Monday, May 21, 2012

Carr Trust Response

The Standard Times offered the following comment in response to my series of posts on the Carr Trust:

There have been many comments regarding the Carr Foundation as well as numbers presented. Fortunately, most are misconstrued.

All the numbers came from IRS 990 filings, Texas Tech or Angelo State University documents.

By will, royalties go into corpus of the Foundation.They are not diverted. Someone has to manage the corpus. Currently, that is the LTF at Texas Tech.  Carr funds have never been under ASU management.
My stories were on the shift of investment of Carr funds to Tech's Long Term Investment Fund (LTIF) after ASU joined TTU.  This decision was made by Carr Trustees.  As I don't have access to the Carr wills, I don't know how Carr Trustees are selected.. 

Currently, they are directed by the Board of Regents of the University. Today, that is TexasTech
This practically may be the case, however it is Carr Trustees who make decisions regarding Carr Trust operations.

The transition of the funds began in 2007 and was finalized some 15 months later. Prior to that they had been managed by outside investment managers. During the fiscal year 2008 the average University Endowment lost a bit more than 20% The Carr probably 8-9% 

This reply missed the opportunity to share TTU LTIF's actual investment performance in 2008.  Carr's historical low risk profile is evidence by the loss of only 8-9% in the financial crisis. 

Carr is not in Texpool. That is ASU interim money. 
A 2010 TTU document showed ASU and Carr money in Texpool.  One would need to know that 100% of Carr funds were in LTIF, information not included in the report.

Alternative investments include many investments opportunities. Hedge funds are the largest concentration for the LTF. These are not the funds you read about in the media. At Tech the goal of these monies is to return 6-8 and provide an alternative to riskier investments. They are not allowed to leverage more than 1-1. On average they have provided this safety and return over the past decade.
During the 2008 financial crisis alternative investments melted down.  Many could not be traded. Derivative positions sank whole companies.  The edge that gave investors higher returns became a razor in reverse, engineering massive losses.  What leverage did LTIF allow hedge funds in 2007?

Other alternatives include real estate, oil and gas investments,private equity,etc. Over the past ten years private equity has easily been the best investment.
This "best investment in the last ten years," private equity underwriters (PEU's), I consider a stain on global business.  There are five years of posts on this blog in this regard.

The Carr Foundation pays Texas Tech 20 basis point for investment oversight. Expenses have been far less than prior costs under the Texas State system.

On $96 million in corpus, Carr pays LTIF $192,000 per year.  Additional expenses are built into LTIF's operations.  Hedge funds and private equity expect their 2% annual management fee and 20% of profits generated.

I would be glad to discuss this in more detail so future comments can be more tempered if anyone so desires.- TeddyB
I still believe LTIF and Carr performance during the Financial Crisis would make an interesting business case.  Students could look at the differing risk profiles and how varying investments performed in the meltdown.  They could impute the actual investment fees and percentage for each portfolio.  This was an issue in 1999 when the state wanted Carr to pursue higher returns, which it later did:

It might make a good legal case as well.  How did attorneys shift the Carr Trust to the Texas Tech Board of Regents, when elected officials, themselves lawyers, assured the public nothing would change?