Interview with Bruce Kovner

The trading titan on investing in ideas and policy, school choice, and music

Bruce Kovner was born to a Jewish immigrant family steeped in the belief that you could do anything in America—and young Kovner would soon prove the point. He enrolled at Harvard University, drifted to New York when he stalled in grad school, drove a cab, then found he had a knack for trading commodities. A $5 billion knack, judging from his approximate net worth when he retired in 2011.

One of the ways Kovner succeeded on this scale was by being a leader in the quant revolution on Wall Street, recruiting exceptional math and science minds to help with his trading without worrying about their finance credentials. Kovner has shared his wealth with as much care as he applied in building his business. He has been generous with time, not just resources—becoming a leader on the boards of the Juilliard School and American Enterprise Institute, for instance.

Kovner’s primary philanthropic passions are classical music (which he plays as well as champions), public policy (he was a student of the great Harvard political scientist Edward Banfield), and education reform (as a means of keeping the  American dream alive and accessible to the general populace).
Philanthropy contributing editor and American Enterprise Institute president Arthur Brooks conducted this chat.

Brooks:  Tell me about your family.

Kovner:  My grandparents came from very poor areas of Poland and Russia and fled to avoid the pogroms of the late nineteenth century. I’m told my grandmother actually walked most of the way out of Poland to Hamburg to get on steerage to the United States. What courage they had to strike out with barely a cent in their pockets, and to follow their dreams to America!

My parents had that belief in the American dream too. But they were caught up in the Great Depression and weren’t able to go to college. They had to drop out and take care of their extended family. But with hard work they made their way into the middle class, raised a family of four kids, and led a good life.

I grew up in an environment in which there was a passionate belief that you could do anything here in America. I was taught we all had an obligation to treat the underdog fairly and not put obstacles in his way. Education was an essential part of it.

I did a lot of thinking: How could I lead a life in which I care about what’s happening in the world and do something about it? My hero at the time was John F. Kennedy, so I decided to go to Harvard to follow in his footsteps. I became a Young Democrat and went to Washington to meet the Kennedy cabinet.

Brooks:  How did your thinking evolve?

Kovner:  The popular idea at the time was that the Democrats and FDR were committed to fairness and the ­Republicans were committed to greed. I grew up in that kind of household. My father told me that one of the biggest mistakes he ever made was to vote for Wendell Willkie in 1940. I thought it was charming he couldn’t think of anything worse!

When I went off to college, my father’s sole concern was that I would become too much of a doctrinaire leftist. He was shocked and dismayed when he realized I had come to very different conclusions about the truly effective ways to be fair. It was a major transformation in my life. Men like Edward Banfield, James Q. ­Wilson, and Daniel Patrick Moynihan taught me the law of unintended consequences.

Pat Moynihan came to Harvard in 1966 and became one of the most important influences of my life. He had hands-on experience in the ­Kennedy administration. He explained how the war on poverty of the mid-’60s was not extinguishing poverty, but creating bureaucratic dysfunction and a class dependent on welfare.

All of that was quite a revelation to me. I came from a background where the mere intention to eradicate poverty was a badge of honor, sufficient to do the job. I learned that good intentions are not enough. I learned economics.

The social pressure to avoid those conclusions was enormous. I felt it personally. Skepticism about popular government programs wasn’t a winning ticket with girlfriends either! But I gradually came to believe that much of what Kennedy and Johnson did was counterproductive. A significant portion of my peers didn’t want to have those discussions.

Brooks:  So you finished school and, after a few years, wound up in finance. You ultimately started one of the first successful hedge funds. This has made philanthropy a big priority for you. You are deeply involved in supporting ideas, and have done so primarily via think tanks. How do you compare think tanks to universities?

Kovner:  It is clear that universities are sometimes the best place for fundamental scientific research, but they haven’t been very good at maintaining an atmosphere of dispassionate analysis, objectivity, and creativity in the social sciences. On the contrary, the “academy” has created an orthodoxy which stifles dissent, unconventionality, and good judgment. One needs to look elsewhere for the best original work in the social sciences and the analysis of public policy. Think tanks, along with independent journals, are often the best place to find it; many were founded for that very reason. I look for the institutions that can support independent thinkers.

Brooks:  You’ve been on the AEI board since 1989. You were the chairman of the board for six years. How did your connection with AEI first begin?

Kovner:  It began with a phone call from Chris DeMuth, an old college friend who had worked in the Reagan administration and had recently become president of AEI. He asked me if I would think about joining the board. Until that time, I’d only been vaguely aware of AEI, but I started studying its material and paying attention to the scholars.

