Our Pillars

Less is More is about making things simple.

And that’s not easy.

With a lean investment team managing some $180 billion in the University of California’s pension, retirement savings program, endowment, and working capital pools, life can get complicated if we let it. There are no shortages of shiny new investment opportunities and sophisticated strategies we could embrace.

That can mean a lot of noise and distractions. So we work hard to simplify a complicated business.

Less is More is behind our moves to increase passive investments in public index funds, which now account for nearly three-quarters of our total assets under management. That’s meant fewer managers, fewer fees, and, most important: higher returns. Transparency and liquidity have increased.

We have worked through each asset class to analyze fees and returns, going line by line, consolidating and pruning. Do we need to add a new overseas start-up to our portfolio when we can invest in a venture closer to home and avoid a slew of risks? Do private investment funds make sense when we can invest directly in a company and have greater control without any fees?

Simplification has taken us years of work at UC Investments, and we’re not done yet. Less is More is a process that focuses our efforts and keeps us on track. It’s a mindset.

Steve Jobs had it right. “You have to work hard to get your thinking clean to make it simple,” he said. “But it’s worth it in the end because once you get there, you can move mountains.”

Less is More.

Investing is an imperfect science, one where models routinely fail to predict outcomes and history can be an unreliable guide. That’s why Risk Rules, the second of UC Investments’ 10 pillars, is central to our investment strategy.

It’s a reminder that, as stewards of the University of California’s financial assets, we must ensure we do everything we can to safeguard the university’s wealth, especially during uncertain, volatile times.

We are all risk managers at UC Investments. And we know risk comes in many sizes and shades. So, too, do our methods for assessing it. For as much as we love you, AI, we don’t just plug data into a computer model. We talk to real people, listen to what they are experiencing firsthand and what they are expecting at home and abroad. We read between a lot of lines. All of this helps us recognize warning signs—and potential opportunities, too.

That’s because UC Investments doesn’t work to simply weather coming storms. We work to ride the waves and keep the wind at our back.

How does this work in real time? First, we think about three aspects central to assessing risk: leverage, liquidity, and concentration.

During the days of “free money,” many companies acted as if the low interest rate party would never end. They took on a lot of leverage, which later became a lot more expensive. That’s why, when rates were low and valuations high, UC Investments went on a four-year selling spree in our real estate portfolio, allowing us to shore up some $4 billion in liquidity from those assets alone. Then we waited for the best opportunity to put that capital to work.

Our long-time investment partner, Blackstone, the world’s largest alternative assets manager, provided just that. When news outlets reported a perceived liquidity crunch after retail investors in its real estate investment trust, BREIT, began redeeming shares, we offered to help. Only three weeks later, UC Investments entered a strategic partnership with Blackstone in which UC invested $4.5 billion in BREIT for an effective six-year hold. That pays the university a minimum 11.25% annual return, with unlimited upside. The unique transaction made headlines around the world.

Then there’s concentration. Keeping in mind the growing geopolitical risks—including the decoupling of the world’s two largest economies, the United States and China—we carefully consider where we concentrate our investments. We have ended our overweight to China and will continue to keep most of our money in the United States.

Investing involves risk. And those risks always change. Cracks appear in the global order. Markets surprise. We know risk is dynamic, human, and long-term. Opportunities are, too.

We reduced the number of key partnerships from 280 in 2014 to 28 today. These 28 partners help manage 92% of our total assets.

And as our assets have grown, our active investments have declined. That’s meant higher returns, fewer external managers and far less money spent on fees. To date, we‘ve saved $3.2 billion in fees alone. In 2014, our portfolios had $30 billion in passive investments. Today, that number is $130 billion.

Out of our total portfolio of $180 billion, we have $50 billion actively invested today, as compared to the $65 billion we actively invested in 2014 when our total portfolio stood at $95 billion.

The bottom line: Where we believe we can do better than the market, we actively invest. Otherwise, we earn returns while paying only minimal fees.

There’s no playbook for creativity and, really, isn’t that the point? This trait unique to each of us seems to spring spontaneously from inside us somewhere. Or maybe it waits, coiled, until it acquires that last bit of insight before it pops.

One thing we know at UC Investments is that creativity thrives in environments that welcome new ideas and approaches, even though—or maybe especially if— something hasn’t been done before.

