Home > News > Asset Allocation > University of Texas System’s Oil and Gas Participation Fuels Bid to be Biggest Endowment

Asset AllocationNovember 23, 2022

University of Texas System’s Oil and Gas Participation Fuels Bid to be Biggest Endowment

The University of Texas System endowment’s oil and gas revenues from its 2.1 million acres of land in the West Texas Permian Basin has it competing with Harvard for biggest endowment by net assets.

By Dusty Hagedorn

The University of Texas System’s endowment superseded Yale University as the second largest endowment in the nation in 2021.

The $42.9 billion endowment specifically rose in value against peers due to its oil and gas revenues generated from 2.1 million acres of land it owns in the West Texas Permian Basin, an asset co-owned alongside Texas A&M University.

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While the placement is not ideological in pursuit, the system benefitted from maintaining its investment in the oil and gas industry, as other universities chose to reduce theirs. The perseverance with the sector

In its 2021 fiscal year financial statements, the Permanent University Fund, a state wealth fund created to fund the endowment and higher education, saw revenues increase to $979.2 million in 2021, up 27% from the year before, on mineral income produced by its land holdings.

Conversely, in April 2021, Yale set investment principles which sought to restrict its investment in fossil fuels due to the emission outputs they produce.

Yale’s investment office outlining the updated investment philosophy that investment firms must “not undermine, but support sensible government regulation, accurate climate science and public communication about fossil fuel products, climate science, climate change, and industry self-regulation addressing climate change.”

Similarly, earlier this year, Princeton University’s board of trustees voted to dissociate from 90 companies as part of an administrative process that focused on companies involved in the thermal coal and tar sands segments of the fossil fuel industry or that are engaged in climate disinformation campaigns.

Having overtaken most Ivy League institutions, the UT System’s endowment is set to challenge Harvard’s $53.2 billion endowment, as the largest endowment by total net assets in 2022. Though it should be noted that the University of Texas system boasts a student population of more than 244,000 across 13 institutions, meaning the endowment holds $175,820 per student, nowhere near Princeton’s $3.294 million, Yale’s $2.172 million, or Harvard’s $1.745 million per student.

Thus far in 2022, crude oil is up another 20% year-to-date. The upward trend in the oil price should aid the UT System in bridging the 24% gap between its second-place $42.9 billion endowment and Harvard’s $53.2 billion nest-egg.

Asset Owners and Consultants Say They Gotta Change Strategies, Pronto

Inflation and climate change spook them, so they’re scrambling to find smarter ways to adjust, a Nuveen survey finds

By Larry Light

The times, they are a-changin’. When singer Bob Dylan more than a half-century ago penned this lyric, among the hot issues were civil rights and the Vietnam War. Today, they are rising inflation, higher interest rates, climate change, the pandemic and, yes, civil rights, now broadened to diversity, equity and inclusion.

But where Dylan in the 1960s found widespread establishment resistance to change, financial institutions today at least are open to updating their investment ways, out of necessity and fear they will get bulldozed if they don’t.

“New realities beckon a shift in strategy” is a statement that two-thirds of institutional investors and consultants agree with in a survey. “The climate is changing—and this shift is about more than the weather,” says the report summarizing the study, conducted by asset manager Nuveen.

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A sobering 66% of respondents say they are more worried now about “extreme events” than they were two years ago. Half contend that fundamental market dynamics have lost relevancy.

For instance, there is widespread concern that high inflation will not retreat soon, and thus investors must find ways to deal with it: 61% are struggling to find methods to mitigate climbing prices. Changing technology, such as artificial intelligence and data mining, spurs them to re-think assumptions about how tomorrow’s economy will look.

One common answer is to push into alternative investments, with 83% saying they are involved in alts. A full 62% are into alternative credit, namely private direct lending and real estate debt, in which higher yields offer an attractive path to offset inflation. The most popular real estate lending areas over the next year will be industrial (51% targeting that), residential multi-family (50%) and tech (47%).

On the climate front, 73% say they will invest in private infrastructure devoted to clean energy, and 79% say they are focused on climate risk in their portfolios.

On DE&I, 43% intend to invest in community infrastructure projects addressing inequalities, and 68% plan to consider DE&I in investment manager selection. Plus, 49% believe that diversity impacts investment outcomes.

As Dylan advised in the song: “And you better start swimmin’/Or you’ll sink like a stone/For the times they are a-changin’.”