Britt Harris is the president, chief executive officer and chief investment officer at The University of Texas/Texas A&M Investment Management Company (UTIMCO). Before joining UTIMCO, he was the CIO at Teacher Retirement System of Texas and the CEO for hedge fund giant Bridgewater Associates.
In this interview, he discusses the endowment's in-depth strategy in remaining as one of the best in the U.S.; his goal in molding 500 plus investment leaders (called Titans); and how human judgment and machine learning are complementary to each other in the investment process.
Britt Harris was named on Trusted Insight's 2018 Top 30 Endowment Chief Investment Officers. The following interview has been edited and condensed.
Trusted Insight: UTIMCO is one of the nation’s largest endowments. How do you intend on changing UTIMCO and what’s your strategy for making it one of the best?
Britt Harris: UTIMCO has many great strengths and recent results have been impressive, both on an absolute and relative basis. Our returns for 2017 are likely to be among the highest in our peer universe and over the intermediate-term UTIMCO's risk-adjusted results have been in the first quartile. UTIMCO has taken less risk than approximately 85 percent of comparable funds and had above median returns. We have some very talented investors and unique competitive advantages in certain areas of the investment world: real return investments being at the top of the list along with an efficient and effective methodology of identifying and executing on attractive co-investments.
Our strategy for being among the best endowments is to:
Britt Harris: One of our competitive advantages is that we live in one of the country’s most attractive cities, in a very large state with a very specific culture and set of values. We also oversee one of the three largest endowments in the education space and have significant delegated authority. Our belief is that most people have an ideal job which would be with a fund that is significant, where their role would be meaningful and where they could have an extensive and successful career, where compensation is competitive and performance-based, and where they can live close to their “native home” (e.g., come home to “mama”).
The prototype for us is a high-character, high-capacity Texan who has been trained in the rapid learning, but brute force, environment of NYC but who now prefers a better lifestyle, a more significant mission and the opportunity to fully express their own “personal genius” in a fully investment oriented (versus marketing) environment.
Trusted Insight: Do you recognize the markets as they are today, given the ultra low-interest rates; high valuations; and crowded public and private markets?
Britt Harris: Yes, I recognize the markets but it is essentially true that for the first time in my recollection projected intermediate-term returns are low virtually across the board. With that said, we believe that overall investment results are driven by the macroeconomic backdrop for any particular country. Using that framework the work that the U.S. Central Bank has undertaken has lifted the U.S. out of potential depression into a macroeconomic environment with just enough inflation and just enough economic growth to keep the U.S. in the “risk on” mode since 2009. As a result, U.S. equity returns have been very high - but not out of line with historical periods with similar economic backdrops. The problem is that this backdrop was engineered rather than organic. Thus, the results achieved have been more dependent on monetary policy, both in magnitude and in duration.
In the recent past, we all know that expected volatility fell to unsustainable levels and that was not going to persist. This year we have seen a resurrection of volatility and we have seen geopolitical events have a disproportionate impact on the financial markets, at the same time as the Central Banks have begun to reduce their support for markets. Thus, for all of the volatility most equity markets are still up slightly. We maintain a set of bear market indicators and they remain “off” although our bubble monitoring system has triggered an alarm on global technology. Finally, most bull markets end due to the recession which we do not see over the next year. Secondly, a commodity bust. Already happened. Third, geopolitical events which are on the rise but typically not significant intermediate-term triggers, and finally valuation. Of course, valuation is the ultimate issue but it generally does not create a bear market by itself.
Trusted Insight: There’s been an increasing number and sophistication of investment offices. Does that present a challenge in differentiating from the herd? Why or why not?
Britt Harris: Many funds are at/near whatever their strategic allocations are intended to be. In many cases, including UTIMCO, this has been a multi-year effort. At the same time, most funds have at least doubled in size during this lengthy bull market. Valuation conditions have caused investors to try to increase their expected long-term returns by using “excess liquidity” to move into private markets with presumed higher long-term risk premia, begun to use leverage (e.g., Risk Parity) or simply increase their ratio of public stocks versus bonds.
Looking at the current risk premiums across asset classes most are positive but well below the norm, implying that both absolute returns and differentiation ability are limited. The only remaining sources of differentiation are to focus much more deeply on execution (alpha over Beta) which implies either more concentrated portfolios or the use of factor-based investing. Perhaps, most importantly is to begin to prepare for the ability to both withstand and then benefit from, the coming downturn in the markets which can’t be predicted but which is certain to arrive.
Trusted Insight: Now more than ever, investors are talking about the potential of machine learning and artificial intelligence. To what extent do you think ML/AI will have an impact on the institutional investing world?
