you know, depending on how how where the expansion of the EV charging network is at. But I think at the end of the day, if gas prices do go up, actually benefits the Japanese companies like Toyota and Honda, where they have a full suite of hybrid vehicles that actually consumer love.
Yeah.
I just leased the Honda CRV hybrid. Uh huh, my son, your drives in California all the time where the gas is.
Really expert Yes, that's right. He probably wanted it. And how often does he have to fill up?
Not that often? I mean, just not that often. It's great, it's a great tech technology.
Steve.
Let's just while we got you here, what's the call these days on Tesla as we talk about this EV business? But really, for Tesla, we're talking about so so much more.
Yeah, looking at GM as a as a backdrop, you know GM's earnings for twenty twenty six is probably a little bit light. There's probably some more upside on the shift mix for more ice. So what means for Tesla it's an uphill battle for them. I know the stock is trading, you know, at an astronomical valuation at the moment. Investors are very focused on their robo taxi, this vehicle build out. Uh. They people feel that, you know, they
can actually outcompete the likes of Uber and Lyft. So you know, sales will be weak in the fourth quarter for Tesla, but I believe the you know, the investors are actually looking over past that into you know, what is the what is the catalyst or what is what is Elon Musk going to talk about in their next earning calls on the Robotaxi.
Yeah, it's always about the Elon Musk narrative, his vision going forward of what this company is going to be. I wonder, you know, my Mary Barrow talked about the charging infrastructure in the network and how we're not there in the United States. Tesla is offering the supercharger and that's part of its business model to be able to make that charger available to other automakers. How big a contributor is that to its revenue, to its profitability when it's prob.
Yeah, it's still it's still a small amount. It is. Uh. What they do is they want to expand that business. So they are talking to you know, gas stations like wah wah out in Pennsylvania are actually you know, buying superchargers, installing it into next to the gas pumps and next to the stations. So they are trying to expand it in terms of charging, selling these supercharging business and in the in the revenues from the charging, it's still really
really small. I would say around ten percent, maybe less.
Hey, what do we know about how important are incentives here? I look at other countries around the world and they have got these huge EVY percentages of China sales China, the Nordic countries. How important are government incentives to get there? It is very important.
I think the Germans are actually putting back the incentives and it has lifted ev sales in Europe, in Germany. But at the end of the day, you really want to build a sustainable growth environment for these cars, and Mary Barr is right. You know, we actually publish a very extensive report on ev charging, comparing charging network in the US versus China night and day, right, So you know, it's about convenience, it's about costs for the US consumer.
It's great to have it's great for consumer to have some subsidy, you know, help pay for the for the cars that they're buying. But I think long term, you know, it really needs the consumer to really buy into the product.
Thanks to Steve Man, Bloomberg Intelligence Global Autos and Industrials analyst return next to some news in the aerospace industry this week.
American Airlines projected revenue growth for twenty twenty six, but said that the winter storm that raged across the US this week will clip revenue this quarter.
We also heard from jetbou Airways, who reported a wider loss than expected last quarter, highlighting challenges a strategy to win over higher paying customers.
For all of this, as well as other news in the aerospace industry, we were joined by Sid Phillip. He has Bloomberg's chief correspondent for Global Aviation. We began by asking Sid for his take on American and Jet Blue's recent results.
So the airline industry is actually in a sort of bit of a flux at the moment. I mean, you've obviously had the impact of all these storms, you've had the impact of the government shutdown, and you've got the uncertainty about the year ahead. And so American Airlines is
taking a more bullish view of the year ahead. They're sort of following their peers United and Delta in targeting the most premium end of the spectrum, and they're sort of hoping that by aiming their product at the premium end of the market, they can sort of offset the sort downturn that's happened in the bottom end of the market.
Jet Blue also talking about how at the moment things look a bit shaky, but they're talking about how they see a road to profitability and a free cash flow by the end of twenty twenty seven, and so slightly more long term view of when the recovery might happen. And that sort of explains the dichotomy in the earnings forecast for both these companies.
And of course Jeblue is also doing what it can to premium premiumize if that's a verb, it's experience for customers to with absolutely opening up that new lounge and JFK. So that is the story with airlines, and it's been fairly consistent too with what we heard from Delta and United. Where does that leave the smaller carriers that need to either team up or fade into oblivion. I'm thinking Spirit, I'm thinking Frontier. Is there still a market for these discount carriers?
