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May 10, 2000     (512) 463-0300

Subcommittee on State Investments Examines Higher education and Tobacco Funds

AUSTIN - How is the state handling its money? That's the question addressed by the Senate Finance Interim Subcommittee on State Investments during a public hearing today, Wednesday, May 10th, 2000, at the Texas State Capitol.

The subcommittee is studying the first charge given to the Finance Committee by Lt.Gov. Rick Perry. The committee is to examine the policies and practices used to invest major state funds, including cash balances and evaluate state investment goals and the funds' performance in reaching those goals. This examination shall include, but is not limited to, a review of legal authority, ethical standards, investment policies and safeguards, management structure, portfolio composition and the identification of short-term and long-term goals. The Committee will make recommendations identifying opportunities for improvements or innovations.

Representatives of the State Auditor's Office explained endowment fund management theory. Representatives of the Comptroller of Public Accounts Office and financial managers from the University of Texas (UT) reviewed their agency's higher education and tobacco fund investment management structure. Topics of discussion included long-term investment funds and pension funds, their risks and returns, capital gains and the methodology for funds' distribution. As a general rule, the funds available for distribution are the result of the investment returns minus investment expenses minus inflation.

UT's financial managers are part of UTIMCO, a non-profit investment management corporation, the first financial corporation of a university in the country. It manages the institution's funds, controls their performance, and is in charge of reports, reviews and audits of the funds. Its objective is to preserve the control of investments and to increase their value. Three of the nine members of its board are UT regents. The University of Texas Board of Regents controls and approves UTIMCO's Board, and delegates investment management responsibilities.

Sixty percent of UT assets are endowment funds -permanent funds to provide support for many of the institution's programs. They are divided into three plans: the Permanent University Fund; the Permanent Health Fund, composed of the tobacco settlement proceeds; and the Long Term Fund. The Board of Regents determines the amount of re-investment and distribution.

No public testimony was heard today. After invited testimony was taken, the meeting was recessed subject to call of the chair. The next hearing will be in mid-June, probably the last of the information meetings before next session.

The subcommittee consists of five members appointed by Finance Chair Bill Ratliff. Senator Robert L. Duncan of Lubbock serves as chair of the subcommittee. Other Senate members include Carlos F. Truan of Corpus Christi, Gonzalo Barrientos of Austin, Troy Fraser of Horseshoe Bay, and Steve Ogden of Bryan.

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