UTIMCO Freezes Private Equity Expansion

CEO/CIO Harris to renegotiate fees with endowment’s managers.

In the wake of rising valuations, the University of Texas Investment Management Co. (UTIMCO) will put its private equity investment expansion on hold.

After increasing the asset class to 40% of its $29 billion endowment, the largest US public university endowment does not plan to reduce or increase exposure to buyout or other private equity funds, according to Bloomberg. This is due to higher valuations and the potential need for liquidity in the event of an economic slump. Considering private investments require multi-year commitments, a crisis would prevent access to those funds.

“Whenever a correction occurs, we need to be strong hands,” UTIMCO President, CEO, and CIO Britt Harris told Bloomberg. “The endowment model is generally a good model but showed its Achilles’ heel in 2008 by not having enough liquidity.”

In an exclusive interview with CIO earlier this month, Harris alluded to his plans to look at private equity more closely.  In the coming months, Harris plans to renegotiate fees with the endowment’s managers, with the addition of hurdle rates to be met in order to earn performance bonuses. As Harris reviews each manager’s performance, he may choose to reduce the size of the portfolio’s management team.

“One of the things we need to do is get our compensation better aligned,” he said. “We will be making an assessment of the firms we want to go forward with.”

If the hurdle rates are met, the endowment’s outside fund companies will earn a 30% performance fee on net returns, while only a 1% management fee will be awarded to those unable to meet said rates. The “One or 30” model was developed by Harris at Teacher Retirement System of Texas, which he left for UTIMCO in June.

Harris is also adjusting UTIMCO employee compensation, basing it more on overall performance than specific asset classes.

UTIMCO’s investing arm manages an additional $12 billion of operating funds, bringing its total assets under management to more than $40 billion

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