Ivy League endowment cash crunch

One scoop to start: Donald Trump’s trade war risks sparking capital flight from the US as the president’s unpredictable tariff policies cause “enormous” damage, hedge fund Elliott Management has warned.

And one podcast: Sir Chris Hohn, founder of The Children’s Investment Fund Management, is the latest guest on Norges Bank Investment Management chief executive Nicolai Tangen’s podcast, In Good Company. Meanwhile Hohn went tête-à-tête with EQT boss Christian Sinding at Tangen’s conference last month. See whether you think public equity or private equity triumphed . . . 

In today’s newsletter:

• US endowments struggle with secondary private equity sales amid funding crunch

• Can Bill Ackman create a ‘modern-day’ Berkshire Hathaway?

• Hong Kong stocks outperform mainland China by most since 2008

Ivy League endowment cash crunch

The Trump administration’s federal funding cuts to elite US universities is having a knock-on effect on both their endowments and the wider private equity industry. 

Namely, US college endowments are struggling to sell stakes in ageing private equity funds, hampering their ability to fund new investments and prompting them to issue more debt, as my colleagues explore in this article. 

At least four US universities — including Harvard and Yale — have either recently completed or are actively exploring discounted secondary market sales of private equity stakes held by their endowment funds to meet capital calls, according to public disclosures and interviews conducted by the Financial Times.

This was meant to be the year that capital markets activity revived, enabling private equity distributions to pick up. It’s certainly needed: as a percentage of net asset value, private equity distributions have fallen from an average of 29 per cent in the period from 2014 to 2017 to only 11 per cent last year, according to Bain & Company.

But market turbulence and uncertainty stemming from on-off tariffs have reduced the chances of a blockbuster rebound. 

Endowment funds are also rushing to complete sales in the current financial year ahead of potential changes to investment taxes, which could rise from 1.4 per cent to 21 per cent for the richest universities if proposals tabled by Republicans last week become law.

“We are very worried about the whole endowment tax issue combined with the federal funding cuts,” said the head of private equity at a major university endowment with more than $10bn in assets. “We have put some [private equity] assets on the secondary market, but the response has been muted . . . everyone knows that it’s us on the other side of it.”

Bill Ackman faces steep hurdles in bid to emulate Warren Buffett

Two days after Warren Buffett announced his retirement as chief executive of Berkshire Hathaway earlier this month, the outspoken investor Bill Ackman set in motion his plan for a rival. 

As investors were still processing the future of the world’s most valuable financial company without its 94-year-old architect, Ackman trumpeted his plan: to transform Howard Hughes Holdings, a smattering of US property assets assembled by the reclusive billionaire industrialist, into a “diversified holding company” in the mould of Berkshire. 

Ackman struck a deal to kick-start his endeavour four months after he initially pitched it in a letter to investors. 

“With apologies to Mr Buffett, [Howard Hughes] would become a modern-day Berkshire Hathaway that would acquire controlling interests in operating companies,” Ackman said in his letter. 

Under the deal with the Texas-based company, which has a $4.2bn market value, Ackman and his investment team at Pershing Square will change Howard Hughes’ strategy to focus on using its cash to buy company stakes. 

In this fascinating deep dive, Antoine Gara and Amelia Pollard explore how the hard-charging hedge fund manager faces long odds to pull off a high-wire act of financial engineering. 

His vehicle must contend with a high cost of capital and the challenge of pivoting a property empire once dubbed a “shitco” by a rival into a dealmaking machine — all without the advantages that Buffett maximised, such as cheap financing costs and throngs of companies willing to sell to him. 

Moreover, the billionaire financier has a mixed record on past M&A-fuelled bets. Howard Hughes itself has stagnated as a publicly listed company over the past decade. And the early steps in Ackman’s broader plan come at an economically perilous time, with huge volatility in global markets triggered by Donald Trump’s trade and tariff policies. 

Ackman, for his part, disputes the notion that Howard Hughes carries more hurdles than Berkshire. “Our starting position relative to Berkshire in the 1960s is vastly superior,” he told the FT. “It is the opposite of a disadvantage.”

Chart of the week

Hong Kong shares have outperformed their mainland peers by the largest margin in nearly two decades, as money pours in from China due to worries about the domestic economy and enthusiasm for the territory’s technology stocks.

The benchmark Hang Seng index is up 16.4 per cent this year compared with a 1.2 per cent decline in mainland China’s CSI 300 index — the biggest outperformance year to date since 2008.

The rally has been boosted by the rise of DeepSeek, the Chinese start-up that claims artificial intelligence advances using far less computing power than US rivals, which has encouraged investor appetite for Hong Kong-listed technology stocks.

The territory’s stocks, which plummeted more sharply than mainland equities after US President Donald Trump’s “liberation day” tariff announcement in April, have also been helped by easing tensions in the US/China trade war.

The rally comes as money from mainland China flows into Hong Kong at record high levels.

“The majority of the strong outperformance this year from Hong Kong has been driven by southbound flows [from the mainland],” said James Wang, head of China equity strategy at UBS.

“A lot of that has been driven by the AI trade,” he added, pointing to the higher proportion of AI stocks in Hong Kong than the mainland.

Hong Kong’s outperformance also “stems from fundamental differences in market composition”, said Wei Li, head of multi-asset investments for China at BNP Paribas.

“The Hang Seng index’s heavy weighting towards globally liquid sectors — such as technology and finance — has allowed it to capitalise on the Federal Reserve’s dovish pivot and renewed appetite for Chinese tech stocks.”

Five unmissable stories this week

Federal Reserve policymakers’ aims to curb inflation while maximising employment are “pulling them in diametrically different directions” as Donald Trump’s trade war upends the economic outlook, Robin Foley, head of Fidelity’s $2.3tn fixed income business, has said. 

The furious rally in US assets sparked by the tariff détente between Washington and Beijing has caught big investors off guard, colliding with widespread bets against the dollar and Wall Street stocks.

There won’t be another Warren Buffett because no one will have his advantages, writes Fundsmith’s Terry Smith. The world is moving in the opposite direction to Berkshire Hathaway.

UK chancellor Rachel Reeves set out contentious “backstop” plans to force large pension funds to invest up to £50bn in private assets if they fail to meet new voluntary targets. The move faced resistance from pension funds.

Fund management needs to make the digital shift, writes Meagen Burnett, chief financial officer at Schroders, in this op-ed. Artificial intelligence, big data and distributed ledger technology can rewire the industry.

And finally

If you’re lucky enough to have been to Patagonia, then wherever you go for the rest of your life it stays with you. I felt deeply nostalgic reading Jo Ellison’s splendid account of her journey to the end of the world, 50 years after Bruce Chatwin embarked on his “peculiar, dotty” bestseller, In Patagonia.