University of Texas Endowment Invests $500 Million in Gold

(July 19, 2010) Amid fears and expectations of turbulent international financial markets and high inflation, the University of Texas has invested $500 million in gold, a commodity whose value usually only grows due to fears of inflation.

“The $500 million commitment in gold by UTIMCO was a tactical allocation decision made by management,” said Bruce Zimmerman, CEO and chief investment officer of the University of Texas Investment Management Co. (UTIMCO) to ai5000. “UTIMCO has been laddering in this exposure over a number of months. The investment in gold was a hedge against lack of confidence in financial assets due to lack of government fiscal and monetary discipline.”

While most managers of university endowments seek investments with potential to grow independently as opposed to simply hedging against inflation and volatility in currency, the investment in gold — a rare investment for a university — reflects concern among fund managers regarding the future outlook of the world’s financial system.

Still, the fund’s gold purchase equates to a small fraction of its overall value, representing only 3% of UTIMCO’s total portfolio of $22.3 billion in investment funds, which includes investments for all UT system schools and for the Permanent University Fund. The investment in gold will be managed internally by staff at UTIMCO, which manages $16 billion in assets for the University of Texas System, Austin.

At University of Texas schools last year, donations dropped with universities reporting a decrease in donations by $200 million compared to the year before. In January of this year, a study by the National Association College and University Business Officers (NACUBO) and the Commonfund Institute that showed  the average university endowment loss was 19% in fiscal 2009. The preliminary 10-year average net return is 4.2%. The findings were based on responses from more than 500 colleges and universities, their supporting foundations, and community colleges.