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Endowments and Foundations

University of California endowment tops benchmark with 15.1% return

UC Chief Investment Officer Jagdeep Singh Bachher

The University of California's general endowment and defined benefit plan both posted double-digit returns for the fiscal year ended June 30, according to investment results on the university system's website.

The $10.8 billion Oakland-based endowment returned a net 15.1%, topping its custom policy benchmark of 12.2%, while the $61.6 billion pension plan returned a net 14.5%, compared to its custom benchmark of 12.5%. The returns are slightly better than the 13% to 14% return Chief Investment Officer Jagdeep Singh Bachher predicted the plans would achieve in August.

The endowment returned an annualized net 5.6% for the three years ended June 30, compared to the custom benchmark's 4.8%; 9.4% for the five-year period compared to the benchmark's 8%; 5.3% for 10 years, compared to the benchmark's 4.8%; and 7.3% for 20 years vs. the 6.8% benchmark. The endowment returned -3.4% in the previous fiscal year.

The pension plan saw three-year returns of 5.4%, compared to the benchmark's 4.5%; five-year results of 9% compared to the benchmark's 8.1%; 10-year returns of 5% topped the benchmarks 4.4%; and 20-year returns were 6.7%, surpassing the 6.4% benchmark.

Mr. Bachher, who became the CIO in early 2014, has been aggressive in remaking the investment office. He has purged staff and hired his own replacements while at the same time terminating dozens of money managers and increasing alternatives allocations.

The latest returns will likely be good news for Mr. Bachher in terms of his bonus compensation. A key UC regents committee, the regents governance and compensation committee, is expected to announce his bonus for the fiscal year Wednesday afternoon.

Mr. Bachher was paid a bonus of $841,096 for the fiscal year ended June 30, 2016, on top of a salary of $632,380. While returns were negative for the endowment and pension plan in the 2016 fiscal year, Mr. Bachher's bonus compensation was based on a three-year rolling average.

Strong equity performance helped drive the 2017 fiscal-year results. The endowment saw a 23.8% equity return, topping the 20% return of its custom benchmark, while the pension plan had a 22.5% equity return, compared to the 19.1% benchmark return.

Fixed-income results were more lackluster. The endowment returned 3.2%, compared to the custom benchmark's 2%, and the pension fund returned 2.9% return (2% benchmark); absolute-return strategies, 4.8% return for the endowment (1.9%) and 4.8% for the pension plan (6.4%); private equity, 21.1% for endowment and 14% for the pension plan (no benchmark listed); and real estate, 8.6% for endowment and 7.7% for pension plan (7.4% for each).

The endowment's asset allocation as of June 30 was 43.4% public equity, 18% absolute return, 11.5% private equity, 10.5% fixed income, 10.2% cash 4.5% real estate and 1.9% real assets. The pension plan's allocation was 56.3% public equity, 21.7% fixed income, 6.1% cash, 5% real estate, 4.9% absolute return, 4.5% private equity and 1.4% real assets.

UC Regent Richard Sherman, chairman of the regents investments subcommittee, said in a statement that continued good returns should not be taken for granted. "In general, we're approaching this as a continued low-growth, low-return environment, and we have to temper our expectations accordingly," he said. "We're in uncharted territory and so in a place of extreme caution. We have to stay highly attuned to where our assets are deployed on a broad level and moderate our return expectations for our products."