Britt Harris: My view is that generally speaking technology and machine learning is superior to “human alone” processes. They can consume and process massively more data and with significantly less “anchoring” or other types of biases. Machines plus humans are, however, superior to machines alone in the long run. The impact of increased machine learning and AI also seems to have created a different “return path” for the markets. AI and machine learning systems probably lead to less volatile and more efficient markets most of the time. Then, on occasion, the common processes that many of them use and the “automatic selling” may be creating more downward spikes, or “flash crashes”
Trusted Insight: You’re an executive professor at both Texas A&M University and at The University of Texas at Austin. What does it mean to you to give back to your alma mater?
Britt Harris: Life has two phases. The first is becoming successful. The second is transforming that success into something that is significant and has lasting and broad-based value. Giving back to A&M and now UT through my teaching is my attempt to transform whatever success I have achieved into something significant. My personal giftedness includes teaching and I have a love for both high-capacity and high-character young people.
I believe that the world is short of leaders. My hope is to create at least 500 alumni of my class (called Titans) who are not only gifted in business, but also have the kind of character that causes them to use that giftedness for the benefit of others.
Trusted Insight: What’s the number one lesson learned throughout the course of your career?
Britt Harris: The markets are a beast. You are never as smart as you sometimes feel nor usually as dumb as you often look. Understanding cycles, being a prolific reader, working deeply with high-character people and knowing your own strengths and weaknesses are the keys to success.
Trusted Insight: Is there anything that the readers should know about UTIMCO or endowment investing broadly?
Britt Harris: UTIMCO's vision is to support three highly significant initiatives, which is the eradication of poverty through education; the advancement of society through world-class research; and to cure and care for cancer patients and others with debilitating diseases.
We attract world-class investors who believe in that vision and want a place to fully express their investment skill set in one of the best cities to live in.
Our donors are uniquely generous and committed to their alma-maters and the medical facilities that we support. We also own two million acres of prized West Texas land that is projected to continue to increase in value for the next twenty plus years.
You can view our full catalog of interviews with institutional investors here.
Click here to view the complete list of 2018 Top 30 Endowment Chief Investment Officers.
In this interview, he discusses the endowment's in-depth strategy in remaining as one of the best in the U.S.; his goal in molding 500 plus investment leaders (called Titans); and how human judgment and machine learning are complementary to each other in the investment process.
Britt Harris was named on Trusted Insight's 2018 Top 30 Endowment Chief Investment Officers. The following interview has been edited and condensed.
Trusted Insight: UTIMCO is one of the nation’s largest endowments. How do you intend on changing UTIMCO and what’s your strategy for making it one of the best?
Britt Harris: UTIMCO has many great strengths and recent results have been impressive, both on an absolute and relative basis. Our returns for 2017 are likely to be among the highest in our peer universe and over the intermediate-term UTIMCO's risk-adjusted results have been in the first quartile. UTIMCO has taken less risk than approximately 85 percent of comparable funds and had above median returns. We have some very talented investors and unique competitive advantages in certain areas of the investment world: real return investments being at the top of the list along with an efficient and effective methodology of identifying and executing on attractive co-investments.
Our strategy for being among the best endowments is to:
- Have a clearly defined culture that is extreme.
- Reconnect to our mission, which is to eradicate poverty through education, advance society through research and help to cure and care for cancer patients and others with debilitating diseases.
- Attract and retain highly talented and high-character investment professionals to the endowment who fit the culture and are energized by the mission.
- Identify the world’s top investment organizations via a Premier List process and then develop deep and unique relationships with those firms.
- Integrate our investment policy with our funding source, which is primarily two million acres of premier West Texas land and the energy-related revenues received from that source, which are expected to exceed $1 billion per year over the next 15+ years.
- Re-examine the role of bonds and gold.
- Continue to use our competitive advantage in co-investments.
Britt Harris: One of our competitive advantages is that we live in one of the country’s most attractive cities, in a very large state with a very specific culture and set of values. We also oversee one of the three largest endowments in the education space and have significant delegated authority. Our belief is that most people have an ideal job which would be with a fund that is significant, where their role would be meaningful and where they could have an extensive and successful career, where compensation is competitive and performance-based, and where they can live close to their “native home” (e.g., come home to “mama”).
"I believe that the world is short of leaders. My hope is to create at least 500 alumni of my class (called Titans) who are not only gifted in business, but also have the kind of character that causes them to use that giftedness for the benefit of others."
The prototype for us is a high-character, high-capacity Texan who has been trained in the rapid learning, but brute force, environment of NYC but who now prefers a better lifestyle, a more significant mission and the opportunity to fully express their own “personal genius” in a fully investment oriented (versus marketing) environment.
Trusted Insight: Do you recognize the markets as they are today, given the ultra low-interest rates; high valuations; and crowded public and private markets?
