Regents learn of investing's finer points

Board is trying to watch UT System's investors more closely

By Ralph K.M. Haurwitz
Wednesday, November 13, 2002

RICHARDSON -- Alpha transport. Mark to market accounting. Derivatives. Futures. Basis points.

The University of Texas System regents heard about these and other esoterics of investing at their session Tuesday in Richardson. The meeting, which took on the tone of an Investment 101 class, was not intended to turn the regents, some of whom have little business background, into financial experts. Rather, it reflected an emerging effort by the regents to more closely monitor the workings of their investment arm, the University of Texas Investment Management Co.

The "teachers" were Bob Boldt, president of the management company, and Cathy Iberg, who oversees certain investments for the company. The regents, like many of the students in the institutions they oversee, seemed engaged at times and bored at others.

The relationship between the regents and the management company has been rocky lately. Last month, the regents' finance committee grilled Boldt on his plan to alter investment strategies. Although the plan has been approved by the management company's board, the regents get the final say.

Tuesday's meeting was nowhere near as tense, although Charles Miller, chairman of the regents, peppered Boldt at times with questions about the mix of stocks, bonds and other assets in the $13.3 billion portfolio earmarked for the UT System, the Texas A&M University System and other state institutions.

Of that sum, $10.2 billion is in the Permanent University Fund and other endowment accounts. Those accounts are the focus of the management company's proposal to shift more money into hedge funds and derivatives, two asset categories that require sophisticated investment skills.

The regents had planned to take action on the proposal Tuesday. However, they decided to put off a decision until their February meeting to allow more time for additional committee meetings with management company officials.

"We're taking a more active role," Miller said. "But we're not second-guessing."

He said he was in general agreement with the management company's plan to increase its stake in hedge funds. Such funds are private investment partnerships whose managers use a variety of tools in an attempt to profit in any market environment.

The regents took no vote on the hedge fund plan or on the management company's recommendation to increase investments in derivatives, which are contracts, including some stock options, whose value is based on the performance of an underlying stock, commodity or other investment.

However, the regents extended a gesture of reconciliation to the management company, adopting a resolution expressing appreciation to its board for "dedicated and ongoing service." Three of the management company's nine board members are also regents.

The Board of Regents, with permission from the state Legislature, created the management company in 1996 to handle the details of investing. Boldt said his goal is to broaden the mix of assets and thereby raise performance into the ranks of Harvard, Yale, Stanford and other top university endowments.; 445-3604