UTIMCO Stands by Venture

Bruce Zimmerman has musical tastes that vary from the Grateful Dead to Beethoven.

This diversification carries over to his role as CEO and CIO of the University of Texas Management Co., as the Houston Chronicle pointed out in a recent profile.

Indeed, Zimmerman manages a sprawling portfolio for the University of Texas system with tentacles in all the expected places, from venture to real estate. Assets under management at the end of September were $25.4 billion.

One tentacle Zimmerman says he’s committed to is venture. VCJ recently had a chance to flesh out his thinking in a chat over the phone.

Here is an edited version of the interview:

Q: What is your current allocation to venture and how do you expect it to change?

A: Our current allocation is around 3% to 4% of our total assets and we are pretty comfortable with that type of exposure. [But] we’re not rigid. We consider ourselves to be very opportunistic. When we come across what we think is a very interesting market opportunity with a first class team we don’t want to pass because we are over allocated.

Q: What is your outlook toward venture? Will returns improve?

A: I don’t know. It is hard to say. That said, I think there isn’t as much capital overhang in venture as there was, say, a decade ago. [And] the past decade has not produced great venture returns, I don’t think. So I think there’s at least a reasonable probability over the next decade, because there is less of a capital overhang, that venture in general may produce better returns.

Q: That might suggest making additional bets?

A: Our approach in venture—really our approach with our entire endowment—is driven more bottom up than top down. What we’re looking for are world-class partners that are in a particular niche, or particular segments of a market, that we think provides more tailwind than headwind. And so we are hoping regardless of what the overall market does our managers will perform well for us.

Q: You sound comfortable, then, with your current stable of GPs.

A: [In] our current portfolio we have a portion of our portfolio with managers that we are very pleased with, and we are looking to continue long-term relationships. There are other managers, who are legacy managers, which we invested with earlier but that we’re not continuing our relationship.

Q: Where do you see the best opportunities in venture?

A: We think there are opportunities across the spectrum. Again it really gets down to partnering with the absolute best managers. We had some success in the social media space. We [hope] that there will continue to be opportunities in that and other areas of information technology. We’ve got some exposure to life sciences that we’re pleased with. We’ve made some commitments recently and will continue to broaden our exposure in life sciences.

Q: What about cleantech?

A: We don’t have as much in cleantech. A lot of capital has poured into that area. I think there are certainly a lot of question marks still out there. But I wouldn’t be surprised at all to see specific winners—specific niches within cleantech and specific venture partners—that do very well.

Q: Is venture confronting a secular or cyclical challenge?

A: I think it is probably more cyclical than structural. I think there has been and will continue to be a certain demand for venture capital.

Q: So there are investment opportunities for the strong willed?

A: As we think about providing our capital across the globe, across capital structures, across asset classes and investment styles, one of the things we try and be mindful of is the supply and demand for capital. A particular situation where there is strong demand and not a lot of supply we think is advantageous of those of us that are supplying capital.