I realized that AEI stood for two of the core principles in my life. First, defending the vision of America as a place committed to free enterprise and personal liberty. Second, the necessity of a serious and assertive military and foreign policy that would defend America in a dangerous world. AEI was the home of some of the most brilliant scholars in social science and foreign policy in the U.S., including academic institutions.

When I first came to AEI, my philanthropic activities were unorganized and almost purely civic—just being a good citizen in my neighborhood. In my 20s and 30s I led a very normal life: getting married, finding a career, starting a family, trying to manage financially. It was only in the early 1980s that I began to find enough financial resources to do more than be a good neighbor. My formal philanthropy began first with AEI, and later led to other organizations and causes I felt strongly about.

Brooks:  Many of those other organizations and causes are musical and artistic. How did you become interested in the arts?

Kovner:  Before my teenage years, I had no involvement in the arts. But at the age of 15, I had a near-religious experience when I heard a piece of classical music for the first time. It was “Mars” from Holst’s “The Planets.” My mother was driving me to school, and this piece of music came on the radio, and I remember stopping and saying, “What is that?” in wonder at the images it conjured up.

On that very day I began an exploration of classical music that never stopped. It has been the most consistent form of spiritual stimulation in my life for the past 55 years. Music increases empathy. It helps us think about devotion, brotherhood, tragedy, and loss. With Bach, you have a window into the transcendental. When looking for grace and beauty, it’s Mozart. For introspection, it’s Beethoven. When I want to feel the expansiveness of the world and the creation, it’s Bruckner. Shostakovich is about tragedy, and humor. Music is a universal language. It opens these experiences and ideals to everyone.

Brooks:  You are a musician yourself.

Kovner:  A couple of years after that road-to-Damascus moment, I found myself as an undergraduate thinking “I cannot be illiterate in the language I love.” So I signed myself up for piano lessons at age 18. Pretty late, but I have played the piano ever since. I’ve never taken more than a couple of years’ worth of lessons consistently, but I inconsistently take lessons to this day. And I’ve managed to acquire enough skill to play badly through most pieces of music.

Brooks:  When did you start giving to the arts?

Kovner:  When I first came to New York City in the early ’70s I realized that ­Juilliard had an evening division where I could enroll in classes. I was doing everything from driving a cab to working as a consultant, during which I signed up for a variety of classes. From this has arisen the mistaken notion that I was a real student at Juilliard, as opposed to an evening schlepper!

But I did get to know some folks on the Juilliard board. I joined in the ­mid-’90s and was asked to become ­c­hairman in 2001. It was a great fit. ­Juilliard had many needs as it was evolving into a bigger and stronger institution. And Lincoln Center was dealing with many issues as it confronted the need for renovation. I found that I could play a constructive role at both places.

I felt an obligation to be a good citizen in New York. One of the obligations of citizenship is to help the great institutions where you live. 

2015_Fall_Kovner_Photo1

Students from Success Academies—a high-performing charter chain that now has close to 10,000 kids enrolled and may reach 30,000 over the next several years, thanks to donor support. (Blair Getz Mezibov)

Brooks:  You almost never put your name on your donations. But you did on the Kovner Fellowship Program, a $60 million gift to Juilliard in 2013. Why?

Kovner:  For me, gifts are given for the pleasure and the moral value of giving rather than public recognition. I prefer anonymity. But at Juilliard, Suzie and I want to have a close relationship with these amazingly talented students, 20 or so a year, and identify ourselves with them. We enjoy their company immensely. It was a purely personal act.

Brooks:  You spend your time with musicians, policy wonks, and finance experts. What do they have in common, if anything? 

Kovner:  I find there is a “harmony” in the best thinking in all three. The most interesting thinkers in public policy and finance have a strong conception of the nature of human society and sense the basic harmonies of the entire social order. I am thinking of Adam Smith, for example, and Tocqueville. Much of my reading today is an attempt to see some order in the daily frenetic chaos.

Brooks:  You’re also heavily involved in education reform in New York. How did that come about?

Kovner:  I received a scholarship to go to Harvard and wouldn’t have been able to attend otherwise. I’d like other low-income students to be afforded similar opportunities. In the mid-’90s, a group connected with the Manhattan Institute, including Peter ­Flanigan and Roger Hertog, began talking about what we could do in New York to promote school choice. We set up the School Choice Scholarships Foundation and created a lottery to distribute vouchers every year for high-risk kids to go to private schools. These kids enrolled primarily in Catholic schools, some in Orthodox Jewish schools, and a few in other denominations or secular schools.

We asked Paul Peterson at Harvard to do a longitudinal study of kids who got vouchers compared to kids who didn’t. Twenty years later, we have a lot of data on the kids and the results are extraordinary.

