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University of California plans to boost PE pace to ~$2 bln a year

  • Assets under management: $118.7 bln
  • PE: $4.4 bln
  • Whom to contact: CIO Jagdeep Bachher (jagdeep.bachher@ucop.edu)
  • Why this is important: The LP reduced investment managers, increased commitment sizes and invested in new PE strategies

University of California is ramping its private equity pace as the asset class generated returns in excess of 20 percent for fiscal 2018.

The $4.4 billion private equity portfolio, spread across UC’s pension and endowment funds, has changed significantly in the past few years, according to investment subcommittee meeting documents dated Nov. 14, 2017.

UC intended to increase the PE portfolio to more than $10 billion in the next five to seven years, John Beil, investment director, said at the meeting.

To accomplish this, the target allocation would go up, and the pace of investment would increase to almost $2 billion a year from a range of $500 million to $700 million a year.

In the same period, UC reduced the number of GPs and funds in its portfolio and increased commitment sizes.

The number of PE managers fell to 49 in 2017 from 107 in 2012, and the number of funds dropped to 148 from 214. The average commitment size increased to $55 million from $35 million.

Recent pledges

Recent PE commitments included $250 million to Blackstone Capital Partners Asia, which closed at $2.3 billion in June; $250 million to Sycamore Partners’ third fund, which closed at $4.75 billion in July, and $120 million to EQT’s eighth fund, which closed at $13.3 billion in February, UC documents said.

UC also committed $135 million to Apollo Global Management’s ninth fund, which closed at $24.6 billion in July 2017; $125 million to Olympus Partners’ seventh growth fund, which closed on $3.04 billion in December 2017; $115 million to TPG Growth’s fourth fund, which closed at $3.7 billion in December 2017, and $100 million to TPG’s Rise Fund, which closed at $2 billion in October 2017.

UC’s co-investment program generated annualized returns of 28 percent and had provided almost $130 million in savings since inception in 2010, CIO Jagdeep Bachher wrote in a paper in September 2017.

UC had made 29 co-investments and 11 had been realized to date, Beil said at the investment-committee meeting.

One such co-investment was $150 million in Duff and Phelps in 2015. Over two years the investment gained more than $120 million, Beil said.

Bachher joined as CIO in 2014 and since then UC has invested in five new PE platforms: UC Ventures, Aligned Intermediary, Congruent, UC RNT and Risk 3.0

The $118.7 billion UC assets are split among the $66.8 billion pension, $12.3 billion endowment, $24.3 billion retirement savings, $14.4 billion working capital and $0.9 billion Fiat Lux funds.

Pension performance

UC pension fund’s $3.1 billion PE portfolio, with a target allocation of 7.5 percent, included buyouts (59 percent), venture capital (28 percent) and co-investments (13 percent). The pension’s actual PE allocation was 4.6 percent in fiscal 2018.

The best returns came from its $392 million co-investment program, which returned 49 percent over one year, 29.6 percent over three years, 38.1 percent over five years and 34.9 percent over seven years as of June 30, 2018.

The pension fund’s $1.7 billion buyouts program returned 14.1 percent over one year, 12 percent over three years, 12.9 percent over five years and 9 percent over 10 years.

The $868 million VC program came in third, returning 17.9 percent over one year, 8.8 percent over three years, 13.6 percent over 5 years and 10.1 percent over 10 years.

UC pension’s total PE portfolio returned 19.1 percent over one year, 13 percent over three years, 15.2 percent over five years and 10.4 percent over 10 years as of June 30, 2018.

The University of California’s pension fund grew to $66.8 billion in fiscal 2018 from $61.6 billion a year earlier.

Overall, UC’s pension fund returned 7.8 percent over one year, 6.5 percent over three years, 8.2 percent over five years and 6.4 percent over 10 years, as of June 30, 2018.

Endowment performance

UC endowment’s $1.3 billion PE portfolio, with a target allocation of 14 percent, included buyouts (37 percent), venture (35 percent) and co-investments (28 percent) as of June 30, 2018. Its actual allocation was 10.6 percent.

Like its pension fund, UC endowment’s $369 million co-investment program returned 34.6 percent over one year, 18.4 percent over three years, 33.8 percent over 5 years and 31.8 percent over 7 years.

Similarly, the endowment’s $482 million buyouts program returned 27.5 percent over one year, 30.8 percent over three years, 24 percent over five years and 14.2 percent over 10 years, as of June 30, 2018.

The endowment’s $453 million VC program returned 5.4 percent over one year, 9.8 percent over 3 years, 14.2 percent over 5 years and 10.7 percent over 10 years.

The endowment’s total PE portfolio returned 22.7 percent over one year, 19.4 percent over 3 years, 22.5 percent over five years and 13.9 percent over 10 years, as of June 30, 2018.

Overall, UC’s endowment returned 8.9 percent over one year, 6.5 percent over three years, 8.8 percent over five years and 6.4 percent over 10 years, as of June 30, 2018.

UC endowment increased to $12.3 billion as of June 30, 2018, from $10.8 billion the previous year.

Overall UC’s $118.7 billion assets under management returned 8.1 percent for fiscal 2018.

Action Item: Read more on UC’s investments here https://bit.ly/2OgrMFG