University of California posts strong PE returns in FY 2018-2019

University of California’s endowment had a 27.4 percent return on its $1.9 billion private equity portfolio in fiscal 2018-2019, while its pension saw a 13.7 percent return on its $4.1 billion portfolio, according to a report released ahead of its Board of Regents meeting this week.

The office of UC Chief Investment Officer Jagdeep Bachher has $126.1 billion in assets under management, the report said, of which $6.1 billion, or 5 percent, is allocated to private equity.

Bachher’s office, known as UC Investments, said the fund had an overall net return of 6.3 percent in fiscal 2019. Its constituent parts include the endowment, the pension, working capital, the retirement savings program, Fiat Lux Insurance and the Blue & Gold Pool. The endowment and the pension are the only parts that do private equity investments.

Endowment

As of June 30, the endowment was valued at $13.4 billion, with an 8.2 percent net return and a 9.4 percent 10-year return. Private equity makes up 14 percent of its portfolio. Its long-term private equity target allocation is 23 percent.

The $1.9 billion private equity portfolio consisted of:

• $500 million in buyouts, with a 10.8 percent 1-year return;
• $400 million in venture, with a 38.5 percent 1-year return;
• $700 million to co-investments, with a 39.9 percent 1-year return;
• $300 million to growth equity, with a 22 percent 1-year return;
• plus $30 million to opportunistic investments, with a 28.7 percent 1-year return.

Pension

As of June 30, the pension was valued at $70 billion, with a 6 percent net return and a 9.3 percent 10-year return. Private equity is about 6 percent of its portfolio against a long-term target of 10 percent.

The $4.1 billion private equity portfolio consisted of:

• $1.26 billion to buyouts, with a 7.9 percent 1-year return;
• $796 million to venture, with an 17.6 percent 1-year return;
• $577 million to co-investments, with a 26.6 percent 1-year return;
• $628 million to growth equity, with a 7.6 percent 1-year return;
• and $821 million to opportunistic investments, with a 18.9 percent 1-year return.

Buyouts reported last year that UC planned to increase its PE portfolio to more than $10 billion over five to seven years.

In last year’s report, the PE portfolio was valued at $4.4 billion compared to $6.1 billion this year. Recent venture fund investments have included Sequoia Capital, GGV Capital, NeoTribe Ventures, Mission Bay Capital and Bow Ventures, according to VCJ.

Bachher has stressed a “less is more” approach since taking over UC Investments in 2014. As Buyouts reported, this has included reducing the number of GPs and funds in its portfolio and increasing its commitment sizes.

“We are working actively to reduce the number of decisions we have to make, the number of line items in our portfolio and the number or external managers we use,” the office wrote in its 2019 report. In a press release, Bachher said UC Investments has saved $1 billion by reducing management costs.

Last year, Institutional Investor reported that over 75 percent of UC Investments’ staff had turned over during Bachher’s tenure, and reported deep tensions with his leadership, including the loss of many key staffers, including Eduard Van Gelderen, now CIO of Canada’s Public Sector Pension Investment Board. The UC Board of Regents expressed full confidence in Bachher soon after the story was released.

Action item: read Bachher’s entire report here.