UTIMCO

As The Daily Texan reported Friday, a former UT System chancellor, R.D. Burck, serves on the Executive Committee of the University of Texas Chancellor’s Council, an advising board to the current chancellor, Francisco Cigarroa. Cigarroa serves on the board of directors for the University of Texas Investment Management Company, an independent company that manages the investments of both the UT and Texas A&M systems. Among UTIMCO’s many investments is a $1.5 million stake in American Campus Communities, a student-housing company, of which the chairman of the board of directors is none other than
R.D. Burck.  

Absent any new information, it seems that the relationship isn’t entrenched enough to cross the bounds of legality. Burck isn’t actually an employee of ACC, although, as the chief representative of its shareholders, he would have considerable influence over the company. And the investment was made in 2008, three years after Burck left the UTIMCO board of directors, although admittedly, his time on the boards of ACC and UTIMCO overlapped for a period of a year.

UTIMCO spokeswoman Christy Wallace told the Texan that the company maintains a restricted list of businesses that are off-limits for investment, and that no money would have been invested in ACC while Burck served on both boards.

“[American Campus Communities’] public equity securities were on the restricted list when Mr. Burck was on the UTIMCO board, so none of UTIMCO’s investment managers held any of their securities at that time,” Wallace said. “As Mr. Burck is no longer chancellor or on the UTIMCO board, [American Campus Communities] securities are no longer on the restricted list.”

It’s also worth noting that UTIMCO has seen a good rate of return on the money; ACC’s stock has risen by approximately 75 percent in the five years since the investment. And $1.5 million isn’t even a drop in the $21.7 billion bucket that is the UT System’s endowment.

On the other hand, this isn’t the first time UTIMCO investments have been linked to high-profile members of the System leadership. In 2011, the company invested $200 million in a different private investment firm, Post Oak Energy Capital, which in turn invested $60 million in an oil and gas company tied to UT System regent Alex Cranberg that drills on land owned by the University.

It’s impossible to tell whether the investment in ACC happened because of Burck’s involvement. But his and Cranberg’s multi-faceted relationships with UTIMCO are a predictable phenomenon. With such large quantities of money invested in such a large number of businesses, it’s unsurprising that some of it ends up going near the System’s leaders — many of whom are prominent businessmen in their own right.

UT System endowment assets hit a new high at the halfway point of the current fiscal year with a combined worth of $21.7 billion on Feb. 28, according to documents from the University of Texas Investment Management Company’s most recent meeting.

The Permanent University Fund, a public endowment made up of 2.1 million acres of land located in West Texas, earned 8.4 percent in investment returns in the latest 12-month period ending in February. Meanwhile the General Endowment Fund, largely made up of donations from alumni and others, earned 8.5 percent in investment returns over the same period, according to UTIMCO CEO Bruce Zimmerman. UTIMCO is the nonprofit corporation that oversees the UT and Texas A&M systems’ investments. 

Zimmerman said he hopes investment returns on the endowment continue to increase, but stressed the importance of taking a long-term view when gauging the returns’ success.

“We certainly hope there will be gains, and we actually hope to make more than what gets distributed [to the System],” Zimmerman said. “Specifically with respect to investment returns, what we will expect is ups and downs, because we are in a period of volatility in capital markets.” 

According to figures Zimmerman provided, the various funds managed by UTIMCO have grown overall in the last 10 years. For the 10-year period ending Feb. 28, the Permanent University Fund’s returns hovered at an average of 9.1 percent growth annually, while the General Endowment Fund had an annual average return of 9.2 percent over the same decade. 

The flow of investments between five companies links an oil and gas production company that drills on university land to the UT System’s investment company and to UT System Regent Alex Cranberg.

In 2011, the University of Texas Investment Management Company committed $200 million to a private investment firm that has a financial stake in an oil and gas production company that operates on University land — B C Operating Inc. Cranberg, an energy investor, is chairman of a holding company that is partially owned by another investor with a financial stake in B C Operating. 

UT System spokeswoman Jenny LaCoste-Caputo said UTIMCO CEO Bruce Zimmerman confirmed UTIMCO is aware of the connection to B C Operating, but it presents no investment conflict.

