When you boil it down, our job at UC Investments is fairly straightforward: manage the university’s money to make more money.
However, straightforward doesn’t necessarily mean simple. That’s why many institutions — ours included — have tended to emulate proven investment strategies like the Swensen, or Yale, model.
But bolstered by the doubling of our assets under management over the last five years and managing close to $100 billion across our products, we’re now in a position to create our own unique model, one that is laser-focused on producing results for our university using a long-term investing framework.
In this section, we share the 10 foundational principles of our vision. These principles are not just the “flavors of the day.” They are principles we believe in and that will guide us as we embark on the next generation of investing at the University of California.
and Vice President of Investments
When people think of your office, they often associate it with the Endowment. Can you talk about what else your office does?
We have 1.7 million alumni who are giving generously to the UC and our 10 campuses, and we do everything we can to maximize returns so their donations have the greatest impact. And though at $9 billion, the UC Endowment is sizeable, our office also manages another $90 billion in our Pension, Retirement Savings and Working Capital programs. This is a huge differentiator and gives us a significant competitive advantage.When we find a good long-term opportunity for the Endowment, we’re able to take advantage of our size and scale to capitalize on it.
How does the work of UC Investments affect the daily lives of UC students, faculty and staff?
Our staff and our faculty are saving money for their retirement, and one of our main jobs is to manage those contributions and invest their savings. Five years ago, we had $37 billion in savings across both our Pension and Retirement Savings programs, and between more money saved and the growth in the markets, this now stands at $75 billion today. By making sound investments, we’re ensuring that in the future, we can provide them with the lasting income they need to enjoy their retirement.
Another area where we have a visible impact is our Working Capital. This funds the day-to-day operations of our 10 campuses, five medical centers and three national laboratories, paying for both short-term needs as well as longer-term projects and academic programs.
You’ve said you’re not asset managers, you’re risk managers. What does that mean?
Every decision we make is about risk: We assess the risks we are taking and figure out the payout for taking those risks. Whether we are looking at a product, a portfolio or an asset, we can have a range of outcomes in terms of returns, depending on how the risks play out. That’s why everyone in our organization — from operations to the investment team — has to be a risk manager.
You’re just over a year into your job as chief investment officer. What’s one challenge you’ve encountered, and how did you handle it?
Because we’re the largest public university in the U.S., our office — and my position in particular — is in a fishbowl atmosphere. We’ve got a lot of stakeholders, and they’re incredibly diverse: from 18-year-old undergrads to Nobel-prize winning faculty to the Board of Regents. When you compare what we do to what a typical asset management firm in the private sector does, it’s quite different. And because we have accountability for $100 billion, it’s critical that our organization has a very transparent, disciplined and understandable decision-making process that’s not controlled by one person, but is the result of smart and talented professionals working together to the very highest standard. That’s why I’ve concentrated on building a culture of collaboration and trust, which means keeping people outside our organization informed about what we’re doing by communicating in the simplest way possible. Changing a culture is never easy, but it’s an exciting journey one that we hope is visible through our actions and that can be measured over time.
Where do you go from here?
While we’ve improved our record of returns over the last five years, we’re now of a size and scale where we can ask ourselves: “What do we want to do? What do we want our model to be?” This report is designed to give people a flavor of how we’ll be managing our assets going forward and what the key principles are that will guide us in creating the “UC way” of investing our assets.
In building the UC way, we recognize that in just the last decade, the supply of capital has gone up and the competition for assets has risen even more. Although 10 years ago, U.S. endowments were leaders in investing, some of them are now having to rethink their approach. Today, we at UC have an edge and are poised to become the leader of the next generation of asset managers. Our strategy is to take lessons from the best-of-the-best models and figure out what our unique advantages are to build something new — and better — that works for the University of California.
We do not have to respond to every bump in the road in a quest for month-by-month, quarterly or annual returns. Instead, we can adopt a long-run perspective and do what’s needed to brace ourselves for the radical uncertainty that inevitably comes with the future. We think of this as investing centennially — for the next 100 years.