(August 17, 2011) — Citing concerns on euro-debt and inflation, Texas’s public university endowment has boosted hedging.
The drive to increase the use of more aggressive hedging at the university endowment comes after a study from the management company showed that the fund may lose a fifth of its value from a euro-region default or a crisis in the dollar. As the second-largest US college fund, the endowment has approved changes to let its managers at University of Texas Investment Management Co. (UTIMCO) spend up to 0.75% of assets on hedging risks, up from 0.25%, Bloomberg has reported.
“We are in a very uncertain investment environment,” Bruce Zimmerman, president of UTIMCO, said at the University of Texas System Board of Regents meeting today, according to the news service. “The lack of clarity of the direction is as opaque as many of us have ever seen.”
He added that only Harvard University’s $27.6 billion endowment, the largest for a US school, spends proportionately more on hedging among big collegiate funds.
Last month, the five endowment funds of the University of Texas — which total more than $20 billion — revealed that it had returns of about 20% for the 12 months ended June 30. The university’s endowments totaled $20.3 billion as of May 31.
Last year, the University of Texas made headlines when — amid fears and expectations of turbulent international financial markets and high inflation — it invested $500 million in gold, a commodity whose value usually only grows due to fears of inflation.
“The $500 million commitment in gold by UTIMCO was a tactical allocation decision made by management,” Zimmerman told aiCIO last July. “UTIMCO has been laddering in this exposure over a number of months. The investment in gold was a hedge against lack of confidence in financial assets due to lack of government fiscal and monetary discipline.”
Still, the fund’s gold purchase equated to a small fraction of its overall value.
Related article: The UTIMCO Bullion Buy: Prescient, or Political?
To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742