Harvard's Endowment Shines, the U.S. Deficit Widens and Germany Becomes the World's Third Largest Economy in this Week's Edition...
Take a Lap Around the Industry
GM Withdraws Earnings Guidance as UAW Strike Disrupts Output (Yahoo)
Cricket Craze Sparks Interest from US Media Companies (NYT)
Inflation Eases as Business Activity Sees Uptick (Bloomberg)
JPMorgan CEO Criticizes Central Bank Predictions (CNBC)
Harvard's $51B Endowment Outperforms Yale But Trails S&P in Tough Year
Harvard University's $51B endowment fund posted modest gains of 2.9%, outperforming rival Yale University's 1.8% return but trailing the S&P 500's 18% surge. The muted returns highlight the challenges facing elite university endowments, which allocate significant portions to alternative assets like private equity, venture capital and hedge funds. These alternative investments struggled amid lower valuations and exits in 2022 compared to public equities. Harvard's venture capital portfolio saw mild losses, while private equity eked out small gains. The endowment's heavy 11% allocation to public stocks could not offset weakness in its larger private holdings. Still, Harvard believes its diversified asset allocation suits its long-term mission versus chasing short-term S&P 500 returns. Overall, wealthy university endowments with over $500M in assets lagged smaller college funds concentrated in stocks. Beyond investment returns, Harvard's endowment provided over one-third of operating revenues in 2022. But inflationary pressures drove expenses up faster than revenues, testing universities' budgets. Harvard also saw a 3% decline in donations, reflecting potential headwinds in philanthropy. While the top-heavy endowment model faces challenges in today's market environment, elite schools still rely heavily on these funds to support operations.
"Given the continued slowdown in exits and financing rounds over the last year, it will likely take more time for private valuations to fully reflect current market conditions..."
N.P. Narvekar, Harvard Management Co.
Private Funding Pulse Check
Leverage Edu, the largest personalized student counseling study abroad platform, has secured $40M in a Series C funding round joined by Dubai-based family office, NB Ventures
In a recent Series A round, Nirvana Holdings participated in an $11M investment in Threedium, a company offering 3D developer tools, APIs, Web Engine and other turnkey services
Knollwood Investment and Highsage Ventures have participated in a $20M Series A funding round for Nomad Homes, Dubai's leading property buyer agency
Elkstone Family Office has engaged in a $8M Venture follow-on investment in Laka, a London, U.K.-based cycling insurance provider
Surging Interest Costs Set to Prolong Deficit Woes
The U.S. federal budget deficit nearly doubled in the 2023 fiscal year compared to 2022, ballooning to over $2 trillion even as the economy saw strong growth and job creation. The widening gap highlights long-term fiscal challenges, as revenues plunged due to the reversal of 2021's stock market gains and the shift of some tax payments, while spending rose on debt servicing, Social Security, and Medicare adjustments for inflation. With interest rates surging as the Federal Reserve battles price pressures, financing costs will continue to weigh on the deficit going forward. The dynamic underscores concerns that have pushed Treasury yields to levels not seen since before the financial crisis. As partisan battles loom over fiscal policy, the figures suggest fundamental structural budget issues that will prove difficult to resolve. The deficit expansion demonstrates how even in a period of economic strength, underlying vulnerabilities can emerge to threaten America's fiscal trajectory.
"What we’re really seeing is that $2 trillion is the new normal for deficits..."
Marc Goldwein, Committee for a Responsible Federal Budget
G7 Inflation Dashboard Offers Nuanced View of Cooling Prices
As policymakers evaluate whether rising prices are moderating at a sufficient pace, a new inflation dashboard offers insight into price growth across the Group of Seven (G7) industrialized nations over the past six months. Dubbed an "accelerometer" for its ability to track the velocity of price hikes, the graphic depicts monthly inflation rates as a percentage of their trailing 5-year high. The visualizations reveal a broad deceleration in inflation since May, reflecting some progress in the battle against soaring costs. However, the data also highlights concerning plateaus and even mild reacceleration in certain regions more recently. For example, Japan is currently placing a strong emphasis on increasing wages despite the depreciation of their currency. Surprisingly, there has been hardly any sign of a slowdown in inflation, highlighting the necessity for ongoing vigilance. While providing grounds for cautious optimism, the dashboard illuminates the nuances and unevenness of inflation's evolution across major economies.
"We certainly have a very resilient economy on our hands...Many forecasts called for the U.S. economy to be in recession this year. Not only has that not happened; growth is now running for this year above its longer-run trend. So that’s been a surprise."
Jerome Powell, Federal Reserve
Sliding Yen Helps Elevate Germany to #3 Global Economy, Topping Japan
The Japanese yen has fallen dramatically against major currencies like the dollar and euro, sliding to multi-decade lows and helping propel Germany to surpass Japan as the world's third largest economy in 2023 according to IMF projections. The depreciation of the yen can be attributed to contrasting monetary policies. While the Federal Reserve and European Central Bank are increasing interest rates as a measure to combat inflation, the Bank of Japan is opting to maintain stimulus in order to foster price growth following a prolonged period of deflation. The weak currency provides some economic benefits like boosting exports, but also raises costs of imports for Japanese consumers already facing high inflation. To regain lost ground, Japan is crafting new economic stimulus measures and aiming to increase wages. However, with the Fed and ECB expected to maintain higher rates for now, additional yen depreciation seems likely. The projected change in economic rankings signals Japan's ongoing struggle to reinvigorate growth and keep pace with major global powers.
"It’s true that Japan’s growth potential has fallen behind and remains sluggish...We’d like to regain the ground lost over the past 20 or 30 years. We want to achieve that through measures such as our upcoming package."
Sequoia Financial Group, a $15B RIA, agrees to acquire M Capital Advisors, a $930M Nashville-based wealth manager founded in 1993
The deal is expected to close by end of month, expanding Sequoia's assets to over $16.5B
M Capital was established by Chairman Frank Mastrapasqua and is led by a team of 13 including CEO Mauro Mastrapasqua
The acquisition is Sequoia's 4th deal in 2023 as they continue strategic growth across the U.S. wealth management sector (WM)
Written by:
Andrew Popp | Sr. Research Associate
FINTRX delivers an industry-leading suite of private wealth data and research solutions to the alternative investment space and private capital markets. Engineered to help clients identify and access family office and RIA capital intuitively, the FINTRX platform ensures accurate and updated data and research on 850,000+ private wealth records globally. To subscribe to our newsletter and see previous versions click below.
