Key Takeaways
- • University of California's $190 billion investment portfolio eliminated its 10% hedge fund allocation entirely, reallocating capital to public equities following a divestment plan disclosed in 2023 and finalized in July 2025.
- • UC increased endowment public equity exposure from 40% to 50% and pension plan public equity allocation from 53% to 57%, marking a significant strategic rebalancing away from absolute-return strategies.
- • Chief Investment Officer Jagdeep Singh Bachher cited systematic hedge fund underperformance during three major market dislocations (1999, 2008, 2020), stating the positions "hurt us" rather than providing promised downside protection.
- • UC Investments determined hedge funds failed to deliver their core value proposition after 20 years of deployment, with Bachher characterizing the asset class as a profitable business model for Wall Street rather than a risk mitigation tool for institutional allocators.
- • The move reflects a broader institutional skepticism toward hedge fund value delivery, particularly among large endowments and pension plans reassessing fee structures and risk-adjusted returns.
Summary
The University of California concluded a multi-year wind-down of its hedge fund portfolio in July 2025, eliminating the 10% absolute-return allocation entirely and reallocating the capital to public equities. The decision, approved during UC Investments' July board meeting, represented the culmination of a divestment strategy that UC leadership first signaled publicly in 2023.
The reallocation meaningfully increased public equity exposure across both the endowment and pension plan components of the $190 billion portfolio. The endowment's public equity target rose from 40% to 50%, while the pension plan's public equity allocation increased from 53% to 57%. These moves consolidate UC's shift toward liquid, transparent equity markets and away from alternative strategies that have underperformed relative to their fee structures.
Jagdeep Singh Bachher, UC's chief investment officer, delivered pointed criticism of hedge fund performance, arguing they failed to fulfill their fundamental purpose as portfolio hedges. In testimony before the board, Bachher noted that hedge fund positions deteriorated UC's overall returns during three significant periods of market stress: 1999, 2008, and 2020. "In each of those three scenarios, hedge funds didn't hedge us," Bachher stated. "They exposed us to the opposite kind of risk, which actually meant they hurt us." He further emphasized that UC cannot maintain excellence across all investment disciplines and that hedge funds do not represent an area of institutional strength.
Bachher's comments underscored a pragmatic acknowledgment that large institutional investors face capacity constraints in managing diverse strategies. "There's always somebody outside of this room that performs better than we do," he noted, while adding that UC chose to redirect focus and resources toward areas where it could generate superior risk-adjusted returns. The divestment follows 20 years of hedge fund investing at UC and reflects a broader industry pattern among elite institutional allocators reassessing the value proposition of high-fee alternative strategies.
The reallocation meaningfully increased public equity exposure across both the endowment and pension plan components of the $190 billion portfolio. The endowment's public equity target rose from 40% to 50%, while the pension plan's public equity allocation increased from 53% to 57%. These moves consolidate UC's shift toward liquid, transparent equity markets and away from alternative strategies that have underperformed relative to their fee structures.
Jagdeep Singh Bachher, UC's chief investment officer, delivered pointed criticism of hedge fund performance, arguing they failed to fulfill their fundamental purpose as portfolio hedges. In testimony before the board, Bachher noted that hedge fund positions deteriorated UC's overall returns during three significant periods of market stress: 1999, 2008, and 2020. "In each of those three scenarios, hedge funds didn't hedge us," Bachher stated. "They exposed us to the opposite kind of risk, which actually meant they hurt us." He further emphasized that UC cannot maintain excellence across all investment disciplines and that hedge funds do not represent an area of institutional strength.
Bachher's comments underscored a pragmatic acknowledgment that large institutional investors face capacity constraints in managing diverse strategies. "There's always somebody outside of this room that performs better than we do," he noted, while adding that UC chose to redirect focus and resources toward areas where it could generate superior risk-adjusted returns. The divestment follows 20 years of hedge fund investing at UC and reflects a broader industry pattern among elite institutional allocators reassessing the value proposition of high-fee alternative strategies.
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