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The President of The University of Texas at Austin discusses UTIMCO's investment strategy with its Chief Investment Officer. As the administrator of a perpetual endowment for the University of Texas and Texas A&M, UTIMCO allocates a substantial part of its equity investments to longer‐term and illiquid assets such as private equity. At present, fully 40% of the 63% of the funds UTIMCO devotes to global equities, and thus 25% of its total portfolio, is allocated to private equity. What's more, UTIMCO's annualized ten‐year return on private equity has been 13.5%, as compared to its 9% return on public equities over the same period. Along with these high returns, UTIMCO's CIO takes great satisfaction in the large percentage of assets under management, now 10%, in the hands of its minority managers. At the same time, his greatest professed concern is the recent increases in money supply combined with near‐zero bond yields, and the resulting importance of positioning the portfolio for future inflation. Private equity has had a profound effect on financial markets and companies, including a reduction in the number of U.S. public companies to roughly half of what it was 15 years ago. Given the availability of PE and VC capital, companies stay private longer and, as a result, private investors capture more of the increase in company values. And PE funds are now said to have nearly $3 trillion in “dry powder” that, when levered, gives them about $6 trillion of buying power. The panelists in this discussion cited a number of major challenges for private equity that go beyond the current COVID epidemic, including: (1) deal pricing and selection; (2) the health of the leveraged loan market; and (3) the search for new and better exit opportunities. All agreed that deal pricing was a perennial challenge, and that PE firms must work to develop a special “edge” in an intensely competitive market, where some firms consider a thousand deals a year to close on just two or three. The f |