Take the origin story of our biggest transaction to date, our $4.5 billion investment in Blackstone’s real estate investment trust, BREIT. Chief Investment Officer Jagdeep Singh Bachher happened to catch Blackstone President Jon Gray on TV defending BREIT against rumors the fund might be facing a liquidity crunch. In the back of his mind, Jagdeep recalled a headline a team member had shared about the same weeks before.

Minutes after the TV interview ended, Jagdeep sent Jon a message saying that while he knew Blackstone didn’t need the cash, maybe UC Investments “can help creatively.”

And that’s exactly what we did.

Barely three weeks later, our two organizations inked a deal where Blackstone agreed to pay UC a minimum 11.25% annualized return on our investment for an effective six- year hold with unlimited upside. Should BREIT returns dip below 11.25%, however, Blackstone agreed to set aside $1.125 billion as collateral to make up the difference. Nearly two years into the agreement, all is working as promised.

None of the five UC Investments deal team members had ever done anything like BREIT before. That was part of the adventure, made possible by creative thinking and embracing the possibility that the efforts might fail. Indeed, at times during the negotiations, it seemed as if they might.

But creativity paid, as we knew that it always does—eventually. And Blackstone’s creative approach to real estate investing — including Jon Gray’s knack for knowing where the puck is going — was one we had long appreciated during our partnership of some 16 years. Creativity is central to the UC Investments Way. It’s not a single deal, or two or 20. It’s about speaking up, asking questions, listening and absorbing, doing research and then, voilà, an idea might just pop.

Headlined The Wall Street Journal: “University of California’s terms on BREIT fund are comparable to Warren Buffett’s 2008 Goldman deal.”

That did feel good.

The year 2014 was pivotal for UC Investments. It marked Jagdeep Singh Bachher’s arrival as chief investment officer and our first steps toward understanding the opportunities and risks of investing in India, well before our US industry peers.

That year was also pivotal for India. India’s Bharatiya Janata Party gained a parliamentary majority and Prime Minister Narendra Modi began his first term. Domestically, the populist Modi was riding high. Business sentiment was cautiously upbeat. But there were still more questions than answers about the viability of foreign investment. We set out on a curiosity-driven journey to learn how, or if, we should consider an investment strategy there.

Since then, UC Investments’ team members have made some 80 visits to India. Lessons have been learned and taken to heart. Ultimately, this on-the-ground experience underpins our confidence not only in the world’s most populous democracy, but in our ability to build critical knowledge that helps us navigate in that now not-so- foreign land.

Senior Managing Director Satish Swamy was first to listen, learn, and evaluate the Indian investment climate for us. Indeed, the risks seemed high.

Jagdeep recalls his own concerns. “There were governance challenges,” he says. “We needed to be able to get our money back. And then in addition to liquidity concerns, there was currency risk. It was a very high bar when you compare it to the U.S. And, of course, if anything goes wrong, you have reputational risk to the University of California. I couldn’t see what the competitive advantage was."

But, as Jagdeep acknowledges, we were not focused on India’s entrepreneurial culture at the time.

Then came a serendipitous opportunity through a UC connection: Jagdeep was introduced to the legendary Indian industrialist Ratan Tata. Mr. Tata, a savvy businessman and investor known for his professional and personal integrity, extolled his country’s vibrant entrepreneurial ecosystem. After months of due diligence following that 2015 meeting in Mumbai, Jagdeep decided to establish a beachhead to invest in India through a separate vehicle known as UC-RNT. The initials stand for University of California and Ratan N. Tata.

From there came many subsequent UC visits to meet with Indian entrepreneurs, corporate leaders, regulators, government officials, lawyers, and others. These were natural and productive opportunities to learn, of course, but also to understand the critical importance of personal connections while doing business more deeply in India.

During this time, our team explored Indian fixed income, and Blackstone, a long-time UC Investments’ partner, was restarting its own efforts in India. Later came more UC-Indian investments in public index funds (after overcoming arduous bureaucratic hurdles) and in private equity and fixed income. We found a key partner in Uday Kotak, founder of Kotak Mahindra Bank, and he and his team evolved into the backbone of UC-RNT.

Reflecting on the past decade, Jagdeep says, “If it were not for the UC network, we would not have met Mr. Tata, and we likely would not be in India right now. But we took the first step to learn.

“Prime Minister Modi was just elected to a third term, although his party lost some seats in Parliament. So democracy won. It seems likely that political stability will continue and so will economic growth,” he concludes. “We’ve reflected on the lessons learned through a decade of building knowledge, which puts us in good stead to plan for what might await in the decade ahead.”

