As of August 31, 2002, the UT Board was the fiduciary for four major endowment fund groups with a combined value equal to $10,205.6 million. Effective March 1, 2001, two of the fund groups, the Permanent Health Fund (PHF) and the Long Term Fund (LTF), contributed their investments to the General Endowment Fund (GEF) in exchange for unit ownership in the GEF. The creation of the GEF has increased efficiencies in managing investments, reduced costs, and streamlined reporting. The GEF is not included in assets under management since its investment value is included in the net asset value of the PHF and the LTF. However, since the GEF is the investment vehicle for the PHF and the LTF, the GEF's investment strategy and results are integral parts in evaluating the PHF's and the LTF's investment performance. A section of this report has been devoted to the GEF.
The UT System and other institutional beneficiaries of the endowment funds managed by UTIMCO provide educational and health care services for the State of Texas. The ability of these institutions to provide quality services throughout the next century will depend on the maintenance of long-term financial equilibrium by these institutions. Maintenance of such equilibrium requires, among other financial objectives, the preservation of endowment purchasing power. Endowment funds are permanent funds by their nature with the result that endowment purchasing power must be preserved in perpetuity. The endowment must provide future generations the same level of economic support for scholarships, teaching, research, and other educational programs as it provides today.
The preservation of endowment purchasing power for both current and future beneficiaries requires the simultaneous achievement of two contradictory objectives:
- provide for current beneficiaries by increasing the annual distribution at a rate at least equal to the rate of inflation so that real purchasing power is maintained, and
- provide for future beneficiaries by increasing the market value of endowment funds after the annual distribution at a rate at least equal to the rate of inflation so that future distributions maintain purchasing power as well.
These objectives are inherently contradictory because higher annual distribution rates reduce the endowments' ability to grow over time.