The University of Texas/Texas A&M Investment Management Co.’s refined public equity portfolio is increasingly converting risk into alpha, helping drive stronger and more consistent performance.
The portfolio generated a 24.1% total return and 1.4% excess return for the year, reflecting the benefits of structural changes the investment team has made in recent years.
During a recent board meeting, Amanda Hopper, UTIMCO’s managing director of public markets, noted the strategy has produced consistently moderate positive alpha from 2023 through 2025, resulting in roughly 1.5% annualized excess return over the period. The results, she said, stem directly from adjustments to the portfolio’s structure.
According to materials from the meeting, more than 70% of the equity portfolio now incorporates leverage, shorting or non-equity tools and has reduced exposure to traditional long-only strategies — moves, Hopper said has improved balance and strengthened the portfolio’s ability to deliver steady returns. Year to date through February, the public equity portfolio was estimated to be up about 4.6%, generating roughly 0.2% in alpha.
At the same time, UTIMCO has significantly lowered its active risk relative to its benchmark, she added. Tracking error — a measure of relative portfolio risk — has fallen from 4.7% at its peak to about 1.8% today, representing roughly a 60% reduction.
The strategy is working, said Hopper, noting the shift into a wider range of strategies has helped convert the risk the portfolio takes into more consistent excess performance.
“Ultimately, the key question is whether the risk you’re taking benefits the portfolio,” she said. “We’re now converting that risk into alpha more consistently than we did in the past.”
The fund is also using the opportunity to upgrade the alpha stream generated by its external partners through changes to its public strategic partnership program.
The program, approved by the board in December 2019 and launched in April 2020, currently manages about $3.7B, according to Patrick Zerda, a director on UTIMCO’s public equities team. The strategic partnerships program returned 18.4%, generating roughly 0.2% of alpha, he said.
The initiative partners UTIMCO with large global asset managers to generate excess returns against a strategic split of roughly 82% equities and 18% fixed income through tactical asset allocation across regions and asset classes, as well as security selection within those markets.
Also speaking during the meeting was Ken Standley, a senior director at UTIMCO, who noted that beyond investment performance the partnerships also provide organizational benefits, including knowledge sharing, research collaboration and macroeconomic insights.
Since inception, the program has generated about 12% total returns and roughly 1.6% alpha, broadly meeting its long-term objectives. However, excess returns over the past one- and three-year periods have been largely flat, Standley said, prompting the team to reassess the structure.
As a result, UTIMCO is evolving the initiative into what he described as “Strategic Partnerships 2.0,” shifting toward a multi-asset portable alpha framework.
Under the new structure, the program will maintain the same overall market exposure but separate alpha generation from the underlying beta exposures. Instead of allocating capital directly across equities and fixed income to meet the 82/18 strategic allocation, capital will increasingly be deployed into active strategies, while maintaining the tactical exposure synthetically.
The approach is designed to improve both the level and stability of alpha generation, while maintaining the diversification benefits the strategy provides to the broader endowment portfolio, said Standley.
He noted that the program’s alpha stream currently has near-zero correlation with other sources of alpha within the endowment, a characteristic UTIMCO values.
“We’re doing more relative value strategies, but we’re going to end up looking even more different from our public equity and fixed income implementations to retain those valuable diversifying characteristics,” said Standley.