The University of California has pared down the number of venture funds in its portfolio amid a wider cost-saving effort to reduce management fees.
UC’s Office of the Chief Investment Officer of the Regents, which oversees $109.8 billion in assets across six investments products, has dropped more than 120 PE and VC fund partners over the past three years, an effort that has resulted in $230 million in savings for the system.
The cost-cutting strategy is bolstering the system, with its endowment gaining 15.1 percent in the 2016-2017 fiscal year, and its pension gaining 14.5 percent over the same period, after struggling the year before.
Chief Investment Officer Jagdeep Bachher announced the savings at the Board of Regents’ Investments Subcommittee in September.
“It’s nickels and dimes we pick up every time we assess what we’re doing,” he said at the meeting, according to a video. “We’ve renegotiated all of our fee contracts, we’ve put in hurdle rates, and it adds up to real money.”
The cost-savings at UC come as educational endowments recover from financial year 2016, when the average endowment lost nearly two percent, according to the NACUBO-Commonfund Study of Endowments.
UC had more than 240 external investing partners and had invested in about 340 funds in 2014, Bachher said. It has cut the number of partners to 120 and expects to decrease it to 100 in 2018. He did not specify the number of funds currently in the system’s portfolio, nor did he detail which funds had been cut.
But a review of private equity holdings from 2014 and 2017 shows that the system has downsized its venture capital holdings.
In June 2014, the system had invested in 67 funds from 26 venture firms. By March 2017, the most recent date available, those numbers had dropped to 41 funds at 16 firms.
Firms with funds that appeared on the 2014 list but not in 2017 included Accel Partners, Bessemer Venture Partners, BlueRun Ventures, DCM Ventures, Domain Associates, Globespan Capital Partners, Insight Venture Partners, Intersouth Partners, InterWest Partners, Palomar Ventures, Polaris Partners, Redpoint Ventures and Updata Partners.
The 2017 venture holdings list includes three added firms that did not appear on the 2014 list: Shasta Investment Holdings, UC Ventures Program and Vertical Venture Partners.
UC’s commitments to venture funds totaled $2.1 billion in 2017, compared with $2.63 billion in 2014, according to the reports.
In March, UC announced it would increase its endowment’s private equity target asset allocations to 22.5 percent from 11.5 percent, effective July 2017.
Investments staff and a university spokesperson did not respond to VCJ’s requests for comment.
The total liquidations have resulted in a savings of $9 million for the system’s retirement savings, $27 million for its total returns, $70 million for its endowment, and $123 million for its pension, Bachher reported.
“Less is more,” Bachher said at the meeting, who added that his office would focus its efforts more on co-investing. “We can have deeper relationships, we can have more meaningful conversations,” he said.