Bloomberg: Texas Endowment at $31 Billion Passes Yale With Oil’s Help
The endowment was fueled by mineral rights from land it controls in the Permian Basin. It’s an area bigger than Delaware that has emerged in the past decade as the world’s fastest growing oil-producing region due to advances in hydraulic fracturing, or fracking. The state system shares the mineral rights revenue with Texas A&M University, which saw its endowment value surge to $13.5 billion.
The University of Texas controls 2.1 million acres of land in the Permian, which generated a record 5.3 million barrels in July as drillers built longer and longer horizontal wells to frack. The companies paid out a little more than $1 billion of royalties to the state school endowments in the year through August, the most since 2014 when oil prices topped $100 a barrel.
Get ready for this one…
Other schools that have benefited include Texas Christian University. The school in Fort Worth has 10 percent of its $1.6 billion endowment allocated to energy, with more than two-thirds in mineral rights it received from donors, said James Hille, the investing chief.
Abilene Christian University, a small private college west of Dallas, committed a quarter of its $450 million endowment to energy, including a big bet on the Permian region. The fund gained 15.8 percent in fiscal 2018, better than most wealthy U.S. colleges and eking past Bowdoin College’s 15.7 percent return.
Abilene Christian had a mix of energy investments when it decided in 2013 to ramp up its exposure with shares in Texas Pacific Land Trust, which controls vast tracts of land in the Delaware Basin in the western region of the Permian. The move proved prescient as Texas Pacific became the hottest oil stock from the U.S. shale boom, climbing more than 2,200 percent from 2010 before prices corrected in October.
The university had so much conviction in the investment it lifted its limit on how much the endowment may own in one company, said Jack Rich, the chief investment officer. A 3 percent commitment was increased to 11 percent this year and generated a 130 percent gain when some shares were sold, he said.
“That’s off the rails,” said Rich, who’s worked for the university’s administration for 28 years, creating an investment office about a decade ago. “We took some risk there.”
It’s rare for school funds to hold more than single-digit allocations to energy, said Fund Evaluation’s Busken. Many endowments and foundations have cut oil and gas under pressure to divest from fossil fuels.
Rich said Abilene Christian is diversifying into wind, solar and other sustainable energy producers. It’s also holding a position in Texas Pacific, even as the share price has tumbled with oil prices.
“Our edge is our willingness to buy into what we know, and that’s the energy market,” Rich said.
11% x 450MM = $49.5MM. If Abilene Christian held that at the top ($870), it implies they held just under 57k shares. Puts them in the Maurice Meyer ballpark at 0.8% of total market cap.
The quotes in the article are very “past tense” (“We took some risk there.”). Selling all or part of 57k shares into TPL’s poor liquidity picture has to be a chore and presents one hell of a catalyst for the price to go lower.