U of T will tame its investing style, acknowledging significant losses in its pension and endowment funds under the University of Toronto Asset Management Corporation. In 2008 alone, the university lost $1.5 billion, almost 30 per cent of the fund’s total value.
In a Feb. 20 letter to faculty, staff, and alumni, U of T president David Naylor outlined investment recommendations from the report of the President’s Committee on Investments, which he received in December 2009.
“The issue is not one where we have a conspicuous failure, but rather one where, frankly, the returns are not at the level of our peers, and given that the effort is being made to use a different strategy,” Naylor told The Varsity. “The lesson seems as clear to me as snow on the ground: we need to follow a more conventional strategy.”
Naylor has largely accepted the committee’s proposals, with several caveats. UTAM president and CEO William Moriarty, appointed in 2008, will become U of T’s chief investment officer. Moriarty will be accountable directly to the president, though Naylor maintains he has no plans to “second-guess UTAM’s day-to-day decision-making.”
Other changes proposed in the report include changes to UTAM’s governance, the creation of an expert committee, and advising and overseeing UTAM to “avoid any unhappy dips,” according to Naylor. As well, the report recommends that the university “reassess its risk and return targets.”
Moriarty echoed this sentiment. “The issue of risk appetite is really something the university needs to determine,” he said. “And if they change that, they also have to be willing to make changes in terms of the rates of return, which affect their operating budget and capital budget.”
UTAM was established in 2000 by then-president Robert Pritchard as an in-house investment management body similar to those seen at Harvard and Yale. The corporation favored risky “alternative” investments with potentially higher rates of return. These investments were predominantly hedge funds (investments requiring significant oversight and thus high fees) and private equity, which typically refers to assets and investments not listed on the public stock exchange, such as start-up companies.
UTAM aggressively invested in these high-risk assets, hoping to generate the massive gains seen at U.S. schools. But the risk hasn’t paid off. U of T had to suspend its normal endowment payments to the operating budget—meaning the budget lost $62 million or five per cent of the budget. In the letter, Naylor said payouts will resume next year.
UTAM’s investment portfolio has consistently underperformed in periods of economic health. According to the December report, UTAM has consistently ranked below the 95th percentile compared to other Canadian universities, which have been more conservative in their investments.
In 2008, a painful year for all investors, U of T suffered the worst losses of any Canadian university. Aggressive U.S. schools saw similar losses in 2008, but their rates of return in economic booms have been higher.
“We have a much smaller plan [than Ivy League schools], and whether you support these types of investment strategies or not, to do them you need to be staffed and able to manage complexity, and in that respect, size does matter,” Naylor said. “A bigger plan is more likely to be able to steer investment in private equity.”
