Texas endowment increases stakes in private equity funds

The University of Texas Investment Management Co., which oversees about $35 billion of assets, is increasing stakes in private equity and venture capital funds, said Chief Executive Officer Bruce Zimmerman.

The nonprofit company, which manages money for the University of Texas and Texas A&M University, expects to increase its allocation to private investments that include buyout, venture capital and real estate funds to 40 percent of its portfolio over the coming years, up from around 35 percent, Zimmerman said.

“We think we have more illiquidity risk we can expend,” the CEO said Thursday in an interview in Austin, where Utimco is hosting a two-day conference.

While private equity funds have on average delivered returns in recent years that are no better than publicly traded stocks, endowments and other institutional investors have still sought to increase exposure by seeking out the top alternative asset managers. One-third of school business officers surveyed at an industry conference last month said they anticipate increasing allocations to such strategies in the coming year.

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The Texas endowment manager has been building the portfolio over time, increasing it from 12 percent of assets about eight years ago, Zimmerman said. It has invested $1.25 billion in venture capital funds, which as a percentage is about half as much as its peers own, he said.

Among the investments are private energy funds that are seeking out distressed opportunities in the sector that has been pummeled by falling petroleum prices.

“We view the current energy environment as one of those where leaning in a little bit probably makes some sense,” Zimmerman said. “We’re finding some good opportunities.”

In terms of overall market performance, investors should expect a “challenging” environment for the next three to seven years, Zimmerman said.

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“When we signaled a return in the three, three-and-a-half percent range, we were trying to signal that we were in for a more difficult environment,” he said.

The University of Texas’s endowment gained 4.1 percent in the year ended June 30 while its value shrunk by 5.3 percent to $24.1 billion.