UTIMCO Problems Aren't Bush's Fault

Austin American-Statesman
July 17, 2002, Wednesday

UTIMCO, the private investment arm of the University of Texas, has been beset with problems since it began operating in 1996.

It has been accused of questionable investments, conflicts of interest, operating in secret and keeping information about its investments from the public. But UTIMCO's stormy history has been of its own making, and George W. Bush, as president, governor, candidate and businessman, had very little to do with it. In a column on the opposite page, New York Times columnist Paul Krugman lays the blame for UTIMCO's missteps on Bush. Krugman says that as governor, Bush "changed the rules" governing investment of the Permanent University Fund endowment. But that's not the way it happened.

Former University of Texas Chancellor William Cunningham pushed the Legislature to allow UT more flexibility in its investments. In 1995, shortly after Bush became governor, the Legislature gave UT that authority. Bush signed the bill into law, but its inception predated him.

Krugman is right that the new law allowed UT's investment in private entities to remain essentially secret. But that was the fault of UT leaders and the Legislature, not the governor. Krugman goes on to say that Bush transferred the $9 billion endowment "to a nonprofit corporation known as UTIMCO that could make investment decisions behind closed doors." That's more power than a Texas governor has.

UTIMCO, the University of Texas Investment Management Co., was created by the regents to allow more private investment under the new law. Bush, as governor, didn't privatize the endowment or transfer its assets. The Legislature allowed it, and the regents created it.

Krugman says the money "was put under the control of UTIMCO's chairman: Tom Hicks," a Dallas financier who bought the Texas Rangers from the syndicate that included Bush and made him rich. Hicks, who was appointed by former Gov. Ann Richards, was accused of steering hundreds of millions of dollars in UTIMCO investments to friends and associates. Hicks denied the charge, but the UTIMCO board agreed in 1999 to be more diligent about conflicts and more forthcoming about its investment information. Hicks eventually stepped down as chairman.

Krugman's assertion that a UTIMCO employee who alerted auditors -- about what isn't stated -- was "summarily fired" isn't quite right either. Brian Borowski, a UTIMCO investment officer, resigned in 1996 after informing state auditors about a failed and questionable UT investment in the early 1990s, before UTIMCO existed and before Bush became governor.

Borowski said he was asked to resign over a confidentiality issue and reportedly received 18 months' salary as severance. He has since surfaced as an unofficial financial adviser to members of the State Board of Education.

And have UTIMCO's investments done "quite badly," as Krugman says? As of June 1, the PUF, the largest of UTIMCO's investment funds, had lost 2.3 percent. That's not any worse, and arguably much better, than many other investments in a climate in which Wall Street has lost a huge percentage of its equity.

As a businessman, Bush had the help of friends, as Krugman's column notes. And as governor and president, he has cultivated a penchant for secrecy that rubs many Americans like sandpaper. But to lay the creation of UTIMCO on Bush is a stretch that exceeds reality's grasp.

Bush's business dealings are questionable enough without making them worse than they are. And UTIMCO has been beset with problems, but they are hardly of Bush's making.