Here’s a statistic that really woke us up at UC Investments: Nearly 80% of college students get their financial knowledge from social media.

We may not be able to create a viral dance trend, but at UC Investments we do know money. And we knew we could do a better job of educating our own students about finance and investing than TikTok could.

So in 2022, we created The UC Investments Academy, which started at UC Merced. “We knew we could have a great impact, but what we didn’t expect was how great the demand would be,” says Craig Huie, managing director for private credit at UC Investments and director of the Academy. “We thought our initial class would be 25 students; we ended up accepting more than 100 tremendously talented young people.”

Since that initial cohort, the Academy, which is free to all participants, has grown to encompass all nine of our undergraduate campuses, serving more than 2,500 students from different backgrounds, different academic majors and many who had never considered that finance might be for them. We aim to reach 10,000 students within three years.

The program teaches students how to manage their own money while also training them in the same fundamental skills needed to work in the financial industry or to start their own entrepreneurial venture. Participants connect with professionals across the finance industry at Academy events that have included Blackstone and Goldman Sachs executives, NBA franchise owners, and the people managing money for LeBron James. Getting access to our industry partners gives Academy students a leg up on mentorship and internship experiences, too.

The networking benefits are just as significant for our industry partners. “They have been thrilled to get access to the amazing students in the UC system,” says Huie. “Our program gives them coveted access to a highly motivated cadre of students who have been trained in the exact skills their firms need (because they’ve told us directly what they need) with zero effort on their part.”

And the people on our own team find great pride and purpose being involved with students in the Academy. They give freely of their own time, traveling to campuses to work directly with students and acting as mentors for Academy members.

“The Academy provides students with content, community, and confidence,” says our CIO, Jagdeep Singh Bachher. “It teaches them about finance and investing, helps them join a community, and gives them confidence to find jobs in finance.”

It’s a powerful and meaningful program that’s actually bettering people’s lives. It’s the ultimate win-win-win-win.

Discovery, innovation and learning. These hallmarks of the University of California’s world-class system of 10 campuses, six academic health centers, three national laboratories and 71 Nobel prizes gives UC Investments a competitive edge.

It’s up to each and every one of us to use it.

Whether that’s by tapping into real-time intelligence about an unfolding global pandemic, or investing early in the next breakthrough toward curing cancer or spending an afternoon discussing economic trends with some of the world’s leading economists, being part of the UC system affords us unique opportunities.

Our job, and our passion, is to plumb our rich university ecosystem for knowledge and possibility. By making connections, building relationships, and providing service, we form a virtuous circle that benefits us all.

So how does this work? A better question might be, how do we make it work?

We connect dots. Think real estate, for example. How can UC Investments help our campuses finance their growth? How can we help solve student housing challenges, or partner with our medical centers on healthcare innovation, or close short-term funding gaps when the state government sends the university an I.O.U. instead of cash? Sometimes the biggest challenges are static mindsets. We can change that.

We ask questions. Who are the UC faculty experts, the scientists, students, and alumni with the next big idea? Let’s talk.

We offer solutions. Are our campuses and health centers leaving money on the table? We create investment products, such as the Blue and Gold Endowment Pool, that make more sense and cost almost nothing in fees.

We give back. How can we nurture the next generation of UC innovators who will change the world? We created a fellowship program to send UC students and postdocs to Lindau, Germany to workshop their research and ideas with Nobel laureates and hundreds of their future colleagues from around the world.

What makes UC, UC? If you’re curious and have an open mind, once you start looking around, the answer will be obvious. UC’s unique fingerprint is found in every student, faculty member, researcher, and staff member on every campus. And it lives on in our communities through our 2 million living alumni. There’s nothing like it anywhere in the world.

In the world of institutional investing, finding a partner that truly aligns with your mission is like striking gold. For UC Investments, one of those key partners is State Street.

Our two-decades-long relationship has grown into a powerhouse collaboration that drives efficiency and innovation in how we manage the University of California’s $180 billion in investment assets.

About seven years ago, we worked with them to create a “retirement income for life” product that has won awards for its innovative approach.

A few years ago, we realized the benefits of handing over to State Street the management of our Retirement Savings program, which has more than 352,600 individual investors. This lets us focus on asset allocation rather than administration, which significantly reduces our operational risk.