As time went on we enlarged the group to include about 20 activists and shifted our focus to charter schools. There was no charter-school authority in New York state then, so we began a political effort, an educational effort, a lobbying effort to bring legislation authorizing charter schools. In 1998 we helped persuade Governor George ­Pataki to play hardball with the legislators who didn’t want to pass this bill. We wound up with charter school legislation that enabled New York to become a leader in education reform.

Brooks:  What’s the status of your school-reform efforts today?

Kovner:  In the beginning we believed charter schools were going to be ­successful simply because they were charter schools. We learned that charter schools could fail too. But we also learned something else: that in the hands of effective practitioners, charter schools could succeed beyond our wildest dreams. Four great charter networks have developed in New York, each taking disadvantaged kids and turning them into successful scholars.

Success Academies, for example, takes kids who are among the most disadvantaged in the city, but usually ranks near the top of all schools in the city and state. This is going to make a very big difference in the lives of poor kids in New York. And this is scalable. Success is growing every year. It now has close to 10,000 kids enrolled and may reach 30,000 over the next several years. This needs to be emulated by others.

Brooks:  How does political giving fit into this?

Kovner:  The political interface with ideas is extremely important. The real world requires us to figure out how to connect our analysis with practical actions, including legislation and public policy. For me, it’s part of my sense of moral obligation to participate in the political process.

When our little group formed the School Choice Scholarship Foundation, we thought the possibility of having an effective charter-school program in New York State was close to zero, or at least would take a generation. We couldn’t get any politicians to sign on originally, even those whose constituents were crying out for charters. But tenacious political action in this area allowed us to get legislation, protect it every year against assaults, and improve it incrementally so that now we have one of the best charter­-school programs in the United States.

I’m amazed that we’ve come to this point. And political activity was a necessary part of it. Those of us who’ve been a part of this strategy have been closely in touch with every governor, every ­Senate majority leader, all of the caucuses in New York, every single year, to make our case and to encourage politicians to recognize that it’s in their interest to vote for school reform.

Brooks:  How would you describe yourself politically?

Kovner:  I believe in free-market principles and strong defense and look for those things in political representatives. In my view, complex coalitions lead to the most stable government, so I want a variety of opinions, ethnicities, and classes in each party. I deplore ad hominem attacks, which degrade the quality of political debate and are not good for the country. We can make progress if we call those who disagree with us our opponents in policy, but our colleagues in seeking good outcomes for America. But not if we call them dishonest or cast doubt on their good intentions.

Brooks:  How do you measure the success of your giving?

Kovner:  When I make a major commitment, I will often try to become part of the governance of the organization. Then I can really observe effects. Each entity or cause has a different set of assessments. Not all measures are numeric, sometimes they’re more qualitative.

Juilliard can be hard to measure. Another place I give, the Institute for ­Justice, can be quite easy: How many court cases did you win, and how many did you lose? But even there, tricky questions arise, like “are you changing the tone of the debate about judicial intervention?”

When you’re doing philanthropy, you have to make judgments about whether your giving is succeeding or failing. But there’s no one method. In my case, I want to be close to the governance so I can continuously ask questions.

Brooks:  You’ve often said that the biggest threat to excellence is self-congratulation. What does that mean?

Kovner:  It comes from my own life experience in the financial arena. The moment you feel complacent, you stop thinking critically about an environment that’s always changing, and you start making bad decisions. So when I see leaders of organizations being self-congratulatory, I worry that their critical defenses have dropped and they’re open for a nasty left hook. I try to remind those leaders that they can’t enjoy the warm glow of success for more than one dinner and one good bottle of wine.

Brooks:  In managing your philanthropy, you appear to operate in the George Eastman mode, without much staff. Is that true? What is the value you see in that approach?

Kovner:  I have a small staff to help me administer the foundation grants and to serve as my eyes and ears for reports, conferences, and the many necessary personal connections. And in recent years my wife, Suzie, has been an invaluable partner. It’s been even more gratifying doing this work together, sharing the successes and failures. But I have resisted forming a larger organization because bureaucracies have a way of creating their own agenda. I would rather keep my strategic priorities limited and clear—and then personally make sure that they are being accomplished without mission drift.

Brooks:  What are some things you hope to accomplish 20 years from now via
your giving?

Kovner:  I continue to believe that the U.S. K-12 education system can be improved. I would be happy if some of what I do contributes to better education and thus better lives for the less privileged.

But I also believe we should help those with extraordinary gifts achieve their full potential. We continue to look for ways to help promising young people with talent and ambition. All of us are the beneficiaries of the contributions high-achievers make to society.

More generally, I want America to be a place of ever-greater opportunity, via a highly mobile free-market economy that empowers people to achieve what they are capable of. We know that the free-market economy has lifted hundreds of millions, if not billions, of people from poverty. I want to support institutions that promote those policies.