Bruce Zimmerman

Students at the University of Texas are always willing to voice their beliefs, and those voices often lead to real, material changes in the world. 

Student-led groups and Student Government work together to express concerns, but as a student body, we have the duty to make sure our speech is valuable, relevant and warranted. UTDivest and the language of the pro-divestment AR 3 represent a scenario where UT students are speaking out on issues beyond their level of responsibility.

SG is responsible for both representing the student body and allocating resources on behalf of that body. It serves as our collective voice, and as such, can speak for whom we want to manage our endowment. 

Picking an investment manager is no easy task, but the University of Texas Investment Management Company has done a stellar job managing the second-largest endowment in the US. Portions of our more than $25 billion are carefully invested in over 2,000 public equities like the ones mentioned in AR 3: Cemex, HP, Proctor & Gamble, etc. (embedded below) This is done through a Fund-of-Funds model, meaning UTIMCO allocates the endowment to a number of third-party investment managers, who then select equities to buy.  UTIMCO itself does not directly buy and sell equities with endowment money, according to Bruce Zimmerman, UTIMCO’s CEO and Chief Investment Officer.  This management style is common to large endowments due to the amount of resources needed to allocate billions of dollars.  Because the decision to divest lies with third party managers and not UTIMCO, AR 3 is misdirected and represents a misunderstanding of how our endowment is managed.

As a student body, our responsibility is to make sure our endowment rests in the hands of a manager who will carefully and effectively grow the fund over its lifespan. As students who are not industry-trained investment managers, we are not responsible for evaluating third party managers and their individual investment decisions.

The UT System maintains a Board of Regents that oversees the selection of management and supervises high-level decisions for the University and the other System campuses. However, their responsibilities do not include micromanagement. The Board does not decide what classes will be offered next semester, which textbook a professor issues for a class or which video is shown in that class. 

Because the Board does not have all of the relevant information to make lower-level decisions, it is in their best interest to find managers to make those decisions instead.

Similarly, it is not in students’ best interest to try to micromanage UTIMCO by telling it which managers to use and which companies to invest in. Rather, they can help find qualified professionals who can understand the nuances of managing investments. These managers have a responsibility to ensure their portfolio companies are ethically operated in ways that are not overtly harmful to any group of people. This responsibility is dutifully carried out through meaningful analysis.

Investment managers go above and beyond to vet every single equity. This includes multiple weeks of intense company research and financial valuation modeling. 

Students simply do not have the necessary time to read company filings or complete the extensive due diligence needed before making multimillion dollar investments. UTIMCO and third party managers have access to information students do not, and therefore can make more informed decisions on whether a company is worth investing in. 

Students need to acknowledge an investment management company is not the place to make a political statement and understand UTIMCO makes deliberate decisions using the best information it can compile.

Stepping back from an investment manager’s perspective, students who feel passionately about either side of the political debate should take a closer look at companies that are operating in Israel and the economic benefit they provide to Palestinians and Israelis alike.

For example, metalworking company ISCAR, owned by publicly traded Berkshire Hathaway, employs 3,000 Israelis, of whom half are Arab. ISCAR’s founder, Israeli Stef Wertheimer, was awarded the Oslo Business for Peace Award in 2010 for his efforts to use manufacturing facilities to unite Israelis and Arabs. 

Over 20 percent of Intel’s international property, plant and equipment are centered in Israel, and wages from those operations flow into the economies of both Israel and disputed territories. 

These are companies who bridge the political divide and promote cooperation and mutual economic gain. Divestment from these beneficial industries would not just be a vote against cooperation but a vote that would directly harm the Palestinian economy.

No company is perfect, and that fact cannot be disputed. But it is UTIMCO’s job, not the UT student body’s, to make this determination. Student Government should oppose AR 3 not for political reasons, but because the legislation speaks on behalf of students who are not qualified to micromanage more than $25 billion. The Board of Regents votes on managers, not stocks, and Student Government should do the same.

Johns is a business honors and finance sophomore from Fort Worth. Stein is a business honors and finance sophomore from Houston.

