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Texas A&M Foundation Utilizing Technology For Best-Of-Breed Analysis | Rush Harvey, Director of Investments | Q&A

by trusted insight posted 11months ago 2716 views
Rush Harvey is a Director of Investments at the Texas A&M Foundation, where he has served since February 2018. Previously, he served as Director of Investments at the Kansas State University Foundation.

In this interview, he tells us why private equity and venture capital will be a material driver of their long-term returns; the organization's efforts in institutionalizing the investment process; and how they're implementing technology to better analyze private market opportunities. 

Rush Harvey was named on Trusted Insight's 2020 Top Institutional Rising Stars.

Trusted Insight: Can you share background on Texas A&M Foundation, and what your day-to-day looks like there.

Rush Harvey: The Texas A&M Foundation is the nonprofit fundraising arm for Texas A&M University. We manage endowed gifts that are raised to support the institution. We have a great mission with Texas A&M being the largest public university in America with roughly 70,000 students. We are currently a small team of three investment professionals and two operations professionals managing a $2 billion pool of capital. We also have two investment assistants who support the team. Our team has the ability to make a massive impact on Texas A&M students into the future. The wonderful thing about Texas A&M is that there's such an affinity for the university, and the ability to grow private fundraising going forward is maybe greater here than anywhere else in the country. As a member of the investment team managing the endowment, it is really exciting and I'm proud to be on the team here.

"Private equity and venture capital is a growing portion of our portfolio and will be a material driver of our long-term returns."

My daily role as Director of Investments is to be very involved in all aspects of the investment process. I work alongside the rest of our team in constructing the portfolio and everything we do is a team effort. We all serve as generalists, but I do formally cover Private Equity and Venture Capital. Within that subset of the portfolio, we are really looking for managers that have an investment process that is relevant and repeatable. We want to work with teams that are hungry and motivated to do something really special.

We also focus a lot on non-investment operations. Does the GP have an adequate back office? Does the GP have the non-investment support needed to execute the process? If we can check those boxes, we can get pretty excited about an opportunity. We try not to be so specific in regards to industry or geography but instead focus on really understanding the investment process and its relevance going forward.

Private equity and venture capital is a growing portion of our portfolio and will be a material driver of our long-term returns, so it is an exciting time to be looking for investment opportunities.

"When I joined the team, it was all about institutionalizing the investment process... I came to the Texas A&M Foundation to really help make the investment process come alive."

The day-to-day is mostly working with and covering our current managers and looking for new ones. Another part of my daily routine is working with our investment assistants. We partner with Texas A&M University to find students who want to learn about investment management and philanthropy. It’s important for our investment assistants to understand why our donors use their wealth to make a difference over the long-term at Texas A&M. I helped start the program in 2018, and we have had three students come in and work for us. The goal is for them to leave with a wealth of knowledge. It is a broad portfolio and they're helping us with everything. We try to learn from them as well; it has been great.

Trusted Insight: Since joining in early 2018, what are some of the ideas or strategies that you've implemented on the investment side of things?

Rush Harvey: When I joined the team, it was all about institutionalizing the investment process. A lot of that came with my experience at the Kansas State University Foundation, which is a phenomenal organization with great leadership. I came to the Texas A&M Foundation to really help make the investment process come alive. A lot of my time up to this point has been spent answering questions like: How do we build out a programmatic way to source new ideas? How can we utilize systems to hunt and be pro-active when we look for opportunities? I believe the best way to find great ideas is to be extremely proactive, as you can only rely on your network for so much. We have implemented a process around sourcing prospective relationships and built a formulaic approach to identifying the best opportunities for the portfolio.

"We are now utilizing technology in an effort to do best-of-breed analysis, but also to be very transparent to our constituents."

From a non-investment perspective, we have focused on transforming our reporting to an Olympic level and are now utilizing systems to better understand the portfolio. I am very thankful our leadership has given us the green light to upgrade the quality of our resources over the past few years.

We all know that private markets are hard to analyze. We are now utilizing technology in an effort to do best-of-breed analysis, but also to be very transparent to our constituents. I am really proud of the work that we have done in that regard. We also look at risk management much more granularly, with the ability to now run scenario analyses, simulations, and models to understand the risks in the portfolio. We want to make sure we are compensated for the risk we take.

In regards to the portfolio, it is all about doing business with high quality partners. If I had to describe our process at the very highest level, it is a partnership model. We are not going to go out and seek one specific thing in the market. Instead, we are going to go look for managers we think can help generate the long-term returns we need to support Texas A&M University. All of that is going to come through our sourcing. We might learn about a group that is spinning out from a really good firm and potentially back them. We also like to work with managers with a lot of history and market knowledge that have been through cycles.

On the venture side, our bias is to partner with managers that we believe can connect with and fund the best entrepreneurs and can get those companies to the next stage of financing. It could be AI, robotics, SaaS, consumer, it does not really matter to us. Can the GP connect with those great entrepreneurs? Can they help that company get to the next round of financing?

"Virtual will be the new normal, but I don't think anything's going to replace in-person diligence before you have to sign the docs."

On the private equity side, we do have a bias to the lower middle market, working with GPs buying companies with zero to $10 million of EBITDA. We love blocking and tackling approaches. Can the GP come in and upgrade multiple processes at the company to make it instantly better? Can the GP bring in people who have the right experience to take the business to the next level? Valuations continue to expand up-market and we believe lower middle market GPs can still get companies for respectable valuations, especially if they are not participating in auctions or a process. We will and do invest in the Large/Mega space, as the dispersion of returns there are lower and we like having exposure to great GPs with lots of historical success that can help us get some diversification from an enterprise value perspective.