And then there’s the Blue and Gold Endowment Pool, the passively managed portfolio of stocks and bonds that UC Investments launched in 2019. State Street didn’t just help us set up this financial product. The firm became our one-stop shop for everything from custody and accounting to securities lending and passive management. The result? A $6.9 billion (and growing) pool that offers daily liquidity— a rarity in our world of monthly-traded pools—that has outperformed the endowment and pension for two years running.

But perhaps the most powerful example of our successful partnership comes from Ron O’Hanley, State Street’s chairman and CEO. Before he ascended to State Street’s top job, O’Hanley made it his mission to nurture a mutually beneficial relationship with the new CIO at the University of California. The two hit it off right away. During one casual chat years later, O’Hanley sparked an idea in Jagdeep about how to best manage the university’s fixed income assets. Today, all our fixed income assets have been converted to passive management—by State Street, which has replicated the index for us.

Now, some 72% of our total assets are passive and most are managed by State Street. This arrangement isn’t just about convenience. It’s a strategic calculation that has paid off big time. In a world where every basis point counts, State Street charges management fees of just 1 basis point, a game-changer for the university.

In State Street we’ve found a partner that perfectly complements our strengths. While we drive the strategic vision, they excel in execution at all levels of the organization. This dynamic allows us to focus on creatively expanding the boundaries of institutional investing while relying on State Street’s operational expertise to bring our ideas to life.

In the complex world of institutional investing, alignments like this are rare. With State Street, we’ve found a partnership that amplifies our capabilities, drives our efficiency, and ultimately helps us better serve the students, faculty, staff, and retirees of the University of California. That’s perfect alignment in action.

When Jagdeep Singh Bachher arrived as chief investment officer 10 years ago, the investment team worked in a vastly different technological landscape. Sure, we all had computers on our desks. But we were still in the dark ages when it came to harnessing the power of technology to fuel better investment returns.

Even back then, however, we knew technology was bound to transform the way we worked. (Our CIO is an engineer by training, after all.) In an ever faster world, we needed real-time data to make the most informed investment decisions we could.

This culture of daily data has now become our norm at UC Investments, even as some have questioned why long-term investors such as pensions and endowments would need such frequent updates. Our response is clear: In the complex world of managing $180 billion, timely and complete information is crucial for removing emotion from decision-making and maintaining a balanced perspective.

The first five years after Jagdeep arrived, Chief Operating Officer Arthur Guimarães led the task of organizing our data infrastructure. This groundwork led to the development of the CIO’s Daily Dashboard, a tool that has become integral to our operations. Think of the dashboard as the instrument panel of an airplane, with investment, operations, and risk given equal weight to keep our figurative aircraft in perfect balance. This technology isn’t just “layered on” to our internal processes. It’s woven into how we work every hour of every day. Speaking of days, ours start with a morning meeting to review the 40-page daily report our technology platform creates for us overnight.

And we never lose sight of the human element. Our culture emphasizes that while technology provides invaluable insights, it’s how our team interprets and acts on this information that truly creates results. A perfect example of how critical the human element is happened just a few months ago. Our investments operations manager, Miguel Mendoza, was digging into the pension’s cash flow forecasts, which seemed a little off, and met with accountants to get a better handle on what might be going on. During his careful review and analysis of the data, he found $1.1 billion (yes, with a “b”) that hadn’t been accounted for. ​​ This would not have happened 10 years ago before our data-driven culture was ingrained.

Something else that wouldn’t have happened a decade ago was hearing the words “artificial intelligence” in our office unless someone was talking about going to the movie theater to watch Ex Machina.

Today, of course, AI is poised to change the world. At UC Investments, we’re keeping pace. We have the advantage of being located at the epicenter of AI technology and research, an axis that runs from Silicon Valley, to San Francisco, to UC Berkeley. And we’re not only using machine learning systems with our teams internally, we’re putting our money in the marketplace.

As we move forward, our technology-focused culture will only become more ingrained, giving us the analytical horsepower and insights we need for centennial investing.

Few of us are blessed to live a thriving hundred years. Centennial investor Warren Buffet is almost there. The University of California has already well surpassed that milestone, and our endowment will reach the hundred-year mark in a short eight years.

That fills us with awe—and gives us a roadmap. Patience, fortitude, and compounding are what it takes to build centennial wealth to benefit generations of UC students, faculty, staff, and retirees.

At UC Investments, we build on the legacy of those who have come before us and innovate to ensure the next 100 years of growth and discovery at the world’s premier public research university will be the best yet. That’s what being a long-term investor means.

We keep the enterprise steady, stay calm through choppy weather, and always keep the continued excellence of the University of California priority number one.