Report PUF


Bruce Zimmerman, CEO of UTIMCO, met with UTIMCO board members Thursday morning. The conference covered topics such as UTIMCO investments and how foreign oil activities may affect the University’s endowment and the Permanent University Fund.
Photo Credit: Griffin Smith | Daily Texan Staff

University of Texas Investment Management Company officials released a report Thursday detailing the effects of falling oil prices on the Permanent University Fund (PUF). 

The PUF is an endowment containing 2.1 million acres in West Texas that was created by the Texas Constitution in 1876 to benefit the UT and Texas A&M University systems.

According to Mark Warner, managing director of natural resources investments, falling oil prices over the course of the last four months slightly hampered the assets UTIMCO manages, which total $34.5 billion. Domestic oil prices declined by 60 percent from a peak in late April 2014 before bottoming out in late November 2014. However, over the five months, the endowment maintained a return of 4 percent.

Bruce Zimmerman, UTIMCO chief executive officer and chief information officer, said the investments made under UTIMCO are made safely to protect the funds that support the UT System schools.

“Our first line of defense is a diversified portfolio because, generally, not everything is going up at the same time, and, generally, not everything is going down at the same time,” Zimmerman said.

Zimmerman said falling oil prices from April to November could actually help raise the endowment’s value.

“Our best guess, our best projection, is that the supply shock — excess supply, lower prices — is actually a slight positive for the endowment,” Zimmerman said. “Now, it’s clearly a negative for the energy industry, clearly a negative for the state of Texas … but this really gets at around 10 percent of our exposure is in energy; 90 percent is outside of energy.”

Zimmerman said only 10 percent of the total investments made by UTIMCO are in the energy industry. The other 90 percent of investments are made in sectors of the economy that ordinarily improve when oil prices decline. For consumers, lower oil prices mean cheaper gas, cheaper goods and more spending money to stimulate the economy.

“Our investment returns, we think, will be slightly helped by the reduction in oil because there are more consumers than producers, and the consumers get a benefit,” Zimmerman said.

Warner, the managing director of natural resources investments, said he looked at the correlation between the value of the energy portfolio, the investments in the energy industry and the price of oil. The report established that, when the price of oil drops, the value of the portfolio drops 10 percent of the price. 

Warner said he has watched the energy industry’s downturn closely.

“What I can tell you is that we’ve looked back at history, particularly the ’08-’09 time frame, and this is historic by any measure,” Warner said.

According to Warner, lenders are more willing to make investments in the current economy because it is much healthier than it was during the 2008 recession. Warner said this makes him feel optimistic about the energy portfolio’s future value.

“We’re hoping our partners are able to be opportunistic; this way, they have the money to do it,” Warner said. “We’re very encouraged by where we are in the cycle and by the partnerships that we have.”

The UT System will further consider divesting funds from Russia as relations between the U.S. and the Russian governments worsen because of conflict in Ukraine, according to System officials.

At a Board of Regents meeting on Sept. 15, Regent Alex Cranberg brought up the possibility of divesting from Russia.

“It is important because Russia is threatening the USA through NATO,” Cranberg said in an email. “As President Obama has said, Putin has ripped up the ‘rule book.’ He is resurrecting the national and ethnic rivalries, which were so devastating to the 20th century.”

The University of Texas Investment Management Company, or UTIMCO, has about $200 million invested in Russia currently, according to Bruce Zimmerman, CEO and chief internal officer of UTIMCO. Zimmerman said this is a relatively small amount of money compared to the $35 billion the organization has invested in other parts of the world. 

“Divesting from Russia, in and of itself, would not necessarily be an overly significant event,” Zimmerman said at the meeting in mid-September. “The larger concern I think would be if we did begin putting in changes to the investment policies related to political and or social issues, then there could very well be a substantial domino effect.”

