As UT bans smoking on campus, it continues to benefit from tobacco investments

Jordan Rudner

Although UT’s on-campus smoking ban will be fully implemented in March, a portion of the University’s endowment is invested in more than a dozen tobacco companies. 

The University of Texas Investment Management Company, or UTIMCO, is a nonprofit corporation created by the UT System to oversee UT and Texas A&M systems’ investments. 

UTIMCO holds equity and debt securities in several companies including British American Tobacco, Imperial Tobacco Group and Philip Morris. The company holds more than 250,000 security shares in tobacco equity securities, which combined hold a value of more than $9.5 million.

UTIMCO CEO Bruce Zimmerman said the company, which ultimately follows the investment policies set by the UT System Board of Regents, does not take anything other than economics into account when making investment decisions.

“The investment policies explicitly state that UTIMCO will not take into account political or social considerations in making investments,” Zimmerman said. “We only take into account the economic factors surrounding the decision.”

Zimmerman said that UTIMCO’s goal is simply to focus on profits.

“Our job is to generate returns so that we can provide more resources to all the institutions in the UT System, so that students and professors can get their educations and do their jobs,” Zimmerman said. “They’re free to pursue any social or academic cause they want to pursue.”

In 2011, Student Government and the Graduate Student Assembly both passed resolutions recommending a policy change written by a group called Longhorns for Investing Responsibly. The proposal recommended that UTIMCO “[consider] investments in line with its values.”

Zimmerman said such a change is unlikely, especially because there are an unlimited number of political causes that might appeal to a person’s set of values at any given time.

“There have always been, there continue to be, and there always will be a long list of social and political considerations that people care about,” Zimmerman said. “If we were to take those considerations into account, there would be a cost to that, and we would generate less resources for the University System.”

William Charlton, senior lecturer and associate director of UT’s Center for Private Equity Finance, said when sales for a product remain consistent regardless of economic circumstance, the demand is considered inelastic. Tobacco is one such product.

“In an inelastic demand case, when price on a product goes up, quantity doesn’t change, or at least changes much less than the increase in price,” Charlton said. “People will pay large amounts of dollars to continue to smoke.”

Charlton cited anti-smoking laws in New York, which apply a tax of more than $5 to every pack of cigarettes sold, as an example.

“Even with the $5 tax, there is still substantial demand for the product,” he said.

Given the inelastic demand for tobacco products, Charlton said it makes sense that some would consider tobacco products an ideal candidate for investment.

“Even in a negative economic growth environment, people will still be willing to buy cigarettes,” Charlton said. “Even in difficult economic times, you will still have substantial demand, and that’s what makes for an attractive investment.”

Published on January 25, 2013 as "Endowment invested in tobacco companies".