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February 5, 2009 (512) 463-0300

FINANCE GRILLS UNIVERSITY INVESTMENT MANAGERS

Sen. Lucio, Sen. Seliger
Brownsville Senator Eddie Lucio (left) and Senator Kel Seliger of Amarillo review documents at Thursday's Finance Committee meeting.

(AUSTIN) — Officials from the University of Texas Investment Management Company (UTIMCO) were called before the Senate Finance Committee Thursday to explain more than 2 million dollars in bonuses given to employees in the face of more than $2 billion in losses at the fund they manage. The University of Texas' Permanent University Fund endowment has decreased from $11.7 billion in September of 2007 to $8.8 billion in November 2008, a 27 percent decrease. Bruce Zimmerman, Chief Executive and Chief Investment Officer for UTIMCO, attributed this decrease to the national economic crisis, and said that losses for the endowment have been less than other market funds. "In the context of the marketplace, we feel like we did our job in protecting capital to the extent that it could be protected," he said.

At a November meeting, the UTIMCO board of directors unanimously approved $2.3 million in bonuses for staff members, including a million dollar bonus for Zimmerman and $25,000 to $600,000 for 60 other staff members. Senators questioned how the board justified this payment after the fund had lost so much money. Robert Rawlings, Chairman of the UTIMCO Board, said the bonuses were based on the fund's performance from July 1, 2007 to June 30, 2008, when the fund had actually performed in the top quartile of university endowment funds. Rawlings acknowledged the difficulty of approving the bonuses in the current financial climate, but said the board was bound by the compensation contract.

Looking at the compensation contract, committee Chairman Steve Ogden of Bryan said it appears the board could have used more discretion. "That tells me that you have a lot more discretion than you think you do, and I think it's also important that based on this contract, he got the absolute maximum that he could get. You exercised no discretion and paid him the max is how I read it," he said. Other members were more critical in their assessment. "It shatters the trust in government. We're in serious times. Most people out there in the street are scared to death, and we just paid you a million dollar bonus, and the fund is down 27 percent. It's not right. It may be technically right by the contract, but it's not right," said Senator Kevin Eltife of Tyler. He told Rawlings that the board should have negotiated Zimmerman's bonus down, or forgone it all together.

Ogden closed the meeting by reading from a letter, issued Thursday and signed by both Governor Rick Perry and Lt. Governor David Dewhurst. "These decisions are irresponsible given the financial crisis that is spreading across our nation," it read. "In times like these we expect leaders of our public investment funds to act with restraint and fiscal responsibility, especially when the funds you manage are posting double-digit losses." Ogden told Zimmerman and Rawlings that he wants UTIMCO representatives back before the committee in 30 days, to return with proposed changes at the board, changes in compensation packages, and recommendations about independence of the board and its ability to not be a rubber stamp. "UTIMCO is a creature of statute, and it can be changed by statute, and it will be changed by statute if there are not changes down there," he said.

Session video and all other webcast recordings can be accessed from the Senate website's audio and video archive pages.

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