I have brought a lot of that thought process and those ideas to the portfolio and believe we are just getting started.

Trusted Insight: LPs are saying that this video communication is far from ideal from what they're used to, meeting managers in-person and entrepreneurs in-person. How does it impact your ability to identify great managers?

Rush Harvey: The line in the sand is blurry, because identifying good versus great is much harder virtually. However, I have been impressed by our team's ability to meet with new groups and improve the quality of the relationships with our current roster. A lot of it comes down to hustle, plain and simple. Zoom fatigue is real but getting on a plane is a lot of work too. There are a lot of pros to take away from this process.

I do think that the ability to go deep on a new relationship is going to be less in-person at the initial stages of diligence. Finalizing a deal in-person will continue to be important. Virtual will be the new normal, but I don't think anything's going to replace in-person diligence before you have to sign the docs.

I've heard of other LPs doing deals virtually, but I haven't heard a lot of new deals being done with just virtual diligence without ever meeting a firm in-person. I've heard of re-ups getting done virtually, which makes a lot of sense, but it's going to be tough for us to do a new deal without meeting somebody. At Texas A&M, we really want to know who we are doing business with. We want to look them in the eye and shake their hand. We want them to understand our mission. We want to get to know them professionally and personally. It's fair to say that we are a partnership model.

In regards to private markets, it's a long-term game, and we're going to have market exposure to these groups for a long time. We want to know them. Our ability at Texas A&M to develop those deep personal relationships with our GPs really does help us in building a portfolio of winners. Because we're not passive capital, we aim to be as active as we can to support our GPs. I tell everyone, we will utilize the resources of Texas A&M to support you so you can be the best you can be.

We've introduced GPs to members of our athletic, engineering, and finance departments. We just hosted a call with the Texas A&M School of Innovation to help them understand how high quality GPs look for deals coming out of university ecosystems. So, we really do try to be a resource. We're not Stanford, we're not MIT, but we are Texas A&M, and this is a big global brand that has resources that we think can help our GPs.

If we can make introductions for our GPs on campus, we will do it. Our goal is to be the best LP and to do what is necessary to help our GPs be the best they can be. That's what really sets us apart. If you ask our GPs, "what's a Texas A&M deal?" They will say, "repeatable, transparent, do what you say you're going to do."

Trusted Insight: When it comes to innovative investments, what gets you guys excited for the next 5-10 years?

Rush Harvey: We continue to believe that innovation at the earliest stages is a great place to put long-term capital. Early-stage venture (traditional seed) will be a focus for us. We have and will invest in pre-revenue, pre-people, pre-product, but post-idea-focused GPs and hope to do so going forward. Innovation doesn’t have to be just tech-oriented and we believe lower and middle market private equity will be ripe for investment, as GPs up-market continue to have record amounts of fresh capital to buy high quality companies that meet all their criteria. Our GPs will be happy to sell to them and create liquidity for us; it’s a win-win.

We also like real estate, where we focus on income-oriented and opportunistic mandates. We like GPs that can find a class B property in a class A location that is mismanaged, not wanted, or has a need for liquidity. We are happy to back a GP that can come in right away and operate the asset much more efficiently. We've done deals in Europe and Canada, and those that are also city-specific here in the U.S.

One question we ask each other a lot in regards to innovation is public versus private markets. We need enough liquidity to pay distributions, but also want to use our long-term time horizon to our advantage in illiquid markets. We do have a bias to public equities relative to our peers. We don't manage the portfolio relative to peers, but you’ll notice Texas A&M is overweight public equities. The reason for that is because we don't invest a lot in hedge funds, which has been great for us over the last 10 years. We are discussing and debating the idea of decreasing our public equity and adding more illiquidity in markets where active management can add value. We believe private market investors can innovate much more than their public counterparts.

Lastly, we do believe active management in private markets can make a meaningful difference in the portfolio over the next 10 years. We don't see that ability on the public side as much going forward with more companies delisting from public exchanges and with private markets getting more exposure to the best companies. This is a trend with a lot of momentum.

Trusted Insight: The endowment and foundation investors are known as pioneers of allocating to private markets. What do you love most about being an E&F type of investor?

Rush Harvey: I love working for Texas A&M because there's a purpose behind what we do. The returns we generate make a difference, not only at our university, but also in the world. We are providing scholarship dollars to students who are going to do wonderful things. I spoke at Mays Business School recently and said to the class, "Someone in this class is going to start a billion-dollar business."

I'm so proud to do what we do, because we're providing scholarships for education for one of those students to go out and start that business. That gets me pumped up. Managing money and being in the investment management business is fun. It's a great business but having purpose to make a difference is why I do what I do.

Trusted Insight: Any final thoughts you’d like to add?

Rush Harvey: We're doing some really great things at Texas A&M in regards to how we construct our portfolio and how we do business with our GPs. Our ability to connect with our university colleagues is a really positive aspect of our investment office. We have a global brand at Texas A&M. You see the logo and most people know who we are, whether it's the size of our student body, our football program, etc. I don't see why our investment office can't have the same reputation on a global basis. We're really in the first innings of our process in building this out.

We have a great opportunity here to build something really special. I'm proud to be on the team and look forward to networking, telling our story, and collaborating. We're not trying to outperform UTIMCO or any other peers. I want to collaborate with those peers, be a resource, learn best practices, and also build relationships. This is a relationship business, and sometimes you have to rely on those relationships to get the deal flow to the best GPs. I think having the opportunity to participate in this interview helps open up more doors as well. We just hired Mike Pia as our new CIO and we're going to build the team of the future. It's been a great experience thus far, but the best is yet to come.

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