University of California CIO still bullish on ‘technological revolution,’ healthcare amid funding turmoil

Among the issues that higher education investment offices are facing under a second Trump administration, cuts in the funding and the Department of Education “are absolutely real,” said Jagdeep Singh Bachher, chief investment officer and vice president of investments at the University of California.

And so are the proposed tax hikes on endowments, and policy shifts that can change how they invest — including tariffs that have been delayed.

“There’s a lot of things that are going on here in the U.S.,” he said regarding how funding cuts would impact investments during a March 18 meeting of the UC Board of Regents. “I just can’t give you any answers to any predictability or pathway by which all of this will continue to evolve. And I think that uncertainty is also giving other people the opportunity to be creative and figure out what they can do in their own borders and geography.”

But amid all the noise, Bachher said there are things he is certain about, such as continuing to invest more than 60% in stocks given that they offer better opportunities than in private markets. He said he made a decision to be overweight in public equity five years ago, after interest rates plummeted to zero during the COVID-19 pandemic.

While the Trump administration is looking to cut funding that would support innovation in healthcare and technology — both large investment opportunities to the CIO — he said he is looking forward.

“My bullish mood is looking out a decade,” Bachher said. “I’m hoping we get to President 48 at some point … We’re a university, but more than a university. We’re also a healthcare enterprise at scale. We need to make sure that we keep advancing treatments to eradicate cancer, eliminate cancer and things of that nature. These are real problems that we’ve got to tackle.”

The Oakland-headquartered system is one of the institutions being probed by the U.S. Department of Justice for allowing an “antisemitic, hostile work environment to exist on its campuses,” following student protests amid the ongoing conflict between Israel and the Palestinian militant group Hamas.

The Trump administration has sought to freeze funding at colleges and universities as a way to respond to “this spike in antisemitism,” noted Leo Terrell in a March 7 news release from the U.S. General Services Administration, Department of Justice and Department of Health and Human Services. He serves as senior counsel to the assistant attorney general for civil rights, and the head of the Justice Department’s task force for combating antisemitism.

In a faculty memo on March 20, Provost and Executive Vice President for Academic Affairs Katherine Newman announced it will drop the requirement for faculty applicants to submit a diversity statement. On the same day, U.S. President Donald Trump signed an executive order to close the Department of Education. While Congress has the power to create and dismantle federal agencies, a Jan. 31 bill introduced by Rep. Thomas Massie, R-Ky., proposed the termination of the Department of Education, which provides federal loans and financial aid to students.

Bachher said he’ll be focused on making sure the university’s chancellors have the liquidity they need to manage funding cuts for the university, should they happen. And it will be up to the chancellors to figure out how operating shortfalls will have longer-term impact, though the CIO recommended to put unrealized gains from their total-return investment pools into their short-term investment pools.

Embracing public equity, dropping absolute return

“I tend to be more on the growth, riskier spectrum than most people,” Bachher said.

When Bachher became CIO of the university in 2014, the investment portfolio had $95 billion for the fiscal year ended June 30.

As of March 14, the portfolios had $184 billion in assets, including $142.7 billion in pension and retirement assets, $30.1 billion in its two endowment pools and $10.7 billion in working capital.

The University of California investment office’s asset allocation was 61.7% stocks, 16.6% fixed income, 20.6% private assets and 1.1% cash. In a breakout of the private assets, 10.5% was private equity, 0.5% was absolute return, 1.8% was private credit, 5.8% was real estate and 2% was real assets.

Bachher noted that the team is “practically” meeting its five-year goal of removing absolute-return strategies from the portfolio as a result of the asset class failing to provide the hedge the portfolio needed in 2020. Plans for asset classes the capital will be relocated to will be shared in the next investment committee meeting, but in 2023, Bachher noted plans to replace those strategies with private credit.

While other investors may want to put all their money in the private markets, the CIO noted he’s looking to increase investments in public equity due to attractive opportunities in growth industries such as artificial intelligence, life sciences and defense that are “poised to transform the way we do business in the world.”

For the 2025 fiscal year, he said he expects stocks to return 5% to 7% — and if another asset class like fixed income returns 3% to 5%, “even that 1% or 2% is still better.”