UTIMCO’s $200 million commitment was to Post Oak Energy Capital, a private investment firm. Post Oak then committed $60 million to oil and gas company Crown Oil Partners IV, LP. The owner of Crown Oil owns half of B C Operating. B C Operating drills on part of the 2.1 million acres of land that make up the Permanent University Fund and has transferred ownership of some of its leases to Crown Oil.

Mark Warner, UTIMCO’s managing director of natural resources investments, said UTIMCO is involved in its partners’ investment decisions, but he would not elaborate on Post
Oak’s investments. 

“I will say in any of these partnerships there is a very thorough discussion on strategy and approach,” Warner said. “We certainly had that discussion with Post Oak. This is an
ongoing conversation.”

UTIMCO, a nonprofit corporation established by the System, invests profits from leasing the land for projects ranging from oil and gas production to cattle herding. Through the Available University Fund, the UT System receives two-thirds of profits from those investments and the Texas A&M University System receives one-third. UT-Austin received $200 million from the fund, which made up about 9 percent of the University’s 2012-2013 operating budget.

B C Operating is a long-time University land lease owner, with records of oil production dating back to the 1950s, according to University Lands Office records. Through the lease sales, B C Operating has contributed more than $921,000 to the Permanent University Fund, not including production royalties. 

Post Oak was two years old when it entered a limited partnership with UTIMCO. Limited partnerships are one of multiple investment arrangements UTIMCO makes.

Warner said Post Oak presented an opportunity to create a private equity partnership with a smaller, middle-market company that invests specifically in the energy sectors.

“They were well known to many people known by us,” Warner said. “It was easy to do diligence on them.”

Warner said UTIMCO’s portfolio had a gap that Post Oak’s market could fill.

Cranberg, appointed by Gov. Rick Perry to the UT System Board of Regents in 2011, is connected to Crump Energy Partners, whose owner also owns the other half of B C Operating. Like Crown Oil, Crump Energy has partial ownership of some land leases originally obtained by B C Operating from University Lands. Crump Energy received a $100 million commitment from energy equity company Quantum Energy Partners.

In a statement to The Daily Texan, Cranberg said Quantum Energy Partners owns 11 percent of his company, Aspect Holdings. Aspect Holdings, a private exploration and energy investment company, is also an investment portfolio company for Quantum Energy Partners, according to Quantum Energy.

However, Cranberg said he does not receive any compensation from Quantum Energy Partners. Quantum Energy continues to have a financial stake in Aspect Holdings. Cranberg also has other connections to the founders of Quantum Energy through the creation of a hybrid investment fund and an oil and gas operating company called Quantum Resources Management, but it does not have investments in B C Operating or its affiliated companies. 

The UT System recently laid out a new disclosure system to avoid conflicts of interest by requiring faculty, administrators and staff who serve on boards of other organizations or participate in businesses beyond their university to disclose their involvement.

LaCoste-Caputo said this policy does not apply to the regents because they are governed by state conflict of interest laws.

As a regent, Cranberg is required to file a personal financial statement with the Texas Ethics Commission, which was obtained by The Daily Texan. But the financial statements do not require public officials to report who has financial ties to their businesses.

Published on March 8, 2013 as "Web of investments". 

The investment firm for the UT System committed $200 million to Post Oak Energy Capital, a company that invests in the North American oil and gas industry.

Last week, The University of Texas Investment Management Company committed the money to Post Oak over the next three years. UTIMCO is the entity which invests endowments for the UT System and the Texas A&M System.

Part of the commitment to Post Oak is from the Permanent University Fund, which is a public endowment based upon West Texas land grants. A portion of UT Austin’s budget comes from the PUF, which UTIMCO manages.

Mary Knight, associate vice-president and budget director for the University, said UT-Austin’s portion of the Permanent University Fund goes into the Available University Fund. For 2011 to 2012, the AUF is expected to provide about 13 percent of the academic core that goes towards University needs, like salaries and maintenance.

