UTIMCO

Students at the University of Texas are always willing to voice their beliefs, and those voices often lead to real, material changes in the world. 

Student-led groups and Student Government work together to express concerns, but as a student body, we have the duty to make sure our speech is valuable, relevant and warranted. UTDivest and the language of the pro-divestment AR 3 represent a scenario where UT students are speaking out on issues beyond their level of responsibility.

SG is responsible for both representing the student body and allocating resources on behalf of that body. It serves as our collective voice, and as such, can speak for whom we want to manage our endowment. 

Picking an investment manager is no easy task, but the University of Texas Investment Management Company has done a stellar job managing the second-largest endowment in the US. Portions of our more than $25 billion are carefully invested in over 2,000 public equities like the ones mentioned in AR 3: Cemex, HP, Proctor & Gamble, etc. (embedded below) This is done through a Fund-of-Funds model, meaning UTIMCO allocates the endowment to a number of third-party investment managers, who then select equities to buy.  UTIMCO itself does not directly buy and sell equities with endowment money, according to Bruce Zimmerman, UTIMCO’s CEO and Chief Investment Officer.  This management style is common to large endowments due to the amount of resources needed to allocate billions of dollars.  Because the decision to divest lies with third party managers and not UTIMCO, AR 3 is misdirected and represents a misunderstanding of how our endowment is managed.

As a student body, our responsibility is to make sure our endowment rests in the hands of a manager who will carefully and effectively grow the fund over its lifespan. As students who are not industry-trained investment managers, we are not responsible for evaluating third party managers and their individual investment decisions.

The UT System maintains a Board of Regents that oversees the selection of management and supervises high-level decisions for the University and the other System campuses. However, their responsibilities do not include micromanagement. The Board does not decide what classes will be offered next semester, which textbook a professor issues for a class or which video is shown in that class. 

Because the Board does not have all of the relevant information to make lower-level decisions, it is in their best interest to find managers to make those decisions instead.

Similarly, it is not in students’ best interest to try to micromanage UTIMCO by telling it which managers to use and which companies to invest in. Rather, they can help find qualified professionals who can understand the nuances of managing investments. These managers have a responsibility to ensure their portfolio companies are ethically operated in ways that are not overtly harmful to any group of people. This responsibility is dutifully carried out through meaningful analysis.

Investment managers go above and beyond to vet every single equity. This includes multiple weeks of intense company research and financial valuation modeling. 

Students simply do not have the necessary time to read company filings or complete the extensive due diligence needed before making multimillion dollar investments. UTIMCO and third party managers have access to information students do not, and therefore can make more informed decisions on whether a company is worth investing in. 

Students need to acknowledge an investment management company is not the place to make a political statement and understand UTIMCO makes deliberate decisions using the best information it can compile.

Stepping back from an investment manager’s perspective, students who feel passionately about either side of the political debate should take a closer look at companies that are operating in Israel and the economic benefit they provide to Palestinians and Israelis alike.

For example, metalworking company ISCAR, owned by publicly traded Berkshire Hathaway, employs 3,000 Israelis, of whom half are Arab. ISCAR’s founder, Israeli Stef Wertheimer, was awarded the Oslo Business for Peace Award in 2010 for his efforts to use manufacturing facilities to unite Israelis and Arabs. 

Over 20 percent of Intel’s international property, plant and equipment are centered in Israel, and wages from those operations flow into the economies of both Israel and disputed territories. 

These are companies who bridge the political divide and promote cooperation and mutual economic gain. Divestment from these beneficial industries would not just be a vote against cooperation but a vote that would directly harm the Palestinian economy.

No company is perfect, and that fact cannot be disputed. But it is UTIMCO’s job, not the UT student body’s, to make this determination. Student Government should oppose AR 3 not for political reasons, but because the legislation speaks on behalf of students who are not qualified to micromanage more than $25 billion. The Board of Regents votes on managers, not stocks, and Student Government should do the same.

Johns is a business honors and finance sophomore from Fort Worth. Stein is a business honors and finance sophomore from Houston.

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