UC system increases alternative investments for economic stability

pie chart showing allocation of UC Board of Regents assets
Jenn Zeng/Staff

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Updated 1/29/18: This article has been updated to reflect additional information from the UC Office of the President.

Since July, the UC Board of Regents have been increasing the amount of endowment money they are putting into alternative investments such as real estate, hedge funds and private equity to strive for more economic stability.

The University of California’s assets in cash have decreased about half a billion dollars, from 7.5 percent to 2.1 percent, or $300 million and have been moved into alternative investments as of Sept. 30 according to Edmond Fong the Senior Managing Director of Absolute Return Investments in the UC Office of the President, or UCOP.

“So what exactly did we invest that half a billion dollars in the third quarter of 2018? Well 60 percent of that cash actually went into real estate . . . 20 percent we also invested in real assets . . .  in things like traditional infrastructure as well as in digital infrastructure,” said Fong in the meeting,  “And then finally 15% of the cash was used to deploy into absolute return strategies . . . meant to deliver diversification, one that does not rely on the directionality of markets.”

According to UC Irvine Emeritus Professor of Economics David Brownstone, these alternative investments include real estate, hedge funds and private equity funds. He added that this increase of alternative investments had been discussed and planned by the UC Regents a few years ago.

“UC has been trying to adjust to invest into more stable items and recruit money lost,” said Wilfert.

Brownstone added that the bulk of the money that the University of California invests with is used to pay the pensions of retired faculty and staff. According to Brownstone, every employee is required to pay eight percent of their salary toward pension funds. The UC system then contributes an amount of money equivalent to 14 percent of their employees’ salaries.

Although alternative investments may have high fees — such as hedge funds which charge two percent of the assets— Brownstone says he believes that the UC Regents may see these alternative investments as opportunities for higher rates of return.

According to Wilfert, the UC system has been increasing alternative investments in order to get better returns because old methods proved to be less stable. Wilfert gave downturn of the last quarter of 2018 as an example of this volatility, which he says costed the UC system $9 billion.

“I hope that the UCOP (The UC Office of the President) can be in a position where they understand their investments are a product of money coming from students and the state,” Wilfert said, “They need to be making investments that are safe and morally sound, since higher education is on the line.”

Yao Huang is the lead research and ideas reporter. Contact him at [email protected] and follow him on Twitter at @Yhoneplus.

Correction(s):
A previous version of this article incorrectly stated that the University of California’s endowment assets have decreased by about $300 million. In fact, the endowment assets have decreased to $300 million.