After initially circling the wagons in defense of chief investment officer Jagdeep Bachher, University of California officials planned to tackle allegations against him in a closed-door meeting Tuesday, UC president Janet Napolitano told Institutional Investor.
“That is the subject of the closed session,” Napolitano said Tuesday afternoon, when asked if UC would take any action on or investigate the claims of mismanagement. “I don’t think it is appropriate for me to discuss until the closed session has concluded.”
An investigation by Institutional Investor, published September 6, found Bachher allegedly used investment staff for personal errands, overrode asset-class heads’ opposition to invest with UC’s ex-investments chair, and twice leaked confidential information about an outgoing employee.
What, if anything, will come of the closed-door meeting is not yet clear. The press secretary for the UC’s office of the president declined to comment, citing confidentiality. UC’s Regents — or trustees — on the investment committee participated, as did Napolitano. Bachher typically attends the private proceedings, which follow the quarterly public investment board meetings.
Tuesday’s open session — held at the University of California, Los Angeles — centered on a new sleeve, or investment vehicle, being rolled out by the investment team. The Blue and Gold Endowment is intended to function mid-way between UC’s working capital pools and general endowment fund. Blue and Gold will offer greater expected returns than the conservative and bond-heavy working capital pools, but with more liquidity than the endowment, which has a large and growing private asset allocation.
The central investment team managed $119 billion for the university system as of June 30, divided into short-term ($5.1 billion) and total-return ($9.3 billion) working capital funds, the general endowment ($12.3 billion), a pension fund ($66.8 billion), and, separately, a defined contribution plan. In designing this new product — Blue and Gold — the team aimed to replicate endowment returns with an ultra-simple and highly liquid portfolio.
“Our goal is asset optimization,” said chief financial officer Nathan Brostrom. The Blue and Gold endowment will be “entirely passively invested,” he said. “It won’t be limited to an annual payout, and can be drawn on quarterly,” he explained.
The endowment, in contrast, pays out no less and rarely more than about 5 percent per year. “I expect quite a bit of demand. Over the next four to five years, we may take half of our working capital and move it into Blue and Gold so it’s returning” similar to the endowment.
Asset allocation and passive public equities head Sam Kunz estimated the new portfolio can be implemented and assets in it managed for less than 10 basis points.