University of Texas Investment Management Co (UTIMCO) the $89.4 billion asset manager and one of the largest public endowments in the US is around 5 per cent overweight to AI across its portfolio. AI is integrated in every asset class spanning public and private equity, hedge funds, real return and fixed income but is most overweight in hedge funds and infrastructure.
“I think if you’re going to be overweight somewhere, being overweight in the infrastructure that supports (AI) is probably not a bad place to be just because if it’s power generation, there’s an alternative use,” said Rich Hall, chief executive and chief investment officer, speaking at a recent board meeting from the fund’s Austin headquarters. “You can be selling into the grid, and you don’t have some single-use stranded asset risk where that’s mitigated to a degree.”
Hall said that around $40 billion of the portfolio is invested in AI, compared to a benchmark target exposure of around $36 billion.
UTIMCO measures its AI exposure using a mapping process developed by Goldman Sachs. It divides exposure between different phases in line with investee companies own integration of AI to see how UTIMCO’s dollars stack up.
Phase one comprises companies that are foundational to AI, well known in the public conscious as being truly AI-first like NVIDIA, Open AI and Anthropic. Phase two is picks and shovels companies, working in tandem with the development of AI infrastructure and including names like Alphabet, Palantir and Intel.
Phase three companies are characterised by those that utilise AI to generate revenue and include Intuit, Microsft, Amazon, and Oracle while phase four is companies which have a workforce that can either be replaced by, or utilise AI productivity and include names like Ford Motors, Accenture, Dow and Boeing.
UTIMCO has around $2 billion invested in phase one in an approximate $500 million under allocation. The remaining $38 billion is spread almost equally between phases two, three and four.
Growing risks
Hall reflected on the overweight to AI at the same time as flagging that historical analysis suggests the recent rise in equity markets is poised to revert to the mean. The (equity-skewed) portfolio has posted one-year returns of 12.5 per cent in a standout performance driven by public stocks and hedge funds.
Hall argued that casting back over 10-year periods during the last fifty years, reveals lower outcomes are now likely after recent, top quartile returns. Beginning in 1976, historical analysis reveals particularly weak performance between 1998 and 2008 (during the tech bust and the GFC) that was preceded by a particularly strong performing decade between 1989 to 1998, for example.
“It’s so great that we’ve had this window,” reflected Hall. “We’ve made money where we can and have a cushion in the back pocket for the years the market doesn’t offer.”
Recent tweaks to UTIMCO’s public equity allocation that returned 24.1 per cent last year include transitioning to an ex-China ex-Hong Kong benchmark and pausing the systematic tactical allocation programme. The investor has also combined its developed and emerging markets equity portfolios.
The strongest contributors to public equity were fundamental and quantitative strategies, and stock selection. In another tweak, this year the team will trim public equity (and strategic partners) to support private capital calls and increase client distributions.
Although the Magnificent 7 continue to drive performance in the S&P 500, the UTIMCO team reflected on a growing breadth and dispersion in the index. For example, last year the Mag 7 only outperformed by 10 per cent, compared to 40 per cent and 60 per cent in earlier years in a significant narrowing in outperformance and earnings growth. Last year, only two of the Mag 7 outperformed the broader index compared to all 7 outperforming the index in 2024.
It suggests that US exceptionalism, the dominant theme that has led to a surging US weight in global indexes, faces real tail winds as global themes around interest rates and regulation drove investor interest elsewhere in 2025.
Top quartile managers struggling to maintain positive
The team also reflected on challenges in active management. Median alpha amongst active global public equity managers has been negative since 2017 and declined significantly in 2025. Meanwhile, amongst active US public equity managers median alpha has been negative since 2012 and also declined significantly in 2025.
UTIMCO has expanded its portfolio tools to try and improve alpha consistency. For example, 70 per cent of the portfolio now uses leverage, and shorting and non equity tools like portable alpha have increasingly taken over from traditional long only investment.
Stock selection remains a key alpha driver however, contributing to around 50 per cent of excess return and nearly 40 per cent of active risk.
The endowment has 26.2 per cent in public equity, 26.9 per cent in private equity and 6.3 per cent in directional hedge funds. It has a 4.7 per cent allocation to long treasuries, 3.1 per cent in cash and 10.9 per cent in stable value hedge funds, plus a 2.1 per cent allocation to natural resources, 5.4 per cent infrastructure, and 8.9 per cent real estate. Five point two per cent is allocated to strategic partnerships.