So the market at the moment is very tough for the discount carriers. So essentially what's happening is that the top end of the market is going to Delta and United for their premium products like first class in business class, and on the other end of the market you have sort of everyone else competing to get the lowest cost tickets into the hands of the passengers, and that sort of eroding margins, especially as costs for both pilots and Cavin Krue are hurting the ultralo cost carriers and the
low cost carriers, and sort of that's sort of been explained by this gay shaped recovery that airline executives are talking about, and so Jet Blue and the others are sort of trying to get the premium end of it. I mean, we've seen even Spirit Airlines talking about how
they're adding a so called business class product. They've added Wi Fi, They've added all sorts of things to keep people coming back to them, and so they're hoping that by slightly differentiating themselves from just very commoditized ultra low cost carriers, they can be able to get in those customers.
Well, then it kind of goes back to the point, is there a need for her real true low cost carrier out there? Are some of these supposed ones are going kind of mid market higher market. Is there a market demand for that or is everybody just willing to pay up for travel?
At the moment, it looks the people who are willing to pay up for travel are the people willing to pay up for travel, and so at the bottom end
of the market. I mean, everyone talks about how there will be a recovery of the ultralocost carrier years and that once people are more certain about the economy, and once people at the bottom end of that k start to see some stability in the economy, people will travel because I mean, remember during the pandemic, there was after as we exited the pandemic, there was this boom in travel for across the board and that sort of has further split up, and so we will see that demand
coming back, we just don't know when and what sort of shape that will be.
So sid you also cover Boeing, and it came out with its results and in terms of the numbers for the fourth quarter free cash flow topping estimates, it generated cash for a second straight quarter. That sounds like it's good news. How far along this recovery, this long awaited covery is Boeing Actually.
So Boeing is on the road to recovery. They're still not they yet, but they are recover They are recovering. I mean their fourth quarter results and their Follio results were boosted by the sale of their Jefferson Digital Aviation subsidiary and that sort of gave them a nine point six pl in the dollar boost. And at the same time, the Boeing is sort of ramping up production. They are ramping up sales. I mean they've seen a surgeon sales. I mean in the last ever since the Trump administration
came in, we've seen a surgeon Boeing sales. And so Kelly Ottberg, the new CEO, is sort of pushing Boeing to improve production, ramp up production at a steady base. I mean they've gone to about forty two seven three seven max jets a month, and they are sort of further boosting those production numbers and that will get them on at the sort of where they want to be in the Kelly Outberg's talked about how ten billion in free cash flow is his target and the company's on its way there.
Thanks to Sid Phillip Bloomberg Intelligence senior Aerospace, Defense and Airlines analysts coming up a.
Look at why the wireless provider AT and T posted fourth quarter profit and revenue do beat Wall Street estimates.
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We moved to some news in that tech space this week.
We heard that the CHIPDRII and Vidia invested an additional two billion dollars in the a cloud computing startup core Weave.
As part of the collaboration, core Weef will be among the first to deploy forthcoming Nvidia products.
We brought in on our Granda Bloomberg Intelligence tech analysts to tell us more.
We first asked an A Rock for his reaction to this deal.
If you go back in history and see when Cordeviev was going public, it was having a hard time getting a good pricing, and then Nvidia kicked in and said, you know, we're going to be a part of this particular IPO. And I think what's happening here is this and Vidia is creating the chips, and Codeviev is helping them sell the computing using those chips. Two different public
that's out there now. At this time, Codeviev has a massive backlog of ordos, but it needs to get funding done in order to convert that into data centers and then capacity. Now you know, in Vidia isn't giving them money straight away, but it's basically saying, you know, we have confidence in this in this company, and it would help. Then code We've go out and raise capital from outside. So I think it's a little bit more like spreading the Nvidia ecosystem is what that's happening right now.
Looking at your research note, note that Coreweve has fifty billion dollars in remaining performance obligations. What does that mean?
Yeah, basically it says this is kind of the contracted revenue they have on hand, which means, you know, Microsoft has said, you know what, I'm good for ten out of that. For example, Meta has a deal with them, so they have this backlog of all these orders. But you know, unlike other companies, you just can't go out and fulfill the demand. You have to create a very
large data centers using in Vidia chips. It then starts to work out or runs, and then you realize that fifty billion into revenue over the next several years.
So what's the gating issue here for or Corewave? Is it more access to more data centers? What's kind of the gating issue for them to fulfill that revenue?
