UT boosts pay scale for fund managers

Regents increase compensation at investment arm and toughen rules against conflicts of interest

By: Robert Elder Jr.
Austin American-Statesman
Tuesday, September 28, 2004

University of Texas regents think they've found a way to quell years of criticism of their outside investment company by adopting a new, more generous compensation plan and tougher conflict-of-interest rules.

James Huffines, chairman of the Board of Regents, said that Tuesday's actions are "dramatic changes" in the structure of the University of Texas Investment Management Co., an 8-year-old company that manages $16.2 billion in endowments and other funds for the UT and Texas A&M systems and other state entities.

The new compensation plan puts managers at UTIMCO, as the company is known, on par with managers at three dozen of the nation's largest endowments and foundations with more than $1 billion in assets. Bob Boldt, who has served as CEO of UTIMCO for 2 1/2 years, has long argued that the investment company needs to pay higher salaries and bonuses to compete for talent with big-money endowments and pension funds.

Under the new plan, if UTIMCO outperforms the majority of large endowments, Boldt's pay could reach almost $900,000 in the coming year, up from $698,000 for the fiscal year that ended Aug. 31, 2003, the most recent year available.

Regents also approved a policy designed to eliminate any appearance of favoritism in UTIMCO investments. If UTIMCO staff recommends an investment for the company, the staff member has to disclose the source of the opportunity and whether he or she will reap any financial gain is UTIMCO decides to invest.

Chancellor Mark Yudof said the policy will ensure that investment pitches go directly to Boldt and UTIMCO staff. Yudof said there aren't any current problems with investment referrals to UTIMCO but noted that the company faced numerous allegations of favoritism in the late 1990s.

Under the compensation plan, UTIMCO managers could earn a maximum of $3 million in bonuses, although realistically the figure would be far below that.

Regents approved the plan 6-2 despite objections from Cyndi Krier, a regent and former Republican state senator from San Antonio. She said the plan will be a tough sell. "At a time when we see funding for higher education held flat or reduced, at a time when we're raising tuition for students, I don't know if it's the time to have bonuses this large," she said.

"It's hard to explain to taxpayers . . . hard to explain to lawmakers, hard to explain to students."

Krier zeroed in on a theme that has bedeviled the UT System since it spun off its investment operations in 1996: reconciling public oversight with private-sector pay scales. Although it manages public money, UTIMCO is a private company.

Regent Woody Hunt, an El Paso construction executive, argued that UTIMCO needed to pay competitive salaries to generate top-tier returns.

"Competitive money management creates more resources," Hunt said, "whether it be for salary increases (for higher education personnel) or recruiting the next Nobel Prize winner."

The pay plan only generates substantial bonuses "if, and only if, we get nationally competitive performance," Hunt said. The new plan, he said, will help define the future of UTIMCO as a top-tier endowment.

Under Boldt, UTIMCO's performance has improved. For the year that ended June 30, the total return of 20 percent slightly lagged behind industry-leading Harvard University but beat the returns of Yale, Princeton, Duke and other top endowments.

In the two years that ended June 30, UTIMCO's 11 percent return placed it in the top quarter of large endowments.

The UT and A&M campuses received $363 million from UTIMCO-managed endowments in fiscal year 2003, records show.

Yudof, who opposed a previous version of the compensation plan in January, told regents he was "conflicted" about the plan, largely because he runs a public university system where salaries rarely reach the level of top money managers. Yudof makes about $665,000 a year.

But Yudof said he decided to support the plan after higher performance targets were set. He also acknowledged that "investment managers have their own sort of market out there — it's different from the market for chancellors and presidents and English professors," he said.

Boldt, who was paid a base salary of $450,000 in the fiscal year that ended Aug. 31, could earn a bonusbetween $81,000 and $810,000 in the current year, depending how UTIMCO performs. (His base salary for the new fiscal year hasn't been set.) His target total pay under the new plan is about $855,000. Even at that level, Boldt's pay would be at the median of large-endowment managers.

Boldt declined to comment on the new pay plan. He said "significant issues" remained but wouldn't specify them.

By comparison, Yale University's David Swensen, an investing superstar with a track record stretching back nearly two decades, earned $910,937 in 2002. Yale's endowment stood at $11 billion last year.

Salaries are more outsized in the private sector. Susan Byrne, an outgoing UTIMCO director, made $1.7 million last year as CEO of Dallas-based mutual fund company Westwood Holdings Group, records show.

UT's big paychecks

Mack Brown
Football coach
$3.6 million**
** includes a one-time annuity of $1.6 million

Rick Barnes
Mens basketball coach
$1.1 million

Mark Yudof

Bob Boldt
* target; $450,000 salary, plus bonus that could range from $81,000 to $810,000, based on financial performance

Dr. John Stobo
Medical branch president

Source: University of Texas