In an interview Thursday, Zimmerman said it is the System’s policy that UTIMCO make investments based upon economic factors and not to become involved in political situations. Zimmerman said many companies and organizations participate in divestment movements to make a political statement, such as the Rockefeller family, who is planning to divest $860 million of its charity out of fossil fuels to try and fight climate change.

“Once you decide there is one political or social issue that merits an investment decision, where does the list end?” Zimmerman said. “The context of all this is if you make economic decisions based on noneconomic reasons, there’s an economic cost.”

The regents have agreed to continue discussing the divestment issue at future board meetings.

“There comes times in the Board’s life and in the nation’s life that we may need to take a look at some of these things,” Regent Gene Powell said at the meeting in September. “I would encourage us not to foreclose in considering these items.”   

Zimmerman said if the System does decide to divest from Russia, UTIMCO would be selling $40 million of its private equity below market price.

“If we were to try to sell that position today, we might only get about $20 or $30 million for it, so there would be an immediate cost,” Zimmerman said.

Cranberg said the System should not make investment decisions based on matters of personal choice, such as opinions on alcohol or tobacco, or based purely on the domestic policies of other countries. 

“Our policies as a public investment vehicle should be based only on maximizing legal returns for our students and mission, other than factors materially affecting the security of the United States and our armed forces,” Cranberg said.

Decreasing international crude oil prices may affect the money available to the UT System, according to Bruce Zimmerman, CEO and CIO of the University of Texas Investment Management Company.

From June 2012 to June 2014, the market value of the Permanent University Fund, or PUF, increased from $13.1 billion to $17.2 billion, according to reports from UTIMCO, the organization that invests money for the System.

The PUF is an endowment containing 2.1 million acres in West Texas that was created by the Texas Constitution to benefit the UT and Texas A&M University systems. The proceeds from the sale of oil, gas, sulfur and water royalties are invested in the form of stocks, bonds and equity interest to establish the Available University Fund, or AUF. Two-thirds of these funds go toward the UT System, and one-third goes to the Texas A&M system.

Scott Kelley, executive vice president for business affairs at the UT System, said the PUF’s market value grew as a result of increased oil production in West Texas.

“The new technology and horizontal drilling and the ability to extract oil and gas from some of the shale that’s out there has just created a whole new wave of production,” Kelley said.

In August, United States crude oil production averaged an estimated 8.6 million barrels per day, the highest monthly production recorded since July 1986, according to a report from the U.S. Energy Information Administration. The report also said demand for oil in industrialized economies is weakening, which may be causing oil prices to drop.

As the price of oil declines, Zimmerman said the revenue contributed to the PUF is also affected.

“Rising oil prices means more money coming into the endowment,” Zimmerman said. “Falling oil and gas prices mean less revenue.”

While the government report shows declining prices, Kelley said the market price for oil has remained steady for a number of years between $80 and $100 a barrel, allowing for an increase in production.

“If it were to drop to $50 a barrel or do something dramatic, then the drilling would likely be curtailed and even some of the production may stop,” Kelley said.

Zimmerman said even though the revenue from West Texas oil affects the PUF, UTIMCO does not invest heavily in natural gas and oil companies, making it less susceptible to the volatility of oil prices.

“We have a very diversified portfolio,” Zimmerman said. “It’s diversified globally. It’s diversified across stocks, bonds and real assets. It’s diversified across private equity and public equity [and] hedge funds. We have a relatively small amount of the endowment invested in oil and gas.”

Zimmerman said about 10 percent of PUF funds are invested in natural resources across the globe. He said UTIMCO tends to invest most heavily in stocks, since the System endowments are meant to last for an indefinite period of time.

“The biggest impact on the investment returns is whether the stock markets are going up or down,” Zimmerman said.

After 11 years of war, human rights violations and genocide, the conflict in the Sudanese region of Darfur persists. A brief cease-fire brought temporary peace to the area, but 2014 has ushered in a flare-up of atrocities in the region. The International Criminal Court has charged Omar al-Bashir, the current president of Sudan, with three counts of genocide

That genocide has claimed the lives of 400,000 Sudanese and displaced millions more, yet, despite international outcry against the atrocities in Sudan, the UT System continues to maintain its financial holdings in companies involved in Sudan — companies that contribute to the country’s genocide.

