University of California Board of Regents, Oakland, is considering an increase in its alternatives exposure, pending approval at its Wednesday meeting.
Staff plans to increase the $41.1 billion University of California Retirement Plans long-term allocation to private equity to 6% and real estate to 7%, from 5% each, according to an agenda item for the meeting on the universitys website. Absolute-return strategies will increase to 3.5% from 2% in the short term, but the long-term target will remain unchanged at 5%.
Funding for the long-term changes for private equity and real estate will come from decreasing the domestic equity allocation to 23% from 26%.
The universitys $6.2 billion General Endowment Pool will increase its allocation to private equity to 9% from 7.5%; the long-term absolute-return target will increase to 23.5% from 20%, according to the agenda. Funding will come from eliminating the 5% real asset allocation.
Staff also asked for permission to make co-investments and direct investments in private equity for both the retirement plan and endowment. Neither is currently permitted.
The original restriction was put in place due to the additional complexity of these strategies coupled with limited staff at the time, staff wrote in a memo to the regents. Today, given the significant growth in the capabilities of the private equity staff, this restriction is no longer appropriate.
For the year ended June 30, the retirement plans portfolio was down 5.74% vs. the custom benchmarks -4.65%. The plans $13.8 billion U.S. equity portfolio was the biggest contributor to poor returns, accounting for 82 basis points of the 109 bps of underperformance against the portfolios custom benchmark.
The pool was down 1.93% vs. -0.17% for its custom benchmark. Its $1 billion domestic equity portfolio contributed 51 basis points to the 176 bps of underperformance against the custom benchmark.
Susan Rossi, university spokeswoman, declined to comment beyond the agenda.