Chief Investment Officer Tim Barrett and the Office of Investments were recognized for investment innovations at the Texas Tech University System.
March 15, 2017 | Written by Dana Jennings
Just three years after Tim Barrett took control of the Texas Tech University System investment portfolio as Chief Investment Officer, he was awarded Chief Investment Officer’s 2016 Industry Innovator Award for Endowments. Barrett also took home the publication’s award for CIO of the Year.
Barrett calls explaining the Texas Tech University System Office of Investments’ investment strategy in simple terms the “million dollar question,” but he is able to describe the innovation he thinks earned his team the award.
“We’ve built relationships with managers that have better alignment of interests and better fee structures,” Barrett said. “The end result of what we have built is better returns. We’ve done that through a thing called the Master Custody Account, which allows us to improve performance and do so at a lower overall cost. This is the holy grail for any investor.”
A Master Custody Account (MCA) structure comes out of San Bernardino from Barrett’s former colleagues; he took the concept and adapted it to meet the needs of the Texas Tech University System.
The MCA structure allows the contracting of managers in a way that facilitates direct investment. This method of contracting allows the endowment to access a manager’s best ideas, with better transparency, better alignment of interest and lower fees. Today, the endowment has 12 MCAs.
“Basically, we’ll invest in, say, a hedge fund. We pay fees at that hedge fund level, then we have money in a separate account with a lower fee structure,” Barrett said. “The manager pitches us one-off investments in that account, then rebates us back at a lower fee based on the performance of the two portfolios combined.”
Barrett said the vast majority of endowments do not implement anything along the lines of an MCA structure.
“While I think it’s great we won awards, we couldn’t do that without the governance structure the Texas Tech University System, the Board of Regents and the Investment Advisory Committee have put in place,” Barrett said. “It takes forward-thinking leadership to have this structure where staff is granted the authority to take new approaches and make decisions. If you have board-driven investment selection, a Master Custody Account doesn’t make sense.”
Chief Investment Officer, or CIO, publishes a bimonthly print and digital magazine and a website that aggregate news, opinion and research focusing on overarching investment issues. In 2016, CIO hosted its seventh annual Industry Innovation Awards, an event highlighting the best of institutional investing.
Industry Innovation Awards were split into two general categories: asset management and asset owners. The latter encompasses the endowment category in which Barrett and the Texas Tech University System won. In addition to the endowment innovation award, Barrett was selected as CIO of the Year. Winners are selected by the CIO editorial team, with input from the awards Advisory Board and surveys and data where applicable.
“Tim Barrett and the Texas Tech University System are breaking the mold of traditional endowment investing with their diversified strategies in reinsurance, trade finance and gold mine rights,” said NEPC’s Tim Bruce, who serves on the investment consulting team for the endowment. “He’s taking principles of investment innovation and making it work for endowments.”
Barrett said a main objective of the Office of Investments is to continue to climb the National Association of College and University Business Officers (NACUBO) rankings.
“We’ve moved from the bottom of the pack to the middle, despite a substantial restructuring of the investment portfolio,” Barrett said. “Our goal is to reach top quartile, then consistently maintain that. Right now the portfolio is performing very well and we believe the portfolio will continue to accelerate through 2017.”
As the Texas Tech University System investment portfolio has strengthened, Barrett has been building and expanding his team. In fall 2016, the Office of Investments welcomed two new Deputy CIOs: James “Dan” Parker and Robert C. Lee III. Parker is spearheading venture capital as a new strategy within the portfolio, while Lee focuses on real assets, both oil and gas as well as real estate.
Michael Nichols manages public and private debt strategies.
“The investment talent we have on the team is a distinct advantage for an endowment our size, and it is showing up in the performance numbers,” Barrett said.
“I think this move into venture is another example of Tim Barrett being a forward-thinking chief investment officer,” Parker said. “The endowment has not really participated in venture previously. I think it has the potential to become a top performing strategy within the endowment and add significant value over time.”
Through his work on venture capital, Parker has come across a few areas of collaborative opportunities at Texas Tech University.
“We want to establish synergies between the endowment and the university itself, because universities are intellectual capital factories,” Parker said. “The quality of research of the Texas Tech University System can be relevant to some of our venture managers. Hopefully building relationships with people on campus will put us in a position to make useful introductions between researchers and financial experts looking for early stage investment opportunities.”
The Office of Investments, located in Austin, Texas, manages all areas of investment for the Texas Tech University System and its four component institutions. The department strives to obtain the highest possible returns on the funds of the Texas Tech University System’s endowment, in accordance with oversight established by the Board of Regents and the Investment Advisory Committee.
The Texas Tech University System endowment currently approximates $1.1 billion and was ranked 81st out of 815 higher education institutions reported in the latest NACUBO Endowment Study.
“In a time when many endowments are under pressure for stronger returns, we’re breaking ground by enhancing returns while lowering fees,” Barrett said. “It’s the best of both worlds, and it’s great to see our efforts recognized by such a prestigious and respected publication.”