The University of Texas Investment Management Co., known as UTIMCO, manages the System’s $20 billion endowment. According to a 2011 Texas Observer article, roughly $5 million of the endowment is invested in companies that have directly helped contribute to Sudanese genocide (although that number may have changed since then). Companies on the list include PetroChina, which has bought oil from the Sudanese government, thereby indirectly contributing to the state-sponsored slaughter of non-Arabs in the Darfur region, and Dongfeng Motor Co., a company that has sold military equipment to Sudanese militias. 

UTIMCO’s dirty investments have led me to start Texans Against Genocide, a group founded with the intention of trying to get UTIMCO to draw the line at genocide, an incontrovertibly bad thing.

Bruce Zimmerman, the chief executive officer and chief investment officer of UTIMCO, is clearly good at the financial side of his job. He has grown the endowment tremendously, and as of 2011 he has regularly beaten general market returns. Regardless, good business doesn’t make good ethics.

Zimmerman declined to comment for this piece.

Zimmerman has said in the past that UTIMCO doesn’t “take social or political concerns into account.” He has said that factoring social responsibility into UTIMCO’s investment could lead to a slippery slope of investment restrictions that could potentially hurt the fund.

Zimmerman told the Observer in 2011, “What you’ll learn in Econ 101 is any externality has an economic cost. That’s not a presumption. It’s an economic reality.”

Zimmerman is right. Taking ethics into account does make investing harder but does not make it impossible. In the last decade, several universities, including Harvard, Stanford and Yale, among others, have divested or eliminated their holdings from companies linked to the genocide in Sudan. These colleges have endowments comparable to UT’s, and show that an endowment can still thrive while making ethically sound investments.

Moreover, the logic that a business’ sole responsibility is to make a profit, irrespective of its social or ethical cost, is riddled with problems. Ostensibly, we hold human beings to a general set of normative ethical and social standards. We expect people to respect our autonomy and not to hurt us or do generally bad things. The idea that a group of people working together to make money is somehow exempt from these standards doesn’t make sense. If I personally gave a government committing genocide millions of dollars and military supplies, you could call me a bad person. UTIMCO participating in these sorts of investments for the betterment of the UT System doesn’t absolve it from this. It just makes it opportunistic.

Obviously, issues like this aren’t cut-and-dried. If UTIMCO is forced to invest in accordance with sound ethics, the group could lose out on potentially lucrative investments. But while investment in morally gray areas, such as tobacco and fossil fuels, is up for debate, an investment in genocide is not.

We can avoid Zimmerman’s slippery slope by making it clear that we draw the line at mass murder. Right now, the UT System doesn’t draw the law line anywhere. Until it does, it implicitly supports genocide.

Breland is a Plan II senior from Houston and the president of Texans Against Genocide, an organization founded in the interest of getting UT to divest its endowment from corporations that fund or facilitate genocide.

UT System endowment assets hit a new high at the halfway point of the current fiscal year with a combined worth of $21.7 billion on Feb. 28, according to documents from the University of Texas Investment Management Company’s most recent meeting.

The Permanent University Fund, a public endowment made up of 2.1 million acres of land located in West Texas, earned 8.4 percent in investment returns in the latest 12-month period ending in February. Meanwhile the General Endowment Fund, largely made up of donations from alumni and others, earned 8.5 percent in investment returns over the same period, according to UTIMCO CEO Bruce Zimmerman. UTIMCO is the nonprofit corporation that oversees the UT and Texas A&M systems’ investments. 

Zimmerman said he hopes investment returns on the endowment continue to increase, but stressed the importance of taking a long-term view when gauging the returns’ success.

“We certainly hope there will be gains, and we actually hope to make more than what gets distributed [to the System],” Zimmerman said. “Specifically with respect to investment returns, what we will expect is ups and downs, because we are in a period of volatility in capital markets.” 