Multiple gating factors. One is actually the data center itself. For that, you need land, you need power. You know, the chip side is okay at this point because in radio is there, but then also you need capital. I mean, code Weave is not a company like Microsoft or Amazon that has unlimited capital to create these data centers, it has to go in the market and raise capital. Before they went public, I mean their cost of capital was
north of ten percent. Right now after they went public, I mean the cost of capital has gone down to about eight percent. But the entire neo clouds are in, whether it is code Weave or whether it is nebus, really depends on private credit lending or lending by other banks to really come up with the funding to create these data centers.
So I also see that Microsoft unveil's latest AI chip to reduce reliance on in video. What's going on there?
So this is something that's going on with all hyper scale cloud providers, you know, whether that's Google with its CPUs, Amazon with its chip, and now Microsoft launching I mean they have one chip, but the first generation was not you could say, did not do that well in terms
of you know, reception from customers. What Microsoft is hoping here right now is, you know, for training, they'll still use the more powerful and video chips, but for you know, running let's say a co pilot, they could get around and use less powerful chips and big and if they
do that, they actually save a lot of money. You know, in our math, we think if if Microsoft is going to spend you know, somewhere north of one hundred and forty billion dollars this year, more than fifty of that is going to go just buying chips, and so you know, it's it's a very big ticket for them, and they everybody needs to be doing this, frankly in house.
Our thanks to Honor A. Grannap Bloomberg Intelligence Technology analyst.
Move next to earnings from the coffee Chaine.
Starbucks, and this week the company reported global sales at established locations whereas four percent in the most recent quarter that top to analyst estimates.
For more I was joined Michael Halen, Bloomberg Intelligence Senior Restaurant and Food service analysts. At first they asked Michael to break down how CEO Brian Nichols turnaround plan is going at Starbucks.
The turnaround plans are starting to really take a hold right now, and results really improved, rising, you know, four percent system wide same Star sales US as well. China was up seven percent. You know here in the US, it's you know, mainly about better operations, right They rolled out new operating standards late last year and that They seem to be really boosting the speed of service, which is creating happier customers that come back more frequently.
Right.
Some food innovation including protein cold foam seems to be hitting the mark right. And they're doing a better job on the marketing side. So all those are driving drove better Same Star sales than expected.
Yeah, I don't know the one. I go to the Starbucks thirty five Wall Township, New Jery. They do a great job for me, and I've noticed the change. I mean, you know, little things like you know, writing your name back on the coup like they used to back in the early days. As in addition to that sticker which was a little antiseptic. I guess talk to us about costs there. Are they looking at their costs as well?
Yeah, they they've identified two billion dollars in annual costs that they want to get after over the next one to two years. You know, Right now, margins have been impacted. They've gotten those same Star sales and traffic numbers up by adding labor to the stores, right, and so they're
seeing margin compression still. So now that they got people coming back to the stores, now that the operations are more dialed in, you know, CEO Brian Nichol said, they're not quite where they need to be throughout the day. They're great at peak, but they have some improvement still
to do. But you know, now that people are coming back to the stores, they're gonna you know, focus a little bit more on where where they can save some money, because you know, it was a smart move, real reallocating labor into the stores.
But Costley talk to about the competitive environment because you go to like, I don't know, small towns, seems like there's a coffee joint on every corner of these days. What's the competitive landscape for Starbucks these days.
Well, you know, it's as it's as competitive as it's ever been. You know, you have some of these younger chains that seem to do really well with gen Z, like Dutch Bros. And UH seven Brew, and they're they're opening up these drive through cans, you know, throughout the suburbs across America, you know, in the cities. You know, there's a lot of competition with these you know, very high end coffee shops that are you know, using very you know, very high quality coffee and offering an elevated
food experience. So competition is tough, and that's why you know Starbucks is is making some changes. You know, they're focusing on on health and wellness, right They're looking to improve the food in the bake case there, looking to improve the food or throughout the day they're looking into some new innovative drink off rings to boost that afternoon
day part. And so you know, this is just the beginning of what Starbucks, you know, things they need to do for long term continued same Star sales growth.
Our thanks to Michael Halen, Bloomberg Intelligence Senior Restaurant and Food Service analyst, we.
Moved next to the telecommunication space.
This week. AT and T reported fourth quarter profit and revenue that beat analyst estimates.
The results were fueled by customers who subscribed to more than one connectivity service. AT and T added more than a half a million fixed and mobile internet subscribers in the quarter.
