Texas A&M Investment Management Company (UTIMCO) is the institution that manages the endowment funds for multiple Texas public universities. Recently, UTIMCO’s board decided to increase the allocation to private equity and infrastructure while decreasing public equity exposure. This move aims to achieve higher expected returns for the endowment funds. UTIMCO oversees around $68 billion in assets, with the vast majority coming from donations and endowments. The decision aligns with global trends of endowments increasing alternative asset classes like private equity and infrastructure.
UTIMCO manages one of the largest public university endowments in the US
UTIMCO was founded in 1996 to consolidate and streamline the management of endowment assets for Texas public university systems. It manages the Permanent University Fund, the Long Term Fund, and other endowment assets totaling around $68 billion as of 2022. This makes it one of the largest pools of endowment assets for public universities in the United States. UTIMCO utilizes a diversified portfolio across asset classes like public equities, fixed income, real assets, private equity, hedge funds and more to generate returns.
Allocation changes approved by the board aim for higher returns
In a board meeting last week, UTIMCO approved several asset allocation changes that will take effect in September 2023. The public equity target will decrease from 35% to 27%, while the private equity target will increase from 25% to 30%. Exposure to infrastructure will also rise. According to UTIMCO’s CEO, these changes are expected to increase the overall return profile of the endowment funds. Many endowments have been increasing private market exposure to boost returns in the low yield environment of recent years.
Endowments saw rollercoaster returns over the past two years
Endowment returns have seen huge swings in the past two years. In 2021, the median return for endowments was a staggering 30.1%, according to a joint report. UTIMCO’s funds also returned around 32% in fiscal year 2021. However, 2022 brought negative returns for many endowments. UTIMCO’s permanent university fund and long term fund both declined over 6% in fiscal year 2022, amid volatility in public markets.
New asset allocation changes to take effect in September
Along with increasing private equity and infrastructure, UTIMCO’s board approved reducing exposure to natural resources and TIPS. The maximum allocation to illiquid assets for each endowment fund will rise from 70% to 75%. These changes exemplify how endowments are pivoting portfolios in the hopes of enhancing returns in the years ahead. With its specialized expertise and oversight, UTIMCO is positioned to effectively implement this new asset allocation.
UTIMCO’s move to increase private equity and infrastructure exposure for its endowment funds follows a global trend of endowments tilting portfolios towards alternative investments. This reallocation aims to improve the risk-return profile of the endowment funds and generate higher long-term returns to fulfill their mission.