As the United States moves forward in the 21st century it is becoming increasingly clear that one of its primary competitive advantages is its superlative system of universities and colleges. They are the envy of foreign nations, attracting wealthy and talented students from all over the world. One of the ways that America’s institutions of higher education are thought leaders is through their unique endowment strategies.
America’s colleges use traditional asset managers to invest the bulk of their endowments, but they also have what I like to call “hidden endowments”. These hidden endowments consist of substantial collections of art or antiques – often accumulated over decades or even centuries – that are almost never included in a university’s publicly acknowledged endowment numbers.
In a very real sense, universities and colleges are on the cutting edge of asset allocation while the traditional asset managers of the world are lagging behind, stuck in a morass of overvalued stocks and bonds.
Let me give you an example. I attended a small, liberal arts college of about 2,200 students in flyover country. This college was academically rigorous and well regarded, with a good regional reputation. My college also had what would be considered a very modest endowment, particularly when compared to Ivy League universities. As part of my academic studies, I had access to two special art endowments that the college had acquired in the early to mid 20th century.
The first was a collection of Czarist-era Russian icons, paintings and miscellaneous objets d’art. This amazing collection was stored at the college president’s house. There was even a silver and lacquer Russian Easter egg attributed to a Faberge workmaster. At the time (the 1990s) the jeweled egg had been appraised at $600. I was incredulous at the ridiculously low valuation on the item and almost offered the president of the college $600 for the treasure right then and there. How much do you think such a work of art might sell for today?
The second collection I had the pleasure of inspecting consisted of antiquities and ancient coins from the Classics department. These pieces exceeded all my expectations. There were numerous cylinder sealstones from ancient Mesopotamia, an outstanding selection of oversized Egyptian Ptolemaic bronze coins, Roman Republic silver denarii, and various other antiquities. These specimens were gathering dust in a couple display cabinets in a corner of the rarely visited Classics building.
These art collections were certainly not the only ones that the college possessed. For example, although I never saw it personally, the college library had a rare book collection that included medieval illuminated manuscripts. Also, while there were only a few dozen pieces in the Russian icon collection, the items had been assigned catalog numbers in the 400s and 500s.
This strongly implies that the college had, at a minimum, over 400 other works of art that it believed merited a catalog number. That, my friend, is a lot of art. I also believe that the antiquities from the Classics collection that I handled were essentially forgotten and most likely not officially cataloged.
In short, my inconsequentially small alma mater – one of a couple thousand non-profit institutions of higher learning in the country – possessed a substantial asset allocation to art and antiques, completely separate from its publicly recognized endowment. And it is undoubtedly not the only college to have methodically squirreled away art, either. It begs the question – what secrets do universities and colleges know about investing that traditional asset managers and the investing public do not?