So we brought in John Butler, our senior telecom analyst, and began by asking John where AT and T stands relative to its rivals.
Host the earnings call, they held a breakout session with the master relations with the cell side, and there were a lot of questions about how broadband, or how competition is now shifting from wireless over to broadband. I actually think AT and T is in a great position relative to their competitors because they're the fiber leader, and they're about to buy Luhmann's fiber business and add another million
fiber subscribers there. So in terms of their ability to sell what are called converged packages or wireless together with broadband, they're in a great position there because they have both fiber and they have a smaller fixed wireless access business, which is that wireless broadband product.
John, this is a cup of AT and T that spends twenty twenty two billion dollars in capex every year. What does that capex for?
Typically a lot of it, Paul is going towards wireless network up grades as well as the deployment of fibers. So this year, for example, they're going to add five million new fiber homes, but it costs about two thousand dollars, maybe twice that in some markets to build a new what's called a fiber homes pass. So a lot a lot of capital is getting spent this year, next year, and maybe to a little bit of a lesser degree
in twenty eight. That's sort of laying the foundation to build out that fiber network and that five G wireless network. Beyond that, AT and T has said we're going to cut our cap backs, We're going to lower our capital intensity, and you're going to see a lot more free cash flow flow through and they're going to be able to fund hopefully some dividend growth after that and increase the share buyback.
Yeah. I'm looking at the dividend yield for AT and T four point six percent. For Verizon, it's almost seven percent. For Team Mobile a little bit less at two point nineteen percent, John, Where did the telecom stand when it comes to this rotation out of big tech looking for some cyclicals, looking for parts of the market that haven't been overbought.
So it's a good question, Scorelett. I always say telecoms, particularly the dividend payers like AT and TM, rise in our bond proxies to a degree. I think sentiment has been pushed around a little bit by the fact that we have new CEOs at both Verizon and T Mobile, and these guys are going to be looking to make
their mark. So there's been a little bit of concern or more than a little bit of concern that the competitive intensity and wireless is going to pick up as these new CEOs look to make their mark, and I think that has led to some of the pressure, particularly on AT and T, though again I think they put a lot of those concerns to rest with their by reiterating their fiber plans and laying out new free cash flow guidance.
John on the competitive land front, where are the cable companies these days?
They're struggling, Paul. I mean they're at a technology disadvantage in that they they're offering broadband over those legacy coaxial cable networks. They're doing what they can to upgrade the technology and increase speeds on those networks, but at the end of the day, fiber really is a superior product to everything else on the market, and fixed wireless access, which has been offered by the telcos has been a very popular choice given the fact that it's an easy setup.
It's over the air, so there's very little problems with it. It's pretty much problem free. As broadband goes over time, it sort of has a headroom problem. It can't offer the same speeds as fiber. But through it all, cable is sort of flying underneath those two products, sort of you know, trying to compete with what is a legacy product in the market.
John, did we learn anything from AT and t's results regarding iPhones and you know, consumers signing on for the latest version of the iPhone?
So great question. It's very interesting AT and T over indexes to the iPhone. They have a lot more users than Verizon or Team because they had an early exclusivity deal when the iPhone first launched. They were asked about the foldable iPhone that's rumored to be coming out next year and whether that's really going to move the dial
for them. Their answer to me was interesting, I didn't expect it, which is they've been tracking the performance and the sales of the foldables that they have available on the network on the Android side, and their expectation is that we won't see a huge bump in iPhone sales next year. I think time will tell. I actually think foldables are going to resonate well with people, and Android isn't always the best read through there. I think it's a different kind of user that's on the Android phone
versus iPhone. But we'll have to see in the fall.
Thanks to John Butler, Bloomberg Intelligence senior telecom analyst.
Coming up a look at why the logistics company UPS says it expects to cut another thirty thousand jobs this year.
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We move next to news from the logistics company UPS.
This week, UPS forecast full year sales that beat analyst estimates.
However, the company also said it expects to cut another thirty thousand jobs this year to raining cost and boost profitability.
For more on this and the state of the shipping industry, we brought in Thomas Black. He's a Bloomberg opinion columnist.
We first asked Thomas to give us his take on what we heard from UPS.
UPS continues to shrink to become more profitable. That's the big takeaway there. They're reducing their Amazon business, and they're trying to retrench with more profitable packages, and that's probably a move away from some of the e commerce deliveries where the competition is fierce and there's lots of little companies that are out there competing.
