UC Return Information Shows Market Underperform

January 15, 2004 (PLANSPONSOR.com) - If the in-house investment managers for the University of California's (UC) endowment funds had kept pace with the broader stock market indices over a 10-year period, about $2.5 billion in extra gains could have been realized.

In addition, another $2.3 billion could have been earned if UC’s stock investments were handled by successful outside money managers who outperformed the overall stock market.   As it was, the in-house money managers were able to boost their $58.5 billion portfolio by $20 billion between 1992 and 2002, according to a Los Angeles Times report.

The thought of nearly $5 billion dollars that could have been added to the endowment coffers was more than the UC Board of Regents could handle, as they later agreed to overhaul its stock investment practices, shifting management of the funds to outside money managers.

All of which was made possible by records released by UC detailing the financial assessment that the system’s Treasurer David Russ gave two regents’ committees in October 2002.   When UC refused to release its results earlier this year because doing so would interfere with its ability to prudently invest pension funds, the San Jose Mercury News and the Coalition of University Employees sued to get the data and won before a California state judge. The university also lost when it asked the judge to reconsider the decision (See UC Losses Venture Capital Disclosure Court Battle ).

The transcripts also show that the regents on the two committees were concerned there would be news coverage about their intent to change investment procedures before they could directly inform other regents, UC staff and faculty representatives.

In fact, JohnMoores, the regents’ chairman, said to Russ, “I think you need to provide at least a one-sentence cover for why we’re doing this. And I don’t think we want to say that we’re doing it because we’re embarrassed to find out we lost $3 billion.”