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A conversation with UTIMCO's Bruce Zimmerman

February 13, 2017

By Charles Skorina Bruce Zimmerman joined UTIMCO as Chief Executive Officer and chief investment officer in June of 2007, six months before the official start of the "great recession" in December 2007 (US National Bureau of Economic Research).But despite a 13% drop in the endowment in UTIMCO's 2009 fiscal year (Sep 1, 08 - Aug 31, 09), half the fall of some notable east coast Ivy endowments, performance has been, for the most part, solid and steady during Mr. Zimmerman's tenure. With billions in oil and gas royalties flowing into the school's endowment coffers, the UT Regents and UTIMCO board historically has not felt the need to push the investment boundaries.  Their mantra was make a decent return and don't lose the money. Mr. Zimmerman joined UTIMCO after seven years at Citigroup, leaving as head of Citi's global pensions.  With a Harvard MBA, an undergraduate degree from Duke and a few years at Bain and Texas Commerce Bank/JPMorgan Chase, the post at UTIMCO brought Bruce back home to Texas When he resigned this October, the school's press releases were laudable. According to UT Regent and chairman of UTIMCO's board Jeffery Hildebrand, Mr. Zimmerman has done "a masterful job in maximizing" resources. "Bruce built an organization and a business model that truly reflects what Chancellor (Bill) McRaven calls a 'team of teams' approach, capitalizing on the creativity and intellect of many external partners and internal colleagues, and making smart, calculated decisions that benefit and advance public higher education." Mr. Zimmerman certainly deserves credit for managing endowment funds not much smaller than Harvard's, but with a quarter of the staff.  And for hiring a lot of very good people for a fraction of what HMC pays their senior staffers.  Down below we have a partial list of senior staffers at UTIMCO, with their latest available comps. I spoke recently with Mr. Zimmerman about the challenges of managing a large public endowment and I asked him what his takeaways were from his nine years at UTIMCO. Skorina: how would you characterize the challenge of a CIO position at a major endowment? Zimmerman: it's important to remember that the CIO and investment staff all work for a client, in my case the UTIMCO and Regents board members.  They set the objectives.  But the objectives often change as the people change, and part of the job as CIO is to continually explain and educate.  Often we become the institutional memory because people on the board with very different backgrounds come and go. I don't know that I fully appreciated the realities of this ever-changing environment when I first signed up for the job; our board changed a lot over my nine years, six board chairs and thirty board members.  And the university regents change often, as well. This turnover does present challenges. That said, I loved being at UTIMCO and have nothing but praise for those that serve, as volunteers, as Regents, and UTIMCO Board members. Skorina:  What is it about the job that's so appealing? Zimmerman:  A lot of reasons.  First: the mission.  Providing resources for public education and health is a noble cause.  Second: the privilege of working with such talented colleagues and external partners. Third: the challenge presented by global capital markets and the opportunity to continue to learn. Skorina: how did you approach the job?  What was your process like? Zimmerman: From the beginning, I wanted to take advantage of our size.  We did this by building deep expertise in various industries and regions and capital structures; health care, for example, Latin America, lower middle market private equity, credit, agriculture. All of these areas of expertise served to complement the skill the organization already had in investment styles such as hedge funds and long only fixed income and public equity.  We encouraged innovation, entrepreneurship, we also spent a lot of time trying to establish processes that created collaboration and shared learning. It's hard work, Charles.  We hire maybe fifteen managers max out of about 1,200 presentations a year.  We see a lot of opportunities, but invest in very few. When I joined in 2007 we had 12% in private investments.  When I left we had 36% in privates, composed of a very diversified portfolio of very focused strategies.  When I arrived, we had 30% in hedge funds and it was without a doubt the "crown jewel" of the portfolio.  It remains a top quartile if not top decile portfolio although we have gradually reduced the exposure to closer to 25% as we moved the overall portfolio to be more in the middle of large US endowments from a risk perspective.  And now, almost the entire book produces above average and often top quartile returns for their respective strategies. From a risk perspective, at the direction of the client and the board we aim toward the middle of the fairway, you could say.  Our long term target is to earn 5% plus inflation of about 1.5% on the AUM. So we came pretty close.  Over my nine years, UTIMCO earned approximately 4.5% and we distributed 4.5% to 5% of endowment funds.  Inflation was low but it did exist, so we fell a bit short of our long-term objective due to the Great Financial Recession.  The seven years after 2009, saw about an 8.5% annual return in performance. We added 170 basis points of excess returns above our benchmark, or $4.5 extra billion during my career at UTIMCO.  I'm proud of that.  That's what chief investment officers are supposed to do.  That's why we are hired Skorina: I see a lot of resumes from guys out of top MBA schools who were recruited directly into a consultant firm; you put in five years as a consultant for Bain before moving JPM and Citi. I'm curious about how that consultant training and mindset affected your approach to later jobs, including UTIMCO. Zimmerman: I found my consulting background, as well as my work at JPM and Citi where I had responsibilities across many functions, very helpful for an investor as well as a CEO of an investment management firm.  As an investor, when buying a security, I very strongly subscribe to the notion that one owns a piece of a company, not just a piece of paper.  Being able to analyze a business as more than just a black box is often quite valuable. Skorina: What are your key takeaways from leading UTIMCO? Zimmerman:  A great team, or as we looked to build, a "team of teams" is an incredibly powerful force.  A CEO/CIO cannot overinvest in their organization. Skorina: Of the top twenty endowments, about three quarters reported loses for the latest fiscal year and the top performers earned just a few percent.  UTIMCO came very close to breaking even, landing just at the top quartile among large US endowments. It's been tough for CIOs to make a buck.  Yet some do.  Why?  Where? Zimmerman:  One key is to maintain a long-term focus.  This requires the support of the client and the board.  Another key is to assemble and maintain a great team.  This requires a concerted, consistent effort. A third key is the willingness to be different based on non-conventional views derived from hard work and data-driven insights.  Some of the key risk areas we spent a good deal of time analyzing included illiquidity risk and concentration risk.  These are two areas that, if done right, can contribute to favorable returns. Skorina:  What do you see on the horizon?  Where are the opportunities to make money? Zimmerman:  First, I think, in general, asset prices are high due to seven years of easy money.  That makes me cautious.  Second, I think we are in for a period of enhanced volatility.  Those investors that embrace volatility, trim gains, keep cash, invest when assets are out of favor, I think will all do well.  Third, I continue to believe that skill matters when it comes to investing.  Therefore, the hard work to identify and partner with folks that are the best at what they do remains a formula for success in my mind. Skorina: You have had a stellar career so far.  What's next do you think? Zimmerman: well I'm not ready to retire Charles.  And although we like Austin, I would certainly look consider a move that made sense.  A family office or multi-family office, an OCIO business, a niche asset management initiative.  Who knows?  We'll see what comes along.  You're in the business.  Call me. Charles Skorina works with leaders of Endowments, Foundations, and Institutional Asset Managers to recruit Board Members, Executives Officers, Chief Investment Officers and Fund Managers. Mr. Skorina also publishes THE SKORINA LETTER, a widely-read professional publication providing news, research and analysis on institutional asset managers and tax-exempt funds. Prior to founding CASCo, Mr. Skorina worked for JP MorganChase in New York City and Chicago and for Ernst & Young in Washington, D.C. Mr. Skorina graduated from Culver Academies, attended Michigan State University and The Middlebury Institute of International Studies at Monterey where he graduated with a BA, and earned a MBA in Finance from the University of Chicago. He served in the US Army as a Russian Linguist stationed in Japan.