So how far along this journey of shrinking to become more profitable are they? Are we in the third inning? Are we in the seventh inning?
This will be the last year of this, so I would say we're in the sixth inning heading toward the ninth. So after this year, Carol to May, the CEO at UPS, said we're going to be a leaner company and ready to grow. So it's going to be a little bit painful this year, she walked analysts through it. The first half is going to be more painful as they glide down from Amazon and they take some write downs and
so forth. As you know, they retired their fleet of MD eleven's, which is this old plane that was assently had the crash. So they're going through all of this in the first half, and then the second half things should start to turn around. They're also they're not only shrinking their Amazon business, are shrinking their footprint, their facilities and the older ones are being retired and they're replacing those with new automated facilities, and that's going to allow
them to lay off more union workers. So that big union contract where the teamsters push through a big labor increase is turning around to bite them a little bit because UPS is dealing with that by shrinking its workforce.
How does this UPS strategy differ from that of fed X.
They're similar in the sense that they're both cutting costs aggressively. Of fed X is a little bit different because it doesn't have the labor costs from the union workforce, so it's a little bit more flexible. And fed X is undergoing a major overhaul that's probably in its last innings as well. And the last part of that is the most difficult part, where they're going to combine their two
separate networks, the ground network and express network. They're in the middle of that, but so they're going to be coming out of that as well. So we're going to have two parcel companies that are restructured and ready to grow at the end of this year.
Every time there's some kind of headline regarding UPS laying off workers or cutting positions, it's in. It's these massive numbers right this time around. It's up to thirty thousand positions this year. And as you mentioned, Thomas, this is all due to trimming down and small downsizing the scope of the company. At what point are we looking at job cuts tied to AI or have we not got even gotten there yet?
Well, I would instead of saying AI, I would say automation and that those are these new facilities that handle packages automatically. You even have the induction of packages where you have robots putting the packages on the conveyor belts and taking them off. So those are the steps toward more automation. This is that physical AI that people talk about.
Right.
An interesting stat that Carol to May gave on the cause that those automated buildings are twenty eight percent more efficient than the older buildings. So the more automation is where they're leaning into. So it's part of it shrinking some of the low profit volume plus more automation to replace the human workers.
Basically, e commerce continues to grow, and I guess Double Digits, who's handling all these packages of ups, is maybe backing away a little bit.
Well, Amazon has its own delivery network. It tends to want to deliver into those big urban areas where it just takes things from a warehouse to a residential home. So they do that very well. Where they want help is on the rural areas. That's where they turn to folks like UPS and the postal service. So obviously Amazon is a big player there. We'll also have lots of
smaller companies. These are big type companies that have apps and workers show up and they have an app on their phone and it gives them a delivery route and they throw packages in their car or their truck and they go delivers. There's a lot of those companies that tend to operate in urban areas, so there's actually a lot of capacity out there for retailers or people who are really smart on their inventory management to tap into.
That was Thomas Black, Bloomberg opinion columnist.
We move now to a Bloomberg Big Takes story we recently focused on entitled Yale's endowment model falters at tough moment for universities. You can find it on Bloomberg dot com and the Terminal.
So the story looks at how Yale bet on private equity and other I liquid investments, and now some of the wealthiest endowments, including Yale and others that follow the Yale model, are on the hook for hundreds of millions of dollars in new endowment taxes from the White House.
Now universities are dumping private equity funds at discounts following years of poor returns, while public stocks have outperformed the asset class.
For more, we brought in Janet Lauren Bloomberg's Higher Education finance reporter.
You first asked Janet to break down what is happening with Yale's and down model.
From time to time, We've seen that in certain years where simple just outperformed private equity and other VC And in twenty twenty one, remember the outstanding returns that these schools had, but now higher interest rates, fewer exits. You've got a huge amount of money locked up in private equity, in some cases forty percent. And you know, look, these schools would like a little cash. They're looking, you know,
perhaps they want to change managers. They need the cash to do other things as well and refresh their portfolios. But when you have, you know, in the forty percent locked up, you know, time to think about other things. And that's perhaps why you saw Yale doing its first ever sale last year, which was a big deal.
So again this sale, Yale unloaded about two point five billion dollars in LBO funds at a discount that is brutal. Well, is it unprecedented.
