Jagdeep Singh Bachher, the chief investment officer of the University of California Regents, cited volatile markets for the -3.4% return of the $9.1 billion endowment in the fiscal year ended June 30, and is continuing efforts to reduce the number of active equity managers.
“It's been a difficult time for endowments generally and UC specifically,” Mr. Bachher said, explaining the results at a UC committee on investments meeting Sept. 9.
Mr. Bachher, who also oversees the university's $54.1 billion defined benefit plan and other investment pools totaling more than $100 billion, has made major changes in his 30-month tenure, including terminating 66 of the fund's 80 external equity managers.
Mr. Bachher declined requests for an interview though a spokeswoman, who referred a reporter to a video of the Sept. 9 meeting of the UC committee.
Mr. Bachher said at that meeting that investment results were net of fees. He said UC paid about $600 million in fees to external managers for the endowment, pension plan and the total return investment pool.
“We see a cost structure that is still very expensive,” he said, noting that equity fees by active managers were in the range of a 1% overall fee and a 12% carry fee.
UC statistics show that the endowment held $4.2 billion, or 46.3% of its assets, in equity strategies. Equities were UC's worst-performing asset class in the year, with a -10.6% return.
Mr. Bachher said the 12-month fiscal period was a “terrible year” for active equity managers, though some managers in previous years had returns in the 20%-to-22% range.
Mr. Bachher said that he thinks active equity managers can be reduced even more. He also would like to reduce equity strategies managed on an active basis to 40% of the asset class, from 70%.
He said he wants to emphasize passive management and only add an active manager when performance justifies the fees. Mr. Bachher said fees for passive equity strategies are less than 5 basis points.
Mr. Bachher said the endowment's $1.7 billion absolute-return portfolio also was a disappointment, returning -4.9% for the fiscal year.
The strongest performing asset class was the endowment's $1.1 billion private equity portfolio, which returned 14.4%. Mr. Bachher called private equity performance results a “bright spot” for UC.
San Francisco-based executive recruiter Charles Skorina said UC did worse than other major endowments performance-wise because it has a smaller private equity allocation. He said UC's 11.7% private equity allocation is small when compared with Columbia University's 23.4%, Harvard University's 18% and Yale University's 32.5% allocation.