University aims to limit risk by investing in bonds

As the stock market continues to fall, UNM is trying to avoid big risks by investing in bonds.

"We're not in the stock market - the stock market is too risky," said Andrew Cullen, associate vice president of Planning, Budget and Analysis. "We are in the bond market because it's not as risky of an investment."

Cullen said UNM has a five-member investment advisory committee helmed by David Harris, the executive vice president of business management.

"We meet and review what we're doing. Then we actively manage and watch our investments so that we don't get too risky with them," Cullen said.

All of the tuition dollars the University receives in August go into a checking account at Bank of America. The investment advisory committee decides how much it can take from this account to buy bonds, he said.

"We work with Smith Barney and two teams of bonds specialists to decide what the best options are," Cullen said.

The financial firm Smith Barney is a division of Citigroup Global Capital Markets and provides brokerage, investment banking and asset management to its clients.

"Our portfolio invests in various U.S. government treasury bonds, agency bonds, highly rated corporate bonds and municipal bonds," Cullen said.

He said the University also uses rating agencies such as Standard & Poor's and Moody's when deciding where to invest.

"We only invest in companies with A to AAA ratings according to S&P and A-1 to AAA ratings according to Moody's," he said.

S&P and Moody's use AAA as the highest rating and D as the lowest.

"The higher the rating, the stronger the company and the more safe the company is to invest in," Cullen said.

However, investing in such high-rated companies yields lower interest because the companies are less risky, he said.

Diversification, or buying stock in many different companies and industries, is another way of avoiding risk, Cullen said.

"We don't want to have all our eggs in one basket. That's why we diversify," he said.

Under corporate bonds, there are several sectors that the University invests in, including retail, health care, manufacturing, consumer products, telecommunications, technology and insurance.

Cullen said UNM does not have any bonds in the corporate financial sector.

"We work with a financial adviser at Smith Barney, and he told us back in January that there were problems within the banking systems and financial markets and we should stay away from it," he said.

Cullen said the first rule of investing is keeping capital safe.

"Second is liquidity," he said. "We want to be able to get our money back when we need it, and the third part of our philosophy is the realization of the return, or the yield."

Cullen will give a presentation on the University's investments to the Board of Regents at its meeting in the SUB on Tuesday.

Junior Deanna Alvarez said she is glad UNM is investing in something besides the stock market.

"I think it's a good idea because it is safer, and the stock market keeps going down," she said.

Alvarez also said she hasn't heard much about how UNM spends tuition money and would like to be informed more frequently.

Senior Nate Sanchez said UNM is smart to invest in bonds instead of the stock market.

"I think they should continue doing what they're doing if it is working, especially at this time," he said.