July 24, 2008

U. of Texas Investment Directors Vote to Repeal Ethics Rule

Directors of the University of Texas Investment Management Company have voted to repeal an ethics rule that bars them from investing in the same funds as the management company, the Austin American-Statesman reported this morning.

The regents of the University of Texas system had approved the rule in 2000 amid allegations of cronyism and complaints about inadequate disclosure of the investment company’s private-equity portfolio. The company, known as Utimco, manages $25-billion in endowment funds for the University of Texas and Texas A&M University systems.

The directors told the newspaper that the rule had kept them from recommending promising investment opportunities to Utimco because they already had their own money invested in them.

A proposed rule change would bar the directors from voting on funds in which they have personal investments and from having more than 5 percent of their income come from that investment.

To take effect, the change would need to be approved by the regents, who are scheduled to consider it next month. —Kathryn Masterson

Comments

1. It is obvious that there are UTIMCO Directors that do not wish to serve under the ETHICS rules of the organization. Shouldn’t the regents accept their resignations and solicit directors that will serve under these provisions?

   The ethics provisions were put into place in reaction to “questionable” behaviors on the part of past UTIMCO directors. Unless the regents are totally convinced that they can not find qualified directors willing to serve under these provisions, they should leave the rules in place.

   The “Eyes of Texas” will be focused upon the regents as they make this very important decision.

   — Santa Rita 2    Jul 25, 09:10 AM    #

2. Sure, there could be problems with cronyism if the 2000 rule were revoked or weakened, but this isn’t as simple an ethics issue as it might at first glance seem. The UTIMCO Directors are supposed to recommend investments that will benefit UT, but the current rule puts them in the interesting position of being able to recommend only investments in which they have been unwilling to put their own money. (Yes, they could divest and then make the recommendation, but this does not actually make the cronyism problem go away – think about it for a minute.)

   This is a complicated issue, and the proposed rules change seems like a reasonable compromise.

   — Bob M.    Jul 25, 11:50 AM    #

3. For me, the bigger question is:

   Has the board determined that qualified individuals, willing to serve under the existing ethics requirements, are not available?

   With capable and well paid UTIMCO staff, it is not critical that the directors “recommend” the investments.

   — Santa Rita 2    Jul 26, 12:28 PM    #

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