Britt Harris: Yes, I recognize the markets but it is essentially true that for the first time in my recollection projected intermediate-term returns are low virtually across the board. With that said, we believe that overall investment results are driven by the macroeconomic backdrop for any particular country. Using that framework the work that the U.S. Central Bank has undertaken has lifted the U.S. out of potential depression into a macroeconomic environment with just enough inflation and just enough economic growth to keep the U.S. in the “risk on” mode since 2009. As a result, U.S. equity returns have been very high - but not out of line with historical periods with similar economic backdrops. The problem is that this backdrop was engineered rather than organic. Thus, the results achieved have been more dependent on monetary policy, both in magnitude and in duration.
In the recent past, we all know that expected volatility fell to unsustainable levels and that was not going to persist. This year we have seen a resurrection of volatility and we have seen geopolitical events have a disproportionate impact on the financial markets, at the same time as the Central Banks have begun to reduce their support for markets. Thus, for all of the volatility most equity markets are still up slightly. We maintain a set of bear market indicators and they remain “off” although our bubble monitoring system has triggered an alarm on global technology. Finally, most bull markets end due to the recession which we do not see over the next year. Secondly, a commodity bust. Already happened. Third, geopolitical events which are on the rise but typically not significant intermediate-term triggers, and finally valuation. Of course, valuation is the ultimate issue but it generally does not create a bear market by itself.
Trusted Insight: There’s been an increasing number and sophistication of investment offices. Does that present a challenge in differentiating from the herd? Why or why not?
Britt Harris: Many funds are at/near whatever their strategic allocations are intended to be. In many cases, including UTIMCO, this has been a multi-year effort. At the same time, most funds have at least doubled in size during this lengthy bull market. Valuation conditions have caused investors to try to increase their expected long-term returns by using “excess liquidity” to move into private markets with presumed higher long-term risk premia, begun to use leverage (e.g., Risk Parity) or simply increase their ratio of public stocks versus bonds.
"The markets are a beast... Understanding cycles, being a prolific reader, working deeply with high-character people and knowing your own strengths and weaknesses are the keys to success."
Looking at the current risk premiums across asset classes most are positive but well below the norm, implying that both absolute returns and differentiation ability are limited. The only remaining sources of differentiation are to focus much more deeply on execution (alpha over Beta) which implies either more concentrated portfolios or the use of factor-based investing. Perhaps, most importantly is to begin to prepare for the ability to both withstand and then benefit from, the coming downturn in the markets which can’t be predicted but which is certain to arrive.
Trusted Insight: Now more than ever, investors are talking about the potential of machine learning and artificial intelligence. To what extent do you think ML/AI will have an impact on the institutional investing world?
Britt Harris: My view is that generally speaking technology and machine learning is superior to “human alone” processes. They can consume and process massively more data and with significantly less “anchoring” or other types of biases. Machines plus humans are, however, superior to machines alone in the long run. The impact of increased machine learning and AI also seems to have created a different “return path” for the markets. AI and machine learning systems probably lead to less volatile and more efficient markets most of the time. Then, on occasion, the common processes that many of them use and the “automatic selling” may be creating more downward spikes, or “flash crashes”
Trusted Insight: You’re an executive professor at both Texas A&M University and at The University of Texas at Austin. What does it mean to you to give back to your alma mater?
Britt Harris: Life has two phases. The first is becoming successful. The second is transforming that success into something that is significant and has lasting and broad-based value. Giving back to A&M and now UT through my teaching is my attempt to transform whatever success I have achieved into something significant. My personal giftedness includes teaching and I have a love for both high-capacity and high-character young people.
I believe that the world is short of leaders. My hope is to create at least 500 alumni of my class (called Titans) who are not only gifted in business, but also have the kind of character that causes them to use that giftedness for the benefit of others.
Trusted Insight: What’s the number one lesson learned throughout the course of your career?
Britt Harris: The markets are a beast. You are never as smart as you sometimes feel nor usually as dumb as you often look. Understanding cycles, being a prolific reader, working deeply with high-character people and knowing your own strengths and weaknesses are the keys to success.
Trusted Insight: Is there anything that the readers should know about UTIMCO or endowment investing broadly?
Britt Harris: UTIMCO's vision is to support three highly significant initiatives, which is the eradication of poverty through education; the advancement of society through world-class research; and to cure and care for cancer patients and others with debilitating diseases.
We attract world-class investors who believe in that vision and want a place to fully express their investment skill set in one of the best cities to live in.
Our donors are uniquely generous and committed to their alma-maters and the medical facilities that we support. We also own two million acres of prized West Texas land that is projected to continue to increase in value for the next twenty plus years.
You can view our full catalog of interviews with institutional investors here.
Click here to view the complete list of 2018 Top 30 Endowment Chief Investment Officers.