In the eye of an investment storm ups and downs of managing universities' portfolio don't faze financier
By Ralph K.M. Haurwitz
Monday, September 30, 2002
It's been a bumpy ride lately for Bob Boldt, who oversees $13.3 billion in assets for the University of Texas System and the Texas A&M University System.
First, news reports revealed that he was withholding performance data on individual private investments. Then, the chairman of the UT Board of Regents and the UT System chancellor declared that such data should be released, that the post-Enron climate demanded openness. Boldt had to backpedal like an outfielder trying to catch an unexpectedly deep fly ball.
It had to sting, but you couldn't tell by outward appearances. In 30 years of investment management, Boldt has coped with the pressure-cooker politics of the California Public Employees Retirement System -- the nation's largest public pension fund, where he was a senior investment officer -- as well as with the zigs and zags of running a hedge fund.
Boldt's bosses, the board members of the University of Texas Investment Management Co., a nonprofit that answers to the UT regents, voted unanimously Sept. 18 to release the performance information that he had previously withheld.
Two days later, Boldt's mood matched his dress -- relaxed, with slacks and an aqua Polo shirt -- as he reflected on the most significant challenge he has faced since moving into the glass-walled corner office of UTIMCO's suite on the 17th floor of the Bank One Building downtown in April.
After all, life could be worse. As president, chief executive officer and chief investment officer, Boldt makes $400,000 a year and could rake in up to $360,000 more in bonuses if the board likes his performance. He owns a house on Lake Austin -- no small joy for an accomplished waterskier. He relishes the challenge of juicing up returns for endowments that have posted mediocre long-term records. He even gets two free tickets to each Longhorns home football game.
Moreover, this job, in this town, is something of a homecoming. Boldt married his wife, Paula, here 30 years ago and earned a bachelor's degree in engineering and a master's degree in business administration at UT. He's a native of San Antonio.
Boldt is enough of a diplomat to concede that Chancellor Mark Yudof and Charles Miller, chairman of the regents, took the moral high ground in demanding transparency on private investments, in which money is placed into partnerships that invest in emerging companies, leveraged buyouts and other holdings that are not publicly traded.
He's enough of a money manager to assert that this could come at a price: Private deal-makers don't like to reveal performance figures, and some of them might not want to do deals with the investment management company in the future.
And Boldt is enough of a company man to defend UTIMCO's history of flip-flopping on the question of opening its records, even though some of those decisions predated his arrival.
"Frankly, I wish we could have worked in a little more orderly manner to get this worked out," Boldt said. "The timing was such that we really needed to act now. I think in the long run what we did is the right thing. I think in the short run it's going to create a little more difficulty for us."
Boldt, 52, with thinning hair and a ruddy complexion, brings an enthusiastic yet smooth style to managing a pot of money that, among university endowments, is exceeded only by Harvard's and Yale's. The investment management company's board chose him in February to replace Tom Ricks, who took a job in the private sector. Boldt previously was managing director of Pivotal Asset Management, a San Francisco hedge fund firm.
As Boldt sees it, there are two types of investment managers: architects and stonemasons. Architects design the strategy and structure. Stonemasons get into the trenches and cut deals. He's an architect.
Boldt has shuffled his 30-member staff, elevating a few people and reassigning others. His long-term strategy is to focus on the sorts of investments where shrewd selection of outside managers can make a substantial difference in returns: venture capital and other private investments; hedge funds; international stocks; inflation-hedging investments such as real estate and oil; and the small-capitalization sector of the U.S. stock market.
Authorized by the Legislature in 1995 and established by the UT regents in 1996, UTIMCO was the first external investment corporation formed by a public university system. The assets it manages were previously overseen by the UT System. The goal was simple: Secure higher returns by putting professional money managers in charge, much like Harvard, Stanford and other private universities had done.
The strategy appears to be working.
The management company has outperformed the majority of foundations and endowments in the United States in the quarter that ended June 30, the past year and the past three years, according to an analysis by Cambridge Associates, a consulting firm that tracks endowments. The endowment's five-year record is middle-of-the-road, and the 10-year record is well below average.
Doing well during the recent economic downturn means losing less money than the other guy.
For example, the Permanent University Fund, one of four endowment funds managed by UTIMCO, declined 7.4 percent, to $6.7 billion, in the year that ended Aug. 31. The Standard & Poor's 500 Index, a widely used stock market benchmark, lost nearly 18 percent during the same period.
Private investments, not surprisingly, have been more volatile, losing 15.4 percent in the past year but posting an annual average gain of 12.4 percent since 1983, when the private portfolio was initiated.
Corporate accounting scandals have punished some of the securities managed by UTIMCO.
The biggest loss so far: WorldCom Inc., to the tune of $86 million, although Boldt hopes to recover 30 cents on the dollar in bankruptcy proceedings. "We're at the top of the food chain as far as creditors go," he said.
UTIMCO also lost $1.9 million in the Enron Corp. flameout.
Charges of crony capitalism and inadequate disclosure have dogged the management company almost since its creation.
Newspaper reports in 1999 raised questions about the company's growing portfolio of private investments. It had invested in a number of funds run by friends and associates of Tom Hicks, a financier in Dallas perhaps best known as the owner of the Texas Rangers baseball team. At the time of those investments, Hicks was chairman of UTIMCO and a UT regent. UTIMCO had also purchased stakes in private funds run by major Republican donors.