“UTIMCO provides estimates for AUF and endowment income,” Knight said. “We use their estimates for investment payouts to prepare the AUF and endowment budgets.”

Post Oak managing director Frost Cochran said in a press release that the company’s management team has extensive experience in the energy industry, which now includes the support of UTIMCO.

“This significant commitment from a sophisticated energy investor allows us to continue to build our investment model during a period of modest competition and high-quality deal flow.”

Mark Warner, UTIMCO managing director of natural resource investments, said UTIMCO actively invests in the energy industry. Warner said UTIMCO knows Post Oaks professionals, and the company has a very good reputation. The commitment is unique, Warner said, because Post Oak targets smaller energy companies that cannot find money as easily as larger energy companies.

“We believe that portion of the private market is much less competitive,” Warner said.

Warner said he expects the Post Oak commitment to help grow the endowment funds that funnel into the UT and Texas A&M Systems, which is the objective of UTIMCO.

“This was their first attempt to raise a fund, and we decided we could craft a partnership that would meet their needs and fulfill our objectives,” Warner said. “We expect the appropriate risk-adjusted returns for the strategy.”  

Printed on Tuesday, November 22, 2011 as: UT System invests $200m in energy company

A UT student presented a resolution to the UT System Board of Regents on Thursday suggesting that they change the system investment policy, which the student said disregards the social and political impacts of its investments.

Mishal Al-Johar, a former geological sciences graduate student, made the proposal on behalf of the group Longhorns for Investing Responsibly. Six UT students authored the proposal. Student Government and the Graduate Student Assembly both passed resolutions recommending the policy change last year.

In the proposal, the group recommends the University of Texas Investment Management Company change its policy to “[consider] investments in line with its values.” The current policy states that the corporation cannot use its investments to “advance social or political purposes.”

UTIMCO, independent from any campus, is the nonprofit corporation created by the UT System in 1996 to oversee UT and Texas A&M systems’ investments. UT System Regent Paul Foster is the chair of UTIMCO’s board of directors, and UT System Chancellor Francisco Cigarroa is vice-chair for policy on the board.

Ben Snyder, a theater and dance graduate student, was instrumental in the creation of the responsible investment group. He said the sheer size of the bureaucracy surrounding UTIMCO makes changing the policy challenging, and UTIMCO’s investments have out-performed many other universities’.

“Maybe in these economic times, that’s all they want to focus on,” Snyder said. “But you are dealing with the money of a public institution here. We have a mission statement, and we need to adhere to that.”

Snyder, one of the proposal’s authors, said approaching the board with the suggestion was the most effective way to push for the change.

“We were hoping for one person on the board who thought this was a good idea and wanted to take this on,” Snyder said.

Student regent Kyle Kalkwarf, a fourth-year medical student at the UT Health Science Center at San Antonio, expressed interest in pursuing the issue, Snyder said. Al-Johar said by changing its investment policy, UTIMCO would follow the examples set by investment companies at other public and private universities, including those at Harvard University and Stanford University, which UTIMCO was modeled after.

“There are many major universities who have this policy and many investment groups who consider social responsibility,” Al-Johar said. “If UTIMCO is to follow a prudent investment standard, shouldn’t the UT System consider adopting the policies of our colleagues?”

In his presentation, Al-Johar said UTIMCO’s policy does not adhere to the standards set for the UT Board of Regents in the Texas constitution, which requires the regents to use available University funds to make reasonable investments that benefit the state’s flagships.

“It is our hope that the committee would be willing to discuss the proposal and discuss how we can move this forward,” Al-Johar said.

UTIMCO officials and system spokespeople did not respond to requests for comment as of press time Thursday.
In a May 2010 Daily Texan article, UTIMCO chief executive officer Bruce Zimmerman said the corporation should not use investments to make social and political statements.

“It is not UTIMCO’s position to make [ethical] judgments,” Zimmerman said. “The reason there is the bright line to not take in those considerations is that it’s a slippery slope. There is an endless list of potential social and political grievances. Whatever judgments we make would incur an economic cost, so we would be taking resources away from the University system, and that is not our role.”