Mark Warner

Bruce Zimmerman, CEO of UTIMCO, met with UTIMCO board members Thursday morning. The conference covered topics such as UTIMCO investments and how foreign oil activities may affect the University’s endowment and the Permanent University Fund.
Photo Credit: Griffin Smith | Daily Texan Staff

University of Texas Investment Management Company officials released a report Thursday detailing the effects of falling oil prices on the Permanent University Fund (PUF). 

The PUF is an endowment containing 2.1 million acres in West Texas that was created by the Texas Constitution in 1876 to benefit the UT and Texas A&M University systems.

According to Mark Warner, managing director of natural resources investments, falling oil prices over the course of the last four months slightly hampered the assets UTIMCO manages, which total $34.5 billion. Domestic oil prices declined by 60 percent from a peak in late April 2014 before bottoming out in late November 2014. However, over the five months, the endowment maintained a return of 4 percent.

Bruce Zimmerman, UTIMCO chief executive officer and chief information officer, said the investments made under UTIMCO are made safely to protect the funds that support the UT System schools.

“Our first line of defense is a diversified portfolio because, generally, not everything is going up at the same time, and, generally, not everything is going down at the same time,” Zimmerman said.

Zimmerman said falling oil prices from April to November could actually help raise the endowment’s value.

“Our best guess, our best projection, is that the supply shock — excess supply, lower prices — is actually a slight positive for the endowment,” Zimmerman said. “Now, it’s clearly a negative for the energy industry, clearly a negative for the state of Texas … but this really gets at around 10 percent of our exposure is in energy; 90 percent is outside of energy.”

Zimmerman said only 10 percent of the total investments made by UTIMCO are in the energy industry. The other 90 percent of investments are made in sectors of the economy that ordinarily improve when oil prices decline. For consumers, lower oil prices mean cheaper gas, cheaper goods and more spending money to stimulate the economy.

“Our investment returns, we think, will be slightly helped by the reduction in oil because there are more consumers than producers, and the consumers get a benefit,” Zimmerman said.

Warner, the managing director of natural resources investments, said he looked at the correlation between the value of the energy portfolio, the investments in the energy industry and the price of oil. The report established that, when the price of oil drops, the value of the portfolio drops 10 percent of the price. 

Warner said he has watched the energy industry’s downturn closely.

“What I can tell you is that we’ve looked back at history, particularly the ’08-’09 time frame, and this is historic by any measure,” Warner said.

According to Warner, lenders are more willing to make investments in the current economy because it is much healthier than it was during the 2008 recession. Warner said this makes him feel optimistic about the energy portfolio’s future value.

“We’re hoping our partners are able to be opportunistic; this way, they have the money to do it,” Warner said. “We’re very encouraged by where we are in the cycle and by the partnerships that we have.”

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