Where we can, we focus on investments over 10 years and beyond. This offers many more opportunities than those available to short- and intermediate-term investors. We aim to make the most of our scale and ability to be patient.
Making things simple is complicated. But it's important.
At the Office of the Chief Investment Officer of the Regents (UC Investments), we manage close to $100 billion. Our work is complex, and explaining it can be complicated. But we see value in reducing complex theories and strategies into concepts that are simpler and easier to grasp. To us, simplifying is a way to stay focused on what’s important. Doing so keeps us on track to achieve our goals and fulfill our obligations to our stakeholders. As a bonus, it also makes it easier to talk about what’s happening in our office so all of our many stakeholders can understand what we’re doing and how we’re doing it.
Here’s what’s been happening.
Over the last year, we spent a lot of time taking stock. We reflected on our past 20 years of performance and asked ourselves some basic questions. “How do we earn the best returns for the university in the future?” “How do we best manage our office?” “How do we recruit and retain outstanding people?” “Are our processes working as well as they could?” “How can we make things less complicated?”
That last question really stuck with us. Because to us, doing the hard work it takes to make things simple is the most important thing we can do to set the foundation for our office — and the University of California — for the next 25 years.
So we focused on getting back to basics. We simplified. We focused on good governance. We kept an eagle eye on our costs. We cultivated an innovation mindset. And we stayed true to our core investment beliefs, even when the market threw us curve balls.
Because if there’s one thing we know, it’s this: Things change. It’s our job to take a long-term view, learning from the past so we can adapt to the future with intelligence, creativity and agility.
We know the choices we make today have a direct impact on the lives of our staff, students and faculty for generations to come. It’s a responsibility that’s both profound and simple, and it’s what drives us every day.
University of California
You’ve now served as UC’s president for two years. Could you talk about the culture you’re trying to foster at the university?
The University of California is the premier public research university system in the world, and we already excel in many areas. But there are opportunities for growth and innovation at every organization. I want us to be engaged and proactive, and I want us to be committed to excellence in everything that we do. We should always be asking, “How can we do better? How do we continue to compete with peer institutions and lead the way in higher education? What’s the next big challenge the University of California should tackle? What can we do to make a difference to the world around us?”
What is the relationship between the UC Office of the President and the Office of the Chief Investment Officer of the Regents (UC Investments)?
UC Investments reports to my office and the university’s chief financial officer on administrative matters related to their organizational support, staff, and budget. Beyond this, we’re trying to better integrate UC Investments into the operations of the Office of the President. We believe there should be more collaboration between these offices as we determine how the work of UC Investments can continue to support university initiatives and ensure a bright and stable future for UC.
Can you talk about how UC Investments is helping you implement these key initiatives, particularly your innovation and entrepreneurship programs?
The University of California has a tremendous impact on California’s economy, and we have an incredibly productive pipeline of innovation and entrepreneurship. We are the numbers-one patent producer in the country. And we’re the origin of 800 startups in the last 10 years alone.
We’re exploring a variety of ways that the university can better support and encourage the development of new companies and inventions out of the research done at our campuses. Capital investment is one important avenue. That’s why last year, the university announced UC Ventures, where we will provide direct investment support to the campuses and also partner with other venture capital funds to invest in UC-related research. UC Investments has committed up to $250 million to these efforts.
Partnering with UC Investments helps us think more creatively about ways to access the capital we need to support this priority, as well as other initiatives the Office of the President has launched, such as the Carbon Neutrality Initiative and the Global Food Initiative.
What do you think about what’s happening in the UC Investments office?
I think they are doing excellent work. They have produced results that have supported the university’s mission and helped us advance our strategic initiatives. Jagdeep Singh Bachher has a clear vision that I support. He is decisive, energetic, and creative in his approach to the issues the university is confronting. Jagdeep has successfully recruited several highly qualified senior leaders to join the UC Investments team. He has instilled a collaborative culture in his office, and members of his staff have become active and important contributors to the initiatives of the Office of the President. I look forward to continuing to work with his team.
What does UC Investments do to help you make your vision for the university a reality?
Two things are critical. First is identifying new ways to generate more operating funding from our investments — income that can be used to supplement the funding the university receives from the state. We reached a budget agreement with the governor and legislature last spring that puts UC on more solid financial footing, and we are very grateful for that support. But as the needs of our campuses evolve, and as the university continues to increase the number of Californians we educate, additional funding will be necessary. It will require us to be nimble and creative.
Another way UC Investments can support the university is by determining the ideal mix of investment products that ensure a financially viable pension program for our employees well into the future.
Chair of the Committee on Investments
As your term comes to an end, what stands out in your decade-plus tenure?
There have been so many tremendous changes since I became chair of the Committee on Investments, but I think there are three seminal events of my tenure. The first is working with our last two chief investment officers to move our portfolio from old-school, plain-vanilla stocks and bonds to a more contemporary, active management model — some call it the Endowment Model, most associated with David Swensen of the Yale endowment — with more private equity, more absolute return and more real estate.
Second is surviving the financial crisis. Compared to most other pensions and endowments, we did extremely well — we escaped the liquidity issues and blowups that others had, and we emerged from the crisis with more confidence as a result.
Third is the hiring of Jagdeep Singh Bachher as chief investment officer. His personality is very well suited for the position. He’s an excellent communicator — which was a key asset we were looking for — and he’s already been proactive in shifting how we invest our different portfolios. With his leadership, we’re now refining our investment model in a variety of ways to be more of what we want it to be, not trying to replicate anyone else’s model. We are also looking more granularly at how the different products — the pension, endowment, retirement savings and working capital funds — should be invested.
The proof of the success of these three things lies in the numbers: We’re doing a lot better now — both in absolute terms and relative to our peers — than we were doing 10 years ago. I’m proud of that.
How does your committee work with UC Investments?
The regents set asset allocation and investment policy, and pretty much everything else is done by the Office of the Chief Investment Officer of the Regents (UC Investments). For example, we don’t pick the managers. The single most important thing in investing is asset allocation, but we do it at the big-picture level and give UC Investments a lot of latitude at the granular level within the asset allocation parameters, which we discuss as appropriate. I believe in the latitude, and because we have Jagdeep leading a great team at UC Investments, it works.
What’s your take on the change in culture at UC Investments over the past two years?
The office is responsible for close to $100 billion — that’s a lot of money, so you want to know what’s happening with it. In the past, we’d have more “stilted” committee meetings with only the highest-level managers presenting. Now, we’re getting the exact information we need presented in a way everyone can understand, and we’re hearing from a much broader range of people on Jagdeep’s team.
It makes me feel good knowing there are so many great people involved in the process, and it makes the meetings a whole lot more enjoyable. Everyone appreciates it.
Tell us about developing the system’s first-ever sustainable investment framework.
This was a long, collaborative process to determine how we can protect the performance of the products — so we don’t have to raise tuition, so people can depend on their UC pension and so we can have better pay across all positions — and at the same time making investment decisions that are in line with our values and those of our many constituents. Our sustainable investment framework demonstrates our commitment to not just divest, as we’ve done with tobacco and Sudan — decisions done with great circumspection — but also to putting our money into things that will actually move the needle on an important issue like alternative energy. I think we’ve done a really good job of creating a strategy that will serve us for the long term.
What advice would you have for Regent Richard Sherman, who will be taking over as chair of the Committee on Investments?
Make the meetings interesting and understandable. Try and make it so people are inspired to ask good questions. Make sure the committee has the information it needs to make sound decisions and be responsible fiduciaries. Try not to get mired in the technical stuff. Leave that to Jagdeep and his team. They’re the experts. They’re the investment professionals. We’re covered.