Or other we Well, Yale has done it for the first time. You know, others had been doing this before. Harvard has unloaded a lot in previous years. But it's sort of a new normal in some ways looking at secondaries. The secondary market is very popular right now, and you know,
they in the hunt for potential cash and liquidity. You know, you look at the UC Endowment where we talked about this eighty twenty they call it the Blue and Gold Fund, very proud of it, and in the height of the pandemic when they wanted some liquidity, they gave almost two billion dollars in cash to the campuses for liquidity. Compare that to two thousand and eight when schools were forced to sell on the secondaries or borrow. That's kind of a stark example right there.
When you need money, when you need money, and I think that's a key phrase here, especially in twenty twenty six, because this White House has been targeting higher ed and even though Yale has not been targeted to the extent that Harvard has, for instance, or Columbia, these schools need money in a way that they didn't before, for nothing else to pay taxes on their endowment.
Yes, and that's a huge game changer. You know, a year ago we may not be having this conversation. Yale and Harvard each had pegged their bill for the endowment tax, which is now eight percent of net investment returns, to be about three hundred million dollars a year.
Wow. And is that enforced? Is that happening right now?
Absolutely? That happened in July first, when the big beautiful ACCT.
How about the the actual I guess halting payments to some of these universities that President Trump administration I've talked ab for some of their funding. Has that happened?
So many schools have had settlements. Harvard famously has not yet. There was a lawsuit in last September. The district court ruled in favor of Harvard. Late December the government appealed. So that's still in flux. But there's a huge concern of Harvard in all universities. Are we still going to get this federal research funding going forward, and Harvard may have temporarily solved their problem, still very unclear, but what
is the money going forward? School our universities, these large research universities still going to be able to count on hundreds of millions of dollars. You know, Northwestern, which settled around Thanksgiving, had been self funding their research the tune of something like thirty or forty million dollars a month. So we're talking, you know, lots and lots of money.
Yeah, they need the money in a way that they didn't before. And going back to the Yell endowment strategy and how well it worked at least initially when David Swinson launched it back I think in the eighties and nineties those were the heydays of the Yell endowment model. Maybe it made sense when private equity, private investing was not a big thing yet, was not yet mainstream, or maybe it makes more sense on a low rate environment. But times have changed, and that's a big part of it.
Right absolutely, first mover advantage. You know, there weren't as many institutional investors doing what he was doing. He was he saw inefficiencies in the market and he said look, this is what we can do. We have the ability to lock up money for a while. We're very long term investors. We invest in scent in for centuries. We can do this and they and it was extremely successful,
and others tried to copy. Certainly more money piled into private equity, sovereign wealth funds, pension funds, foundations, and when you have a lot of money chasing returns, it just it just isn't a successful especially at this higher interest rate when there are fewer exits.
What is the l model in terms of asset allocation? And is it dead now?
Well, you know, we had the head of a very large pension fund say it's not dead. It's perhaps on life support, but it's you know, it's it's looking at inefficiencies in the market. Now. Typically Yale has not been a big investor in US equities, you know, timey share of you know, we don't know the details because unfortunately they stopped publishing their asset elogition when David Swentz had died. You know, a huge loss for me personally because it
gave me some great insight. But they, you know, typically had a very very tiny investment in US equities Now look at the University of California, you know, eighty percent in global equities. But you know who is who are they trying to emulate? You know, some investor in Omaha who's been pretty successful, Yeah, you know, betting on America.
Yeah, but just buying cheap index funds. I guess what's not immediately obvious to people is that an endowment is more of a fund of funds rather than just a fund like the UC fund, the Blow and Gold fund you were talking about. That's almost like a very basic personal account where you're just putting money into index funds and not dealing with it for a long time exactly. But Yale is like they're picking fund managers like it's very very complex.
Well, it's actively managed. And Yale is very famous for, you know, having managers for ten or more years. They did a story maybe ten years ago that talked about the length of managers and it's often ten years. And you know, Yale very smartly came up with a new program they called the Prospect Fellowship, and they're looking for new talent. And we had a comment from a former Princeton manager who talked about, you know, they look for
talent and they grow with them. So maybe a small allocation to a manager today think Hill House at Yale. It turns when they're successful into you know, billion dollar investments, and especially when they've done well. You know, you can grow with a successful manager and then all of a sudden, your allocations are much larger as you're growing with them, and that's what they're seeking, So that's sort of like a refresh for them.
That was Janet Lauren, Bloomberg's Higher Education finance reporter.
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