 "Photo: Megan Peyton")
The UT System Board of Regents Thursday authorized the sale of leases for oil and gas drilling on system lands at fixed prices.
The companies that win the leases, determined by the winner of a bidding process that occurs twice a year, will pay a pre-determined price over several years. The move was made to take advantage of record oil prices.
The system holds 2.1 million acres of land in West Texas, 1.4 million of which is leased for drilling purposes. The Texas Constitution dictates that two-thirds of all funds generated from drilling leases and royalties go to UT, with the remaining funds going to Texas A&M University.
University of Texas Investment and Management Company CEO Bruce Zimmeran told the regents Thursday that the company's conservative investment strategies will have the investment company for UT's endowments financially well-situated in what is becoming a rough economic environment.
"Our more conservative posture bodes well for us in more difficult markets," he said.
The regents and UTIMCO convened for their annual joint session. UTIMCO manages the Permanent University Fund, the Permanent Health Fund and the Long Term Fund, which consists of UT's permanent endowment.
Zimmerman said while in the past, the Permanent University Fund and General Endowment Fund, which includes the Permanent Health Fund and Long Term Fund, have met the goal of preserving purchasing power of assets, they have been outperformed by the funds of peer institutions and the Policy Portfolio, an index of market funds.
UTIMCO Vice Chairman J. Philip Ferguson said the company was developing a strategy to emphasize more benchmarks, instead of reacting to the performance of peer institutions.
"It's much more now about meeting well-defined goals rather than waiting to see how our peers did," Ferguson said.
It was also revealed that UTIMCO has expanded its travel budget by over 50 percent from 2008 to 2009.
Bruce Myers, managing director of Cambridge Associates, a consulting firm that works with UTIMCO, said prior to the 2003-2004 fiscal year, the Permanent University Fund and the General Endowment Fund outperformed the investments of peer institutions.
"The trailing can be ascribed to lack of leverage in the portfolio and the defensive nature of the portfolio. It will be interesting to see how we are affected as we enter more difficult waters," he said, in reference to the worsening American economy.
Zimmerman said the University's peer institutions are currently pursuing risk on an unprecedented scale. UT's endowment - the fourth largest in the country - is comparable in size to those of Stanford University, most Ivy League schools and public institutions such as the Universities of California and Michigan.
"Private endowments are able to take a little more risk than a public endowment because the downside is typically more painful for a public endowment," Zimmerman said.
When public universities pursue risky investment strategies, they put a larger workforce and student body at risk whereas Harvard or Yale have a fraction of UT's population, Zimmerman said. Taxpayers also back the investments in the case of public universities, he noted.
A more conservative investment strategy places more assets in fixed income securities such as U.S. Treasury bonds and less in private investment funds, such as venture capital, Zimmerman said.
The UTIMCO board plans to gradually incorporate more private investment assets into its portfolio over time, he said.
"Over the last year, we've visited 14 countries," Zimmerman said. "We have a deep conviction that in order to do the proper diligence, we need to go [to different countries], meet the people, get to know them, get to know their economies."
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