UTIMCO chief took outside role without permission

Issue comes amid controversy between investment company, UT regents

By Ralph K.M. Haurwitz and Robert Elder Jr.
Sunday, April 18, 2004

Bob Boldt, the president of the University of Texas Investment Management Co., recently asked his company's board of directors for approval to serve on the board of another investment firm.

There was just one problem: Boldt was already a member of the other board.

The Endowment Fund LP, a Houston-based investment concern for wealthy individuals, filed documents March 10 with the Securities and Exchange Commission stating that Boldt has been a director since January.

Boldt, whose job at UTIMCO involves managing $16 billion in investments for the UT and Texas A&M systems and other state entities, said he wasn't aware of the filing until asked about it by the Austin American- Statesman.

He said he has been careful not to function as a board member or to accept any compensation pending approval from the UTIMCO board.

"I would say I'm not a board member because I have not acted as a board member," Boldt said. "They have filed a registration statement saying that I am. They have accepted me as a board member.

"I told them I would do it. but I had to get approval of the UTIMCO board. The timing should have been better here," he said. " It should have been sequenced better."

The UTIMCO board didn't take up the matter at its April 8 meeting because it was running behind schedule. Board members are expected to consider Boldt's request next month.

The issue comes at a discordant time for UTIMCO, which under Boldt has done better than ever before. In the past 18 months, its portfolios have earned $1 billion more than if they had simply matched benchmarks, such as certain stock or bond market indexes.

For the 12 months ended Feb. 29, the main university endowment, the Permanent University Fund, had its best return in history, 32 percent.

At the same time, Boldt has been the target of unrelenting criticism from Charles Miller, chairman of the UT System Board of Regents, to which UTIMCO ultimately answers. Miller has found fault with everything from UTIMCO's increasing investment in private investment vehicles such as hedge funds to what he considers excessive compensation for Boldt and his team.

Miller said last week that he doesn't like the idea of Boldt serving as a director of another company.

"He's got a primary duty to UTIMCO," Miller said. "I think there could be times you have a duty to both places. I don't think you should have that in the investment world."

Boldt said he ran the proposal past UT System officials, including Chancellor Mark Yudof, earlier this year and "they didn't have any problem with it."

As for Miller's view, Boldt replied, "He's entitled to one opinion on the Board of Regents. The Board of Regents doesn't decide if I can be on this board. The UTIMCO board does."

Woody Hunt, a UT regent and chairman of the UTIMCO board, said he favors Boldt taking the job, which he said will enhance Boldt's expertise on investing.

"From my perspective, it should be noncontroversial and relatively routine," Hunt said.

Hunt added that the presidents of various UT System institutions are directors of for-profit and nonprofit organizations. "That's the kind of (experience) the Board of Regents wants to see by our component CEOs," he said.

But Hunt acknowledged that the issue has emerged in an inflamed environment.

Miller, who has been a critic of UTIMCO for many months, named a working group in February to evaluate the company's structure and operations. The report is expected to be completed in time for a special regents' meeting April 29.

The working group itself has become a flash point, however. At the April 8 UTIMCO board meeting, Charles Szalkowski, the Baker Botts LLP lawyer in charge of preparing the report, said the working group really needed more time but was under orders from regents to get it done by April 29.

Yudof, a UTIMCO board member, said through his spokesman he would reserve his comments about Boldt's role on the outside board until the UTIMCO board meets in May.

James Westphal, a professor of management at UT who studies corporate governance, said it's unrealistic to bar seasoned investment managers such as Boldt from service on outside boards.

"I worry that if we constrain individuals like him too much, we're going to lose their expertise at institutions where expertise is somewhat scarce to begin with," Westphal said. "I think the critical question is what sort of decision-making process UTIMCO goes through to decide whether that appointment is acceptable. If it's a rubber stamp, that's a problem."

As UTIMCO's president, chief executive officer and chief investment officer, Boldt makes $450,000 a year plus bonuses. The Endowment Fund would pay him up to $15,000 a year, plus $500 for each board meeting he attends.

Boldt said the advantage of outside board service, for him and UTIMCO, is that it would widen his circle of contacts. Other Endowment Fund directors include Mark Yusko, chief investment officer for the University of North Carolina at Chapel Hill, and Scott Wise, vice president for investments and treasurer at Rice University.

Boldt said he would also have dealings with people UTIMCO might want to hire as outside money managers.

"It's all done on my personal time," Boldt said of his role. "Any preparation is also done on personal time. That's my agreement. I don't think it impairs my ability here at all."

Haag Sherman, a partner in the investment firm Salient Partners in Houston, which owns part of the Endowment Fund, said Boldt is not "running this fund."

"He's in a governance role," Sherman said.

Sherman said the new fund is a way to let individuals invest in the strategies employed by Boldt and other top endowment managers, which include minimizing losses in down markets. For example, Sherman said, the fund returned 1 percent in March compared with the S&P 500 Index of U.S. stocks, which was down 1.6 percent.

The minimum investment is $100,000, but Sherman said the fund hopes to lower that over time.

The fund has attracted $190 million in assets and is adding between $20 million and $30 million a month, Sherman said.

Boldt conceded that he has not asked the Endowment Fund to make a new SEC filing to show he is not on its board.

"I probably should," he said. "That'd be easy enough to do, and it might make sense."

He added: "This will be resolved soon. I can't hunker down in a corner and stop doing things, either here at UTIMCO, or what I'd do professionally on my own time. I would have rather it worked out perfectly, but I'm not being just frozen in time by what's going on."