<!-- Swiftype Variables -->

Endowments and Foundations

UTIMCO eyes new asset allocation that boosts infrastructure, public and private equity

The University of Texas/Texas A&M Investment Management Co., Austin, will implement a new strategic asset allocation for the systems' endowment funds on Sept. 1, the beginning of UTIMCO's new fiscal year, pending approval of the regents of the UT system.

UTIMCO's board of directors on July 26 endorsed the recommended changes from investment staff to increase target allocations to global equity, stable value and illiquid investments, and decrease real return and alternatives exposure.

If approved, the fiscal-year 2019 interim and long-term target strategic allocations will be used to manage both the $21.5 billion Permanent University Fund and the $10.4 billion General Endowment Fund, meeting materials from the July 26 meeting showed.

UT's board of regents must approve the new allocation before it can be implemented. Regents likely will consider the proposal before Aug. 31, the end of the current fiscal year, said Karen Adler, a UT spokeswoman.

The new proposed long-term strategic asset allocation targets are 63% global equity, up from 61.5%; 19% real return, down from 21.5%; and 18% stable value, up from 17%.

Within the global equity category, long-term target allocation changes increase public equity to 33% from 29% and private equity to 25% from 17.5%, while reducing directional hedge funds to 5% from 15%.

The long-term strategic targets for stable value strategies are 10% stable value hedge funds, up from 6%; 7% to fixed income and credit, down from 11%; and a new 1% cash allocation. There is a targeted allocation of zero to inflation-linked bonds.

Changes to long-term strategic targets for the real-return category will increase private real estate to 10% from 7%, reduce private market natural resources to 5% from 12% and add a new 4% allocation to infrastructure.

In board materials, UTIMCO investment staff said the current 2.5% commodities allocation in the real return bucket, which now is invested in gold, will be reduced to zero, but may be used for "cyclical/tactical positions at favorable times in the cycle."

Public real estate also was added to the real assets category with a zero allocation "to capture beta of core real estate" under favorable market conditions.

The interim target strategic allocation for the fiscal year starting Sept. 1 will be 29% global equity, 22% private equity, 12% directional hedge funds, 9.5% investment-grade fixed income and credit, 8% each natural resources and private real estate, 7% stable value hedge funds, 2% infrastructure, 1.5% commodities, 1% cash and zero for inflation-linked bonds and public real estate.