Former UT regents’ chair Charles Miller, whose name I invoked in my discussion of the UTIMCO controversy, sent me an e-mail containing his views on the Senate Finance hearing and the issues raised therein. Mr. Miller asked that, if I chose to publish his remarks, that they appear exactly as he wrote them, and I have complied with his request, except for correcting a typographical error or two. I think the UTIMCO people were sucker punched and unfairly attacked in the Finance Committee hearing last week. In current circumstances, it might be reasonable to review the performance of all the state funds considering what’s been happening in markets and the economy. But considering the level of funding involved in our state budget compared to the total value of UTIMCO’s bonus plan, one has to conclude that there were basically political motives to that outburst in the Finance Committee. As you may recall, I have reservations about the structure, investment policy and compensation schemes at UTIMCO and some of those reservations relate to the political shenanigans we just experienced. But under current policies I thought the fiduciary managers at U.T. had acted responsibly in their compensation decisions and experts in the investment field would support their actions. I believe there did exist a strong legal obligation on compensation paid to employees, that the compensation plan is public knowledge, and that it is reviewed by consultants, by a UTIMCO board of investment experts and by the Board of Regents, whose primary responsibility this is ultimately. It may be a matter of judgment whether the plan is appropriate, but it is not an issue of oversight in this case. I believe current circumstances in financial markets are highly volatile and extremely unusual in relation to most historical standards. It is dangerous for political leaders — inadequately informed — to pour fuel on the fire with populist outbursts in public hearings. We need careful, informed leadership to review issues of management and performance of our fiduciary assets, starting in the UTIMCO case with the Board of Regents. This is a time, due to the implosion of much of our country’s financial structure to engage in an extensive review of investment strategy, organizational structure, personnel, and compensation plans. My concern is the increasing evidence of too much interference in the actions of the state boards by political leaders, essentially compromising the fiduciary duties of appointed officials. There is a bright line legally and from a sound public policy perspective between appointment and oversight duties of elected officials and the management duties of appointed officials. Last week’s behavior by some members of the Finance Committee tends to intimidate appointees and discourage others from serving and there is simply no excuse for it. For the record, it’s my personal opinion that the public funds in Texas have been prudently managed, even if at times suboptimally. The biggest problems in the public fund arena typically are political influence and the public environment in which managers have to deal with bad markets or poor performance. Organizations like UTIMCO, to be successful in the long run, need to take that into consideration—and they often don’t.
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