1. How are donors' gifts invested?
Most gifts given to fund endowments are held in a pooled trust fund named the Long Term Fund (LTF). The LTF holds the assets of more than 6,500 private endowments established to benefit programs at the 15 institutions comprising the UT System. In order to take advantage of the lower unit costs, attractive investment opportunities, and broader diversification benefits available from a larger investment fund, the endowment assets in the LTF are invested in the General Endowment Fund (GEF), a broadly diversified mutual fund managed by UTIMCO, which was created by the UT Board of Regents in March, 2001.
The GEF operates very much like the typical mutual funds in which you might invest except that the GEF has only two participants, the LTF and the Permanent Health Fund (PHF). Individual endowments hold units in the LTF. The LTF, in turn, holds shares in the GEF, which represent undivided interests in the common stock, bond, and private equity assets comprising the GEF portfolio. The statements prepared by UTIMCO for all endowments in the LTF indicate values and distributions on a per-share and aggregate basis just as do typical mutual fund statements.
2. Who manages the LTF and GEF?
The University of Texas Investment Management Company (UTIMCO) is the investment manager for both the LTF and GEF. UTIMCO is an investment corporation dedicated solely to the management of investment assets controlled by the UT Board of Regents. UTIMCO was the first external investment corporation formed by a public university system. A board of directors consisting of three UT System Regents, the Chancellor of the UT System, and five outside directors with experience in investment management governs UTIMCO. This structure was designed to increase the level of investment expertise in the management of investments while preserving the fiduciary authority of the UT System Board of Regents. The UTIMCO staff includes specialists in accounting, finance, information technology, and administration as well as experienced and specialized investment professionals.
3. What are the overall investment objectives of the Funds?
The primary investment objective of the endowment funds is to meet the inherently competing needs of both current and future beneficiaries of the endowment funds. In order to accomplish this objective, returns on endowment assets must:
- Provide for current beneficiaries by allowing annual distributions to increase at a rate at least equal to the current rate of inflation so that current real purchasing power is maintained, and
- Provide for future beneficiaries by increasing the market value of endowment funds remaining after annual distributions at a rate at least equal to the rate of inflation so that future distributions may maintain purchasing power as well.
The current estimate of the annual future return necessary to meet these joint objectives is 8.1% per year.