UTIMCO eyes alts valuation, performance in COVID-19 era

The $50 billion University of Texas Investment Management Company has reported top private markets performance so far in 2020 and is keeping a keen eye on valuation and performance, according to reports filed by staffers at the system’s June meeting. Earlier this year staffers completed one hedge fund mandate, three real return mandates and seven mandates within the private equity program. Within the hedge fund program, the completed mandate follows trustees’ March meeting where it was announced that the investment team is planning to deploy $700 million plus to reach stable value asset allocation target of 10%. Officials are seeking to fund two to four stable value mandates by August 2020. The plotted mandates and continued manager due diligence activity reported from February precedes the first quarter market volatility. Private real estate was up 14.77% for the 12 months ended March 31, while venture capital was up 14.75% and private equity 11.02%. Hedge funds, meanwhile, were up 2.18% over the same time period as U.S. equities were up a meager 0.87% due to the COVID-19 pandemic laden markets. Valuation across the alternative investment spectrum remains challenged. Within the $6.4 billion real return portfolio, UTIMCO is predicting a real estate valuation decline of 8% as nearly 30% of the portfolio is exposed to retail and travel and leisure assets, which are most negatively impacted by the recession. Seven of the 78 investment vehicles in the portfolio within the retail and travel/leisure sector are being monitored closely. The largest valuation decline is expected in natural resources, which makes up $2.4 billion of UTIMCO’s real return program. Staffers are predicting a possible valuation decline of 25% as more than half of the portfolio is exposed to energy and base metals that have been negatively impacted by a demand collapse in oil markets and commodities. Coming out of the first quarter, officials expect a private equity market down of 7.5% to 10% followed by a modest markdown in the second quarter. “The UTIMCO portfolio should see a lag in markdowns due to an overweight in small buyouts and venture capital, two areas that typically lag in valuation changes,” wrote staffers in a board memo. Life science-related investments represented the only insulated area that saw consistent activity through April, they added. Markdowns could follow in private credit too following accelerated calls for capital during the market dislocation in the first quarter into the early part of the second quarter, according to June board meeting documents.

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