Wisconsin Alumni Research Foundation

A Professional Investment: WARF’s New Financial Strategy in 1983

WARF building
WARF’s innovative, long-term financial strategy allowed the foundation to meet immediate research needs while maintaining support for future generations of university scientists.

Over the first 50 years of its history, WARF gained international attention for its groundbreaking inventions and lucrative patents. Meanwhile, most of the foundation’s growth came not from innovative science but from financial investments as the trustees spent much of their time buying and selling stocks to grow the WARF endowment.

The first trustees, several of whom had built successful careers in banking and finance, decided early on that the foundation should construct a long-term financial strategy that would avoid exhausting their revenue on immediate research needs in favor of supporting future generations of university scientists. With that in mind, in 1930 they used royalties from the Steenbock patents to buy the foundation’s first stocks and bonds.

The vice president of the board, Thomas E. Brittingham Jr., took the lead in managing those assets. In addition to his own career as an investment professional, Brittingham and his sister Margaret directed their family’s trust fund. When their father died in 1924, his estate left instructions to donate much of the fortune that he had earned in the lumber industry. Together, the two siblings built a legacy of philanthropy that supported both the University of Wisconsin and the city of Madison.1

That financial pedigree worked to WARF’s advantage when 26-year-old Brittingham became one of the five original trustees in 1925. He brought a combination of youthful energy, aggressive innovation and disciplined risk-taking that over three decades multiplied the $14 million earned by the Steenbock patents into $53 million in invested capital.

By the mid-1950s, the foundation had already donated $13 million of that total back to the university and the annual WARF grants had grown to more than $1 million per year.

With the remaining $40 million endowment, Brittingham continued his plan to ensure ongoing financial gains could support UW research well into the future. As he explained in a 1957 article in Barron’s Weekly, his investment strategy eschewed the conventional wisdom followed by most university fund managers at the time. Rather than playing it safe by keeping large cash reserves and buying low-risk bonds or blue-chip stocks, he kept WARF’s assets fully invested in mostly common stocks.2

In Brittingham’s view, buying shares in little known but promising young companies offered the best chance for future growth. Using horseracing as a metaphor, he pointed out that the savviest bettors pick the winner of the next big race, not the horse that looked good last year but will soon be put out to pasture.

Sadly, just as his unconventional strategy earned public validation, Brittingham died of a sudden heart attack in 1960. More than the loss of a leader, his death marked the passing of a generation. At the time, he had become the last of the founding trustees who still served on the board.

The subsequent generation proved more than capable of continuing Brittingham’s legacy. A younger group of trustees had joined an expanded board in the late 1940s, and several of them had collaborated with Brittingham on the board’s investment committee.

In particular, Ralph B. Johnson, elected as a trustee in 1949, emerged as Brittingham’s successor. As a partner at Smith Barney, Johnson brought a high level of investment expertise along with the resources of a large Wall Street financial firm. By some accounts, Johnson took as much as a full day out of his normal work week to manage WARF’s portfolio, often with the assistance of his Smith Barney staff.

That informal arrangement kept the foundation on the cutting edge of investment strategies. When Johnson retired in May 1977, the $40 million reported by Brittingham had more than doubled to $82.8 million.

But as Johnson approached retirement, the board realized that the challenging economic conditions, financial regulations and corporate complexity of the 1970s meant that the time had come to hire a full-time, professional investment team to ensure continuity.

In January 1976, the board hired John Pike as WARF’s managing director. Up to that point, WARF’s two longest serving directors had been a patent lawyer and a former college dean. In contrast, Pike held a Ph.D. in economics and, before coming to WARF, served as head of the State of Wisconsin Investment Board (SWIB), the agency that manages the state’s trust funds.3 Besides his own expertise, Pike also hired his former colleague at SWIB, George H. Austin, to become WARF’s first director of investments.

After weathering the economic tumult of their first few years at WARF, Pike and Austin moved to put the foundation’s endowment on solid footing for decades to come. In 1983, they convinced the trustees to hire three outside firms to handle a significant portion of the foundation’s portfolio.

This shift turned over day-to-day management to full-time money managers. The board could then focus less on picking individual stocks and more on diversifying WARF’s holdings in stocks, bonds and mutual funds.

Later that same year, the board gave Pike and Austin the authority to move up to 10 percent of the portfolio without waiting for a formal vote by the investment committee. That change empowered the executive office to respond to sudden shifts in the market while ensuring that the outside money managers remained true to the trustee’s strategic vision.

Together, these 1983 policy changes positioned the foundation to take full advantage of the booming economy of the 1980s. An endowment that had doubled over the previous 30 years would triple over the following 10 and the rate of growth only increased from there.

By the end of the 1980s, total investments grew to $339 million. Today, the WARF endowment holds $2.6 billion, or 65 times the amount earned by Brittingham and 185 times larger than the royalties earned from the Steenbock patents.

The new professional investment team, and the strategy they implemented, opened a new era in WARF’s history. Having survived the challenges of the 1960s and 1970s, the trustees and staff found renewed focus on the two core functions of the foundation’s mission: patenting technology arising from UW research and investing the proceeds from commercializing that technology to provide support for UW research.

To find out how WARF’s patenting role changed after the passage of the 1980 Bayh-Dole Act, stay tuned for the next installment of Decade by Decade.

Kevin Walters