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UNIVERSITY OF CALIFORNIA ENDOWMENT MANAGEMENT

UNIVERSITY OF CALIFORNIA ENDOWMENT MANAGEMENT. FEBRUARY 2013. OVERVIEW. U.C. Endowment Corpus @ June 30, 2012: Regents Funds $ 6.0B Campus Funds 4.3B Total $ 10.3B

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UNIVERSITY OF CALIFORNIA ENDOWMENT MANAGEMENT

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  1. UNIVERSITY OF CALIFORNIA ENDOWMENT MANAGEMENT FEBRUARY 2013

  2. OVERVIEW • U.C. Endowment Corpus @ June 30, 2012: • Regents Funds $6.0B • Campus Funds 4.3B Total $10.3B • Regents Funds are invested by the U.C. Treasurer’s office in Oakland. This office also manages U.C.’s $40B pension plan. • Campus Funds are invested by the individual foundations. There are ten of these funds ranging from $6MM to $1.4B.

  3. OVERVIEW • When compared on a ten-year trailing basis, U.C. has consistently been the worst performing fund among all university endowments with over $5B in corpus. • And last year (2012) U.C. actually lost money on its endowment funds (—.66%)

  4. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%.

  5. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are currently 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%.

  6. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are currently 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%. • U.C.’s returns were the worst among this group of 17 funds.

  7. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are currently 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%. • U.C.’s returns were the worst among this group of 17 funds. • The best managed fund (Yale) earned 10.6% annually and the top five averaged 10.08%.

  8. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are currently 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%. • U.C.’s returns were the worst among this group of 17 funds. • The best managed fund (Yale) earned 10.6% annually and the top five averaged 10.08%. • Michigan, another public university, averaged 9.6%.

  9. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%. • U.C.’s returns were the worst among this group of 17 funds. • The best managed fund (Yale) earned 10.6% annually and the top five averaged 10.08%. • Michigan, another public university, averaged 9.6%. • If U.C.’s returns for the decade had matched the average return of the 17, it would have $2.9B more in corpus.

  10. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are currently 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%. • U.C.’s returns were the worst among this group of 17 funds. • The best managed fund (Yale) earned 10.6% annually and the top five averaged 10.08%. • Michigan, another public university, averaged 9.6%. • If U.C.’s returns for the decade had matched the average return of the 17, it would have $2.9B more in corpus. • If U.C.’s returns had matched the top five, it would have $4.9B more in corpus.

  11. INVESTMENT RETURNS • The average annual return on U.C. Endowment funds for the decade ending 6/30/12 is 6.6%. • Not counting U.C., there are currently 17 University Endowment Funds with over $5B in corpus in the United States. The average annual return of these funds for the decade was 9.29%. • U.C.’s returns were the worst among this group of 17 funds. • The best managed fund (Yale) earned 10.6% annually and the top five averaged 10.08%. • Michigan, another public university, averaged 9.6%. • If U.C.’s returns for the decade had matched the average return of the 17, it would have $2.9B more in corpus. • If U.C.’s returns had matched the top five, it would have $4.9B more in corpus. • If the current differential in returns continues over the next decade, U.C. will have: $5.52B less than if it had average returns $7.39B less than if it matched the top five funds returns

  12. KEYS TO CLOSING THE GAP • Interviews with University Endowment Chief Investment Officers at: • Princeton Andy Golden • Harvard Katie Lapp • Michigan Erik Lundberg • Stanford John Powers • Yale David Swensen

  13. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds.

  14. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company.

  15. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company. • Have an experienced, astute, and apolitical governance structure over the investment company.

  16. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company. • Have an experienced, astute, and apolitical governance structure over the investment company. • Merge into one large endowment fund of $10B managed together.

  17. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company. • Have an experienced, astute, and apolitical governance structure over the investment company. • Merge into one large endowment fund of $10B managed together. • Use the David Swensen model of asset allocation.

  18. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company. • Have an experienced, astute, and apolitical governance structure over the investment company. • Merge into one large endowment fund of $10B managed together. • Use the David Swensen model of asset allocation. • Pay Chief Investment Officer market level compensation. • ≈ $800,000 in salary • A bonus plan that pays 2-3 ½ times salary for top decile performance compared to similar funds

  19. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company. • Have an experienced, astute, and apolitical governance structure over the investment company. • Merge into one large endowment fund of $10B managed together. • Use the David Swensen model of asset allocation. • Pay Chief Investment Officer market level compensation. • ≈ $800,000 in salary • A bonus plan that pays 2-3 ½ times salary for top decile performance compared to similar funds • Recruit team of 12-20 professional investment managers. Pay top 2-3 people about 75% of CIO compensation.

  20. KEYS TO CLOSING THE GAP Very consistent advice from the successful CIOs: • Have separate teams managing pension and endowment funds. • Establish a separate investment management company. • Have an experienced, astute, and apolitical governance structure over the investment company. • Merge into one large endowment fund of $10B managed together. • Use the David Swensen model of asset allocation. • Pay Chief Investment Officer market level compensation. • ≈ $800,000 in salary • A bonus plan that pays 2-3 ½ times salary for top decile performance compared to similar funds • Recruit team of 12-20 professional investment managers. Pay top 2-3 people about 75% of CIO compensation. • Compare to top 10-20 university endowments for performance and compensation comparisons.

  21. PROCESS TO DATE Over the last three years, these data and recommendations have been reviewed in detail with: • U.C. Berkeley Chancellor • U.C. Berkeley Vice Chancellor for Administration and Finance • University of California: • President • Chief Financial Officer • Executive Vice President • Treasurer • Regents • Chairman • Chairman of the Investment Committee • Vice Chairman of the Investment Committee • Investment Advisory Group • President Pro Tem of State Senate • Governor of California • Senior Jobs Advisor to Governor • You!

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