DALLAS - The $17.4 billion Texas Permanent University Fund should continue to thrive, despite a steep drop in the price of oil, which supports the fund's value, according to Moody's Investors Service.
"Between fiscal 2000 and 2014, investment income contributed 1.7 times more value to the PUF than mineral (oil and gas) income," analysts led by Karen Kedem wrote in a Feb. 6 report. "Strong investment management policies and practices contribute to the PUF's long-term consistency of performance."
Investments in the PUF are managed by the University of Texas Investment Management Company, known most commonly as UTIMCO, headed by chief executive Bruce Zimmerman.
As oil prices surged and the economy recovered from the recession, the value of the PUF grew 60% in five years, according to Moody's.
While oil prices dropped nearly in half since the close of fiscal year 2014, UTIMCO does not project a proportional decline in revenue for the current fiscal year.
UTIMCO is also exploring partnerships that may diversify revenue even more, according to Moody's.
"A highly diversified asset allocation, low correlation of investments to energy prices, and the professional management of the PUF endowment insulate its value and annual distributions from fluctuations of oil and gas prices," Moody's said.
"The financial stewardship of these assets and long-term performance are critical to maintaining the highest rating of Aaa," analysts added. "The constitutional requirement of treating oil, gas, and water revenue as principal for the endowment, instead of income, serves as a safeguard for energy prices and highlights the importance of investment returns."
The PUF backs bonds issued by the University of Texas and Texas A&M University systems, with a portion of the fund distributed to the two systems annually. The fund covers about $2.8 billion of debt.
The University of Texas will refund a portion of its PUF debt with a $200 million issue this month.
The University of Texas System has $1.6 billion of PUF bonds and a commercial paper program authorized up to $750 million, with $450 million outstanding. The Texas A&M University System has $810 million in PUF bonds and a commercial paper program authorized up to $125 million, with no CP outstanding.
