Tim Barrett is a difficult guy to get a hold of.
Not for the obvious reason that he’s busy
running a billion dollar fund—but because his
phone is malfunctioning.
Despite the technical difficulties, Barrett
launches straight into what sets Texas Tech
University’s endowment apart. Pay attention fund
managers—you’ll want to hear this.
Investment innovation is almost secondary for
Barrett’s team; the “balanced” portfolio includes
diversifying strategies such as reinsurance, trade
finance, and gold mine rights. For Texas Tech, it’s
how these investments are made that truly sets the
fund apart from its peers.
“With one emerging markets manager we
have, we’re in a couple of funds within an MCA
structure,” he says.
MCA? This is a new acronym for CIO.
“It’s a master custody account—it came out of
San Bernardino,” Barrett explains, referring to his
time at the county’s public fund between 1996 and
2010. “It’s a way to contract a manager that allows
Within the MCA, the endowment is invested
in two of the manager’s pooled funds. Alongside
these funds sits a separate account with a much
lower fee. “The idea with this is they pitch us
any trade or idea they have that they think is
value-add,” Barrett continues. MCA-held direct
investments have gained three times as much as
pooled funds in some cases, he says.
All these sub-funds and direct investments
are wrapped within the MCA, which has its own
“relationship fee”—1 and 20 in this case. At the end
of each year, the fees paid for the sub-funds are
compared to what the relationship fee would have
been, and any excess is rebated to the endowment.
Alignment of interests, lower fees, and access
to best ideas: Why aren’t more investors doing this?
“If you have board-driven investment selection,
an MCA doesn’t make sense,” Barrett says.
“The staff needs the hire-and-fire ability to make
decisions.” While Barrett first implemented MCAs
at San Bernardino County Employees’ Retirement
Association, he says it is often much harder
for corporate and public funds to embrace this
structure—though the idea might soon be taught
at Harvard, Barrett adds.
Barrett has introduced 12 MCAs into the
Texas Tech portfolio since taking charge in
2013 as part of a “complete restructuring” of the
endowment. At least 75% of the portfolio has
changed from the one he inherited when he joined
from Eastman Kodak. “I think the vast majority
of it is done,” Barrett says of the overhaul. “We
are now building—I’ve hired two deputy CIOs, so
the team has expanded, and I would say the talent
level of the team has dramatically expanded.”
Exhibit A: Forty Under Forty alum Robert
Lee joined from the Employees Retirement System
of Texas earlier this year, alongside Dan Parker
from the Helmsley Charitable Trust. Parker is
spearheading the endowment’s first move into
venture capital, while Lee is focusing on collateral
for the fund’s derivatives portfolio and real assets.
The trio aren’t finished. Future plans involve
a more direct approach to oil and gas, joint
ventures, and mineral rights, Barrett says. “A lot
involves closer partnerships with the people that
are doing the deals, and less in fund structures
over time,” the CIO concludes. Let’s hope the