1. How are donors' gifts invested?
The University of Texas System (UT System) is the fortunate recipient of more than 8,500 private endowments and other long-term funds benefitting the 15 institutions comprising the UT System. In order to achieve broader diversification benefits, access to world-class investment managers and opportunities, and lower unit costs, most gifts to the UT System are invested through pooled investment funds into over 150 investment mandates and general partnerships. Individual gifts are generally commingled into the Long Term Fund (LTF) which, in turn, is invested in the General Endowment Fund (GEF) together with the Permanent Health Fund.
The GEF operates very much like typical mutual funds in which you might invest. 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 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 System 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, one of whom is recommended by the Board of Regents of The Texas A&M University System, 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 is the overall objective of the Funds?
The primary objective of the endowment funds is to meet the competing needs of both current and future beneficiaries of the endowment funds. In order to accomplish this objective, returns on endowment assets must:
1. 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
2. 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 8.2% per year.