Texas Endowment to Review $1 Billion Gold Position, New CEO Says

(Bloomberg) -- The University of Texas Investment Management Co. will examine its $1 billion gold position in the portfolio of the largest public university endowment in the U.S.

“We're in no rush to sell but it may not be a long-term strategic hold,” Britt Harris, the new chief executive officer at Utimco, said Thursday during a break at a board meeting in Austin. The endowment is also looking at fixed-income investments because of their poor returns, Harris said.

The gold position is about 3 percent of the portfolio. Utimco oversees $31 billion in assets for the University of Texas and Texas A&M University as of Dec. 31. It manages another $12.3 billion in operating funds.

Fund Review

At the board meeting, Utimco's new investment management team unveiled details of “Total Alignment,” a review this year of every aspect of the endowment.

Everything is up for examination including asset allocation, risk management, compensation, and internal culture, in order to be “the world's leading endowment fund,” according to a board presentation.

“We'll set a strong foundation for Utimco going forward,” Harris said at the meeting. “The mantra is total alignment.”

Richard Hall, the former head of private equity at Harvard University endowment and now Utimco's new deputy chief investment officer, said Utimco invested in gold after the credit crisis, when it was seen as a hedge against a collapse in the value of currencies. “Those systemic risks are not as prevalent,” Hall said.

Gold tumbled after Federal Reserve Chairman Jerome Powell opened the door to four interest rate hikes this year on the back of a strengthening U.S. economy. Large gold producers surged in 2016 as they emerged from a multi-year downturn. Since then, they've largely decoupled from bullion.

Co-Investments

Utimco sees robust economic growth for 2018, with global equities more attractive than U.S. stocks, and U.S. Treasuries in a cyclical bear market driven by rising inflation expectations, said Managing Director Scott Slayton.

“Many things can happen, but we'll get through 2018 without an economic downturn,” Slayton said at the meeting.

Read More: Texas Endowment Hits Brakes on Private Equity as Values Rise

Utimco also will consider increasing its $90 million cap on any single co-investment in private equity, Hall said at the meeting. The boost may be necessary “if we want to enhance our profile and deepen our access to great opportunities,” he said.

Co-investing is a way to put money into individual deals alongside private equity firms rather than through funds, providing access at a lower cost. Utimco has $1.2 billion in 49 co-investments, according to board materials.

Harris has said he's trying to change how its hedge fund managers are paid using a model known as 1-or-30 that charges a 1 percent management fee or 30 percent of performance -- whichever is higher. The plan, begun in recent months, follows a similar effort started last year by the Teacher Retirement System of Texas.

Harris, the former CIO at Texas Teachers, took over as head of Utimco in August. He replaced Bruce Zimmerman, who resigned in October 2016 after about a decade overseeing the fund. Hall and Harris previously worked together at Texas Teachers.

--With assistance from Danielle Bochove and Ranjeetha Pakiam

To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Mary Romano, Josh Friedman

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