University of California Makes Big Push Into Passive Investing
University of California Makes Big Push Into Passive Investing
(Bloomberg) -- The University of California’s $11.5 billion endowment has made a sizable move into passive investing.
Since 2014, passive investments increased to $1.9 billion, or 17 percent of assets, from $400 million, or 5 percent, according to a presentation Tuesday at a board of regents meeting.
“We view passive as an investment strategy unto itself,” Scott Chan, senior managing director of public equity, said at the meeting.
Specific investments or strategies weren’t identified. Active managers will be used for “less efficient or underfollowed markets” while passive funds are for “core equity exposures and portfolio integration/rebalancing,” according to documents presented to the board.
Endowments and foundations have increasingly used passive investments as an alternative to paying high fees for active managers such as hedge funds that for the last decade have turned in disappointing results. Some also put money into index funds or exchange-traded funds while waiting for investment opportunities.
Jagdeep Bachher was hired in 2014 to oversee the University of California Regents’ $118 billion in endowment, pension and other assets. He’s fired outside money managers, sought to cut fees, concentrate market bets, boost performance and make a bigger push into private equity.
In 2014, the endowment had 175 external money managers in its portfolio. By the end of 2017, the number was reduced to 103. The investing team said it’s shifting from momentum and technology stocks into value stocks. The managers are planning to overhaul the real estate and real assets portfolios, cutting fossil fuels and focusing on areas like utilities and transmission assets.
The endowment also plans “an increase in private equity at the expense of public equity,” said Edmond Fong, the fund’s senior managing director. He estimated the $1.1 billion cash position would be zero by 2022.
Read More: California Fund Gains 15% on ‘Shining Star’ Stocks Outside U.S.
With the expectation that the stock market’s bull run will lose some steam, investors including endowments are looking to other asset classes. U.S. college endowments gained 12.2 percent on average in fiscal 2017, the best performance in three years, according to an industry survey. Those gains were fueled by U.S. public equities, with private equity contributing 11.7 percent gains on average.
Public equities made up $5.2 billion, or 45 percent, of California’s endowment at Dec. 31, according to the fund’s documents. That level is estimated to decrease to 30 percent by 2022. Private equity accounted for $1.2 billion, or 10.1 percent of the portfolio, and is likely to jump to 23 percent by 2022.
Bachher said that while 80 percent of the endowment’s repositioning is complete, “we still have work to do.”
To contact the reporter on this story: Michael McDonald in Boston at mmcdonald10@bloomberg.net.
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Mary Romano, Josh Friedman
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