While 62% percent of the world stock market is in the U.S. per the MSCI ACWI index, 11% is in emerging markets, and Bachher said it can grow based on where he sees the world going in at least the next five years. In turn, the university’s investment team will look increasingly outside the U.S., and in areas such as India and Europe, he said.

“What is going on in the United States has certainly woken up many countries, many people around the world — and I think it’s not just about the S&P 500,” Bachher said. “I think the global equity markets are probably going to keep pace with the United States ... This may sound simple, but it’s a seismic shift in our mind in the way we, as a team, are thinking and looking at opportunities.”

And should what is going on with markets and politics in the U.S. be sorted out, “you can send me a memo, and we will double down on the U.S.,” he added.

Amid political turmoil related to Tesla CEO Elon Musk and his reshaping of the U.S. government, Bachher pointed to the so-called Magnificent Seven stocks, which have been down 20% for the past several weeks. But while “we’re at the cusp of a technological revolution,” he looked back on how Meta Platforms was once a cheap stock.

“It has turned out to be a very profitable stock,” he added. “These are the times to not retreat, but to think about the future, and where that future is being built ... It’s why I’m singularly excited about what the future holds. And the stock market has become so efficient that you’re getting ETFs that could potentially give you aggregations of these sectors, countries (and) geographies.”

Magnificent Seven companies have deployed “somewhere between $50 to $200 million” from their balance sheets for infrastructure, including data centers that support AI. Bachher added that the university was lucky to make investments in data centers as early as 2017, which have since helped the endowment grow.

“So I think this goes back five years ago, not a today thing, but there’s an acceleration in the transformation that’s taking place in technologies today that I think present an optimism, which is just a pathway I’m continuing on,” Bachher added. “There happened to be this new President 47 that came in the way.”

There are some things that Bachher is still figuring out about AI, such as if large-language models will not be proprietary and will be open ended, following the emergence of a low-cost AI tool by Chinese startup DeepSeek.

But there are examples in which an investment in AI has been profitable for the university as well as helpful.

In an example the CIO shared, University of California Irvine Health President and CEO Chad Lefteris approached him two years ago for ways to enhance healthcare and patient care. Both the investment office and UC Irvine made an investment in an unnamed private company that helps medical professionals transcribe information using AI. The investment office ended up buying Lefteris’ stake, which had since at least quadrupled in value.

“It takes a leap of faith to make an investment in some of these areas where we’ve been benefiting tremendously,” Bachher added. “You’ve all got to make an argument that you’re all invested in AI at the end of the day because those are the Mag 7, and those companies have ballooned on back of the demand and excitement around artificial intelligence.”

China becoming ‘more difficult’ to invest in

As the University of California is seeking growth opportunities outside of the U.S., an elephant in the room is China, the world’s second-largest economy.

“You’ve also seen some of the best performers in the last nine months have been Europe and China in the stock market, relative to the United States,” the CIO said. “We may never adopt Chinese technology for a whole variety of our own reasons. But it doesn’t necessarily mean we should discount the creativity and innovation that’s taking place.”

In a 2022 meeting, Bachher said his office reduced the university’s allocation to China, but did not disclose its numbers. When asked during the most recent meeting about reconsidering his position on China, the CIO said he is not.

“The problem I have in investing in China is I don’t know if I’m going to be investing in something or a company that has ties to something else, and in essence, I’m violating an executive order of the U.S. government,” he added. “That is a compliance issue that puts me in the crosshairs with this team of violating a rule that I’m not aware of. That’s why China’s becoming more difficult for American investors.”

The university does have exposure to China through the MSCI ACWI index, but Bachher noted he would have difficulty if he was to actively pick a manager in China and start investing with them. Additionally, there are some venture capital firms with investments in China that the university has not been able to divest from, he added.

“If you talk to them, they are banking on the fact that the growth of these companies in China is going to come from outside of China as well,” Bachher said regarding the venture capital firms.

He won’t change his view on the country for now, but he noted that there is some opportunity going on there, such as the potential for China-listed company BYD Auto giving Tesla “a great run for its money on electric vehicles.”

“If you ask me what could be a wild card in all of these policies, I don’t know, maybe President 47 and the Chinese leadership decide to do a trade deal,” Bachher added. “If they do a trade deal, that would be a huge boost to both China and the United States, (and) that would be a wild card scenario that one should consider.”