Hicks is also the person who helped make George W. Bush rich, by purchasing the Rangers from a syndicate that included Bush. The transaction, while Bush was governor of Texas, turned Bush's $600,000 investment into more than $14 million.
Although UTIMCO denied any impropriety in its private portfolio, the board adopted a three-pronged pledge of openness in March 1999. It promised to ask the general partners who oversee the private investment partnerships to disclose the names of individual principals, or investment managers. It said it would not enter into new deals unless the principals' names could be disclosed. And it promised to release performance data on each private investment.
UTIMCO kept its word until October 2001, when the board adopted a new resolution that effectively withdrew one of the three promises. The new resolution repealed the earlier one and pledged compliance with the Texas Public Information Act, which had been amended by the Legislature to allow withholding of financial information if disclosure would cause "substantial competitive harm."
UTIMCO had been subject to the information act since 1997. The upshot of the October resolution was that the organization continued to release the names of principals but withheld the returns and remaining value on individual private investments.
In short, the October resolution effectively withdrew the organization's pledge to be more open than the information act requires. The state attorney general's office upheld the withholding of investment performance information in several cases.
News reports earlier this month revealed UTIMCO's revised policy and prompted the UT chancellor and the chairman of the regents to weigh in on the side of transparency.
"I'm a mattress guy. I don't understand stock markets," said Yudof, who became chancellor Aug. 1 and by virtue of that position also serves on the nine-member UTIMCO board.
He described his discussion with Boldt on the issue of disclosure as a debate: " `Argument's' too strong. I think we have good leadership from Bob. I'll leave it up to you to decide if we didn't follow through from 1999. But by God, we will follow through this time. It's the public's money."
Boldt defended the October 2001 resolution as a move to clarify matters, noting that the California pension fund, which disclosed performance figures on private investments for a time, stopped doing so before UTIMCO suspended the practice.
The problem is that the performance figure for a private investment, known as the internal rate of return, can be misleading, Boldt said. Although the figure is calculated by UTIMCO, it is based on numbers supplied by the general partners -- and those partners have wide discretion in valuation. Two investments with sharply different internal rates of return could actually be performing about the same, Boldt said.
Damon Manetta, a spokesman for the National Association of College and University Business Officers, said he did not know of any other endowment releasing private investment performance figures.
"Certain limited partnerships require a nondisclosure agreement to participate in the fund," Manetta said. "If somebody like Texas requires disclosure, it may limit the choices of funds they can participate in."
Boldt agrees. He's planning a series of goodwill missions -- primarily to California, New York and Boston -- during the next three months to meet with the 76 general partners managing the portfolio of private investments.
"This industry is resistant to change," Boldt said. "We're trying to prevent this from becoming some sort of big cause we have to fight later by talking about it now.
"We will have to explain why we're still a good partner and why disclosure is in their best interest as long as it's done intelligently. It's a myth that the better partnerships are beating on our door to get in. We have to proactively seek those people out and convince them that we would be a good partner for them to have.
"We're also probably going to have to look at less well-established partnerships," he said, "the ones that don't have tremendous market power. It's going to require more skill on our part to identify the next big stars in the private equity world."
Although he blinked on the disclosure issue, Boldt has played hardball at other times in his career.
In 1998, he led a delegation from the California pension fund to Irving to meet with Sam Wyly, a wealthy investor who had rescued Michaels Stores Inc., a chain of arts and crafts shops. Wyly family members and close associates dominated the board, and the pension fund, which had a stake in the company, had publicly identified the arrangement as an egregious example of poor corporate governance.
"Sam said, `I'm not going to have outsiders telling me how to run my company.' I told him, `Sam, it's not your company. You may own the biggest block of shares, but the majority of the shares are owned by outside people. And the day you started selling that stock to other people, it ceased being your company,' " Boldt said.
Wyly eventually agreed to appoint independent directors.
"I do respect him as a businessman. Entrepreneurs tend to be very possessive," said Boldt, who had about 100 meetings with corporate boards to criticize their operations during his four years at the California pension fund.
Boldt won't be playing the role of corporate enforcer at UTIMCO, whose assets under management are not large enough to convey such clout. The California fund manages 10 times as much money.
Rather, Boldt has three goals. One, earn $200 million a year more than what simply matching the overall stock and bond markets would produce. Two, build one of the top five endowments, public or private, in America based on performance, integrity and other principles. Three, earn high marks from the UT and A&M institutions.
Boldt hopes to bring the same level of skill to the task as a craftsman brought to the 1920s golf club that leans against the glass wall of his office. Boldt is a pretty fair golfer, with a 4 handicap. He collects wooden-shaft clubs from that era, when, as he puts it, golf was "truly a gentleman's sport."
Boldt has a bit of the old-fashioned gentleman in him, too. When he was picked for the job, he dashed off a thank-you note to the headhunter who recruited him, Dave Morris.
"I've spent 25 years in the executive recruiting business," said Morris, the managing partner in the Houston office of Heidrick & Struggles. "Perhaps 1 to 3 percent write a thank-you note. That just tells me he was raised right."