According to figures Zimmerman provided, the various funds managed by UTIMCO have grown overall in the last 10 years. For the 10-year period ending Feb. 28, the Permanent University Fund’s returns hovered at an average of 9.1 percent growth annually, while the General Endowment Fund had an annual average return of 9.2 percent over the same decade. 

Although UT’s on-campus smoking ban will be fully implemented in March, a portion of the University’s endowment is invested in more than a dozen tobacco companies. 

The University of Texas Investment Management Company, or UTIMCO, is a nonprofit corporation created by the UT System to oversee UT and Texas A&M systems’ investments. 

UTIMCO holds equity and debt securities in several companies including British American Tobacco, Imperial Tobacco Group and Philip Morris. The company holds more than 250,000 security shares in tobacco equity securities, which combined hold a value of more than $9.5 million.

UTIMCO CEO Bruce Zimmerman said the company, which ultimately follows the investment policies set by the UT System Board of Regents, does not take anything other than economics into account when making investment decisions.

“The investment policies explicitly state that UTIMCO will not take into account political or social considerations in making investments,” Zimmerman said. “We only take into account the economic factors surrounding the decision.”

Zimmerman said that UTIMCO’s goal is simply to focus on profits.

“Our job is to generate returns so that we can provide more resources to all the institutions in the UT System, so that students and professors can get their educations and do their jobs,” Zimmerman said. “They’re free to pursue any social or academic cause they want to pursue.”

In 2011, Student Government and the Graduate Student Assembly both passed resolutions recommending a policy change written by a group called Longhorns for Investing Responsibly. The proposal recommended that UTIMCO “[consider] investments in line with its values.”

Zimmerman said such a change is unlikely, especially because there are an unlimited number of political causes that might appeal to a person’s set of values at any given time.

“There have always been, there continue to be, and there always will be a long list of social and political considerations that people care about,” Zimmerman said. “If we were to take those considerations into account, there would be a cost to that, and we would generate less resources for the University System.”

William Charlton, senior lecturer and associate director of UT’s Center for Private Equity Finance, said when sales for a product remain consistent regardless of economic circumstance, the demand is considered inelastic. Tobacco is one such product.

“In an inelastic demand case, when price on a product goes up, quantity doesn’t change, or at least changes much less than the increase in price,” Charlton said. “People will pay large amounts of dollars to continue to smoke.”

Charlton cited anti-smoking laws in New York, which apply a tax of more than $5 to every pack of cigarettes sold, as an example.

“Even with the $5 tax, there is still substantial demand for the product,” he said.

Given the inelastic demand for tobacco products, Charlton said it makes sense that some would consider tobacco products an ideal candidate for investment.

“Even in a negative economic growth environment, people will still be willing to buy cigarettes,” Charlton said. “Even in difficult economic times, you will still have substantial demand, and that’s what makes for an attractive investment.”

Published on January 25, 2013 as "Endowment invested in tobacco companies". 

News Briefly

University of Texas Investment Management Company’s board of directors gave $5.1 million in bonuses to 30 employees Tuesday, citing high investment returns that raised the Permanent University Fund asset values by $1 billion this year.

The Permanent University Fund manages royalties of 2.1 million acres of West Texas land owned by the UT System and each year, UT and Texas A&M University receives a small percentage payout of the PUF. The payout funds enhanced academic programs, the Center for Technology Commercialization and library services at UT.

Bruce Zimmerman, UTIMCO’s chief investment officer and CEO, said the company’s efforts to hire the best money managers paid off after they outperformed their market counterparts. But the extra compensation UTIMCO distributed to its employees is very small compared to what a private investment management company would provide, Zimmerman said.

“The incentive compensation represents less than one-half of 1 percent of the value added,” he said. “As a contrast, a hedge fund manager typically gets 20 percent of the value added.”

He said the investment specialists who benefited from the bonus ranged from individuals with undergraduate degrees and few years of work experience to senior management. Of the $5.1 million bonus, Zimmerman was awarded $1.15 million, double his normal salary.