Bob Boldt has been both a plan sponsor and a money manager during his 30-year career, excellent preparation for his current job as CEO, CIO and president of the University of Texas Investment Management Co., a hybrid entity. Created in March 1996, UTIMCO is the first external investment corporation formed by a public university system. It invests endowment and operating funds exclusively for UT system entities. A native Texan and a UT system graduate, Mr. Boldt joined UTIMCO in February 2002, after two years at hedge fund manager Pivotal Asset Management, San Francisco. Before that, Mr. Boldt was senior investment officer for global public markets investments for the California Public Employees' Retirement System, Sacramento. Earlier in his career, he was a senior vice president at Fisher Investments, and a portfolio manager and vice president at Scudder Stevens & Clark and other firms. His first career was in electrical engineering. Mr. Boldt spoke to senior reporter Christine Williamson about his goals for UTIMCO and his experiences at a quasi-public fund, including a flap over a new compensation structure.
Q Having been on both sides of the business, which do you prefer?
A The plan sponsor side is fulfilling, especially when you can work for a cause, like I do now, that I happen to believe in as a Texan and as a graduate of the University of Texas. It makes me feel good to do something about an organization I care about, so I like that aspect. I have the ability to look across the asset classes, so I am always learning new things. I tend to be the sort of person who likes that sort of stimulation over a broad area, rather than learning one more piece of information about a narrow subject area.
But then there are some things about the other side that I liked as well. I did enjoy the thrill of the chase of getting a new account and then meeting the expectations of that client. But unfortunately, on the money management side, you're basically looking through a keyhole all the time. You never really see the full impact of what you do for that particular client, because you're only a small part of the total. And you just have to content yourself that you're doing the best job you can in the area of specialization that you've been chosen for. That can be satisfying, but I do enjoy looking at the whole picture.
Q Does UTIMCO think of itself more as a private company or as a public fund?
A Well, clearly, we are managing public assets. UTIMCO itself is a private 501(c)(3) corporation (a charitable non-profit organization). And so some aspects of what we do are like a private situation, and others are very much like a public. But at the end of the day, it's public money, so we can't do some things here that, for example, my friend Jack Meyer (president and chief executive officer of Harvard Management) can do at Harvard. They don't necessarily have to disclose things that we disclose. They don't have some of the restrictions we do because the Legislature meets a half-mile from here. So while we're a private entity, we really operate in the public space.
In many ways, UTIMCO is every bit as, and in some cases, more political than CalPERS, which is kind of surprising. I always thought that CalPERS was the ultimate in political organization.
Q How do you manage the political flare-ups?
A We have three primary objectives here at UTIMCO. (Those are: Earn at least $200 million per year above the plan's benchmark through active management; become one of the five best-managed endowments in the United States; and provide full client satisfaction.)
Anything that moves us forward on those three goals gets my priority. For example, the (new) compensation structure got my priority because we need that to achieve all of those goals. So I spend a lot of time on these issues, but I try to isolate other staff members from them. For example, I try to keep the managing directors in charge of managing the investment areas focused on the investment side. We can't all be out fighting political fires.
Q Will you have trouble retaining staff if the new compensation structure isn't approved?
A There's no question about that. We cannot reach our goals with the plan we now have in place … You can look to CalPERS as evidence of this. I was very proud of the plan we put in place at CalPERS, but that plan really was not nearly as good as the plan we (will) have in place at UTIMCO either in terms of the absolute dollars or in terms of the way it is structured. I can compensate much better here at UTIMCO, for example, than I could at CalPERS.
At CalPERS, what you had to rely on was getting people in who wanted to build a resume and get experience managing a large amount of money. We fully knew that it was unlikely that we would be to be able to keep those people for a long time, that they could get a lot more money elsewhere. But it was a kind of quid pro quo, a deal with the devil. They took less money, we got their services. They built their resume, we got their services.
Here at UTIMCO, I hope we don't have to fall into that. I hope we'll be able to compensate people here well enough, both monetarily and psychically, so they'll want to stay a long time.
Q How much money does your staff invest internally?
A We manage a lot of fixed income. We manage our REIT (real estate investment trust) portfolio internally. We do all of our overlay programs, all of our spread trades, all of our futures and positions that we do to tilt the portfolio one way or another. We overlay our hedge funds internally.
Basically it goes back to our philosophy that you do what you can do to add value. I don't think our ability to add value is very high in traditional money management. So we don't do that internally.
Q Where is UTIMCO on the risk budgeting spectrum?
A The spectrum to me goes from the much more quantitative hedge funds that are on the extreme end … (to) public pension funds that don't really look at risk at all and just pick an asset allocation. We're toward the hedge fund end of the risk spectrum, but we're not at the very edge of it. Where we are today is at about 70% (toward the more aggressive end), and where we want to be is at about 80%, even 85%.
Q How advanced is your search for a risk budgeting engine?
A What we don't want to do is go out and recreate the wheel. We pretty much have to use what technology is available out there and adapt it to our situation. We're pretty close to selecting our risk engine and once that's done, then putting the framework in place is pretty straightforward. You have to have the right foundation first.
Q Do you expect portfolio change from your risk budgeting?
A It wouldn't be worth doing if I didn't expect some surprises. It's very likely that when we put it all together and do our initial runs, that we will find some situations we didn't understand well or where intuition failed us.
The real advantage of risk budgeting is that I believe most organizations take too little risk. They make assumptions and always err on the side of the conservative … Those conservative judgments build up and you have a portfolio that is under-assuming risk.
The most perishable commodity in the world is risk you could have assumed and didn't. It's lost forever as a resource. So, the reason we're doing this is to make sure we are taking the right amount of risk in every situation.
Q Do you plan to increase UTIMCO's hedge fund allocation?
A We're at 25% now, and that's an increase from where we were (16%). Our experience has been very, very good in hedge funds.
We do have a little bit of concern that it's the asset class du jour and other people are interested in it. Frankly, I think our allocation would be higher if that weren't the case. ... We want to make sure we can still get into the hedge funds we want to get into, which is a really small slice of all those offered. If all that works out, I can see us going higher into hedge funds, but not right now.