University Of California Endowment To Nearly Double PE Allocation

Mar 16 2017 | 11:05pm ET

The University of California’s $10.3 billion endowment will double its allocation to private equity at the expense of equity holdings in a bid to improve performance. 

The university’s portfolio gained 7.1% for the six months through December 31, according to a Bloomberg article, driven by late-year surges in global equity markets. The return outperformed the 4.4% booked by the average university endowments over the same time span, the Bloomberg added citing data from Wilshire Associates. 

The move to increase private equity exposure comes as CIO Jagdeep Bachher seeks to improve performance since he became CIO nearly three years. Going forward, the private equity asset allocation in the endowment will reportedly rise from 11.5% to 22.5% and focus on mid-market, buyout, and niche strategies, while equities will drop to 30% from 42.5%.

Allocation to absolute return strategies, which includes hedge funds, will rise slightly from 23% to 25%, Bloomberg said, although the number of hedge funds in the portfolio has fallen from 175 in 2015 to 65 now. 

The new targets were announced following a Board of Regents investment subcommittee meeting Tuesday. The increased allocation to private equity was partly due to the illiquidity premium present in the asset class, according to a video of the meeting.

At the session, Bachher reportedly also tied hurdle rates to the payment of performance fees, reflecting a ongoing desire among large institutional investors to lower the fees they pay for alternative investment management. 


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