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Endowment Management

Exclusive Q&A: Courtney Powers, Director Of Marketable Alternatives At The University Of Texas Investment Management Company, A $35B Endowment

by trusted insight posted 6years ago 11948 views

Courtney Powers is a senior investment officer at UTIMCO with major responsibility for hedge fund relationships in the University of Texas System’s enormous $35 billion endowment portfolio. Raised in Ontario, Canada, Powers moved to New Orleans when he was 16. After obtaining his undergraduate degree in English literature from the University of Georgia in 1995, he worked for Whitney National Bank and Merrill Lynch in New Orleans, followed by positions in equity research at what is now Capital One Securities. In 2004, he graduated with an MBA from the University of Texas at Austin, and joined AT&T (then SBC Communications) on their internal Mergers and Acquisitions team in San Antonio. Mr. Powers joined UTIMCO in 2007. He was named a Hedge Fund Rising Star this year by Institutional Investor.

Mr. Powers was recently named on Trusted Insight’s ranked list of The Top 30 University Endowment Investors In Hedge Funds. He graciously spoke with Trusted Insight on September 22. The following interview has been edited and condensed.

Trusted Insight: How many hedge funds are you invested in?

Courtney Powers: The portfolio is $11 billion in size and is invested with around 45 managers.  We have maintained 45 relationships (give or take) on average over time. We don’t look at it from a number-of-funds perspective but from a total relationship basis.  

TI: Is illiquidity a concern?

CP: Illiquidity is an important risk we factor into all investment decisions. As lock-ups can vary across strategies and funds, we model the liquidity profile of the entire portfolio on a line-item basis over multiple years.

TI: How have absolute returns been?

CP: We are pleased with the returns of our hedge fund portfolio. It is behaving as designed and has generated consistent alpha over the long term.

TI: I was at a conference last week at which the speaker said that only 5% of the approximately 11,000 hedge fund managers in the U.S. are really good. Do you agree with that?

CP:  Everyday, we are looking to invest with the best 35-45 managers in the world, which I guess falls under the 5% threshold of "really good." But what exactly is the definition of "a good hedge fund?"  A manager or strategy that’s appropriate for our portfolio may not be appropriate for someone else’s.  A broad statement proclaiming that 10,500 managers are not "really good" is a bit aggressive, but I would agree that there is a wide dispersion of manager skill across the industry, and you have to do your diligence.  

TI: What do you look for in a hedge fund manager?

CP:  There is no formula per se. There are a lot of qualitative and quantitative factors that we consider with all our investments. A manager’s particular investment philosophy, approach to portfolio construction, position sizing, risk management, as well as skills such as cultivating a strong culture within the firm or managing a team are all important.  

TI: You have five or six people just on your hedge fund team here. Do you tend to reach consensus about the investments you make?

CP: The entire team is expected to have an opinion on every investment and there are dissenting views at times. That’s good. Our job is to constantly force curve the existing managers in the portfolio and we need to challenge each other’s individual view. You can make a bull or bear case for any investment and having healthy, objective debate is vital if we are to make better decisions long term.  What’s nice is that we don’t “have” to make any particular investment. If there is a significant disagreement, then the probability we put on long-term success is lower, therefore it’s more likely the investment would not be made.  

TI: How long do you usually stay with a manager?

CP:  Our average relationship across the entire portfolio is eight-and-a-half years, so we can back it up when we say we are a “long-term” investor. Not to say that decisions are not made earlier in a particular fund’s life cycle, but we intentionally look to invest with managers that we can grow with over time into large, meaningful partnerships.

TI: How do you feel about the investments you’ve made with hedge funds? Have they performed as you expected?

CP: I’m really happy with the portfolio today. Investments never work out 100% as expected. Sometimes they do better; sometimes not. The ultimate goal, however, is to minimize the mistakes and try to size up the winners. To do this, we spend an inordinate amount of time really getting to know our partners. This is how we build long-term conviction and can often times be contrarian. We’re less concerned with the next six months’ performance versus the expected rate of compounding over the next one-to-three years.  

TI: I read online that you were born in Canada. Do you feel that your Canadian upbringing has shaped your investment decisions in any way?

CP: I embrace my Canadian heritage. It’s a different place. Many in the U.S. are quick to dismiss it as “just another state,” but I think in many ways the ethos up there is different. The two countries share many values, but also are very different. I think to be a global investor you have to resist looking at the world through just a U.S. lens. Having grown up elsewhere has to help.

TI:  How do Canadians differ from Americans as investors, if you can generalize that broadly?

CP: I don’t think I can answer this broadly. I left when I was 16 and all my investment experience has been while living in the United States. There have to be differences, but animal spirits are obviously alive in both places. A number of the Canadian pension plans are highly respected investors in our industry.  

TI: What do you enjoy the most about living and being an endowment investor in Texas?

CP: It is a privilege to manage money for a world-class institution like The University of Texas System. As an alum, I may be a little biased; but the system has nine schools and six hospitals, including MD Anderson in Houston and is consistently at the forefront of higher education and research innovation. Living here is great. Texas is a big place with a unique culture and a ton of history. I am an outdoorsman, and this place has it all.  

To learn more about the top endowment investors in hedge funds, check out Trusted Insight's list of Top 30 University Endowment Investors in Hedge Funds.