| thanks so much for all your great feedback. although we are open to new ideas (and potentially the idea of doing it in the us - ironically because we think the political/regulatory/legal environment is going to be more stable) we are actually targeting china as the most likely place we want to invest (this is just a first draft of the website but as you can see it's in chinese! http://www.seldoncapitalpartners.com/) the main reason for choosing china is because university is much cheaper there relative to incomes. the key equation is Lp = xu where
L=lifetime income
y=number of years working
u= total cost of university,
x = return to investor e.g. x=4 means you invest $1 and you get $4 (compound interest therefore over the assumed 35 years is x^(1/35))
p = contracted percentage of income...
y = number of years you can re-arrange this to dividing both sides by y you can re-arrange to find the ratio of annual income (l=L/y) to total cost of tuition fees. l/u = x/(yp) what you find is that even for a relatively modest return, let's say x=8 (i.e. a 35 year compound interest rate of 6.1%), if p=0.02, y=35
u need average annual income l to be a whopping 11.4x the cost of university, which is u is assumed at a modest $20,000 then income needs to be $200,000+... this makes us feel like it's not possible in the developed world, univeristy is just too expensive, however the best universities in the developing world are very cheap (by western standards). e.g. the best university in china (arguably) is tsinghua university where a four year education costs just $3,000/4,000 (tuition and accomodation)... we think that given we are hand-picking the brightest students in china in subjects that we think will be lucrative, plus the fact that over 35 years you have a lot of economic growth to help you out it's not unreasonable to assume average lifetime income could be at a $40,000+ order of magnitude... in terms of the 'shares' issue, i don't think that would work for all the reasons you raise... really you would probably need to actually have it treated as a completely new asset class... three potenial examples of how it could work are a) taxation because an individual is liable to pay their taxes and these are often a percentage of income rather than a flat fee and b) a form of security e.g. think about how abs contracts were built on the income streams from mortgage payments c) mortgages themselves, there the income stream is securitized by the underlying asset the house - in our case the secruity would be the income stream itself. i think the refinancing poitn is very interesting to consider, we actually thought we might start off (to get proof of immediate returns) by actually offering students with loan debt who have already graduated a chance to convert that into our 'human capital' the thought process being is that loan debt punishes you for not paying a lot immediately (as the interest builds up), whereas our contract because it's over a working lifetime's income stream means you can basically trade future consumption (when your income is much higher) for current consumption. our main observation is that in the developing world there are a lot of people who are credit-constrained when it comes to going to university. we think this doesn't make sense and so we hope to change that. to be clear btw, our 5% rate is % of income, not % of interest on debt... plus we think 2% can work in china (for the reasons given above). |