UTIMCO to search for a custodian, strategic partners

University of Texas/Texas A&M Investment Management Co., Austin, will issue a search for a global custodian in the first half of this year for the $44 billion it manages in endowments and operating funds for the university systems.

During a UTIMCO board meeting Thursday, Joan Moeller, senior managing director of accounting, finance and administration, explained to directors that BNY Mellon has held the custodian contract for seven years and that rebidding the contract is routine, according to an audiocast of the meeting.

Board meeting materials said that as part of a review of UTIMCO's relationship with BNY Mellon, a request for quotes would be issued in the first or second quarter.

Karen Adler, a UT System spokeswoman, could not immediately provide details about when the RFQ likely will be posted and whether BNY Mellon will be allowed to rebid.

In other news from the meeting, Kenneth Standley, UTIMCO's chief of staff, said investment officers are in the process of setting up as many as eight strategic investment partnerships with large multiasset managers.

UTIMCO is planning to set up strategic partnerships with between two and four managers running public market strategies and the same number for private market firms managing private equity, real estate, natural resources and credit strategies.

Public market managers will each be awarded between $500 million and $1.5 billion for multiasset class portfolios expected to add value through strategy selection and tactical asset allocation, Mr. Standley said during the audiocast.

Private market managers will be given between $1 billion and $2 billion each for investments in funds and co-investments.

UTIMCO's strategic partners will be expected to offer UTIMCO a broad range of investment strategies, including customized approaches, proprietary investment research and other resources, according to board meeting materials.

The creation of strategic partnerships was one of the priorities set by T. Britton Harris IV, president, CEO and chief investment officer, when he joined UTIMCO on Aug. 1, 2017.

Mr. Standley told directors that the UTIMCO staff currently is contacting "a broad set of prospective strategic partners" and expects to present its choices to the board for approval between June and September this year for public market managers and between December 2019 and February 2020 for private market managers.

Funding for the strategic partnership program is expected to come primarily from expected inflows to UTIMCO's two endowments and through rebalancing, Mr. Standley said during the meeting.

UTIMCO's two educational endowments totaled $31.3 billion as of Dec. 31.

Separately, UTIMCO will invest $750 million in two to five hedge fund mandates within the stable value hedge fund portfolio by the end of the fourth quarter, said Ryan Ruebsahm, managing director of hedge funds and credit strategies, in a report to the board of directors.

UTIMCO split its hedge fund portfolio last year into a stable value portfolio, which totaled $2.6 billion as of Dec. 31, and a directional hedge fund portfolio with $7.2 billion.

Mr. Ruebsahm told directors that the hedge fund team will increase the stable value portfolio to a 10% weighting from 5% over the next two years while reducing the directional portfolio to 5% from 14% on the audiocast of the meeting.

Separately, Mr. Harris presented performance as Dec. 31 to directors during the meeting.

As of Dec. 31, returns of the $21.5 billion Permanent University Fund, the largest endowment UTIMCO oversees, were down 3.4% for the quarter and positive for other periods with a one-year return of 1.68%; three years, 7.63%; five years, 5.99%; and 10 years, 8.7%.

Returns of the $9.8 billion Long Term Fund were -3.37% over the three -month period ended Dec. 31 compared to positive returns of 1.87% for one year; three years, 7.87%; five years, 6.14%; and 10 years, 8.76%.

Multiyear returns are annualized.

UTIMCO's board materials did not include returns for the funds' benchmark.