Key Takeaways
- • The University of California paid hedge fund managers about $1 billion in fees over the last 12 years, according to a white paper released by AFSCME Local 3299, the university system's largest employee union.
- • The study found UC paid hedge fund managers one dollar in fees for every two dollars of net returns generated.
- • In fiscal 2014-2015, UC's $4.8 billion in hedge fund investments across its retirement and general endowment plans generated an estimated $158 million in manager fees.
- • The S&P 500 outperformed UC's hedge fund investments by more than 52 percent over the last 12 years, according to the study.
- • The union urged the UC Board of Regents to require full public fee disclosure from hedge fund managers and consultants dating back to 2003 and to conduct an asset allocation review.
Summary
The University of California paid hedge fund managers about $1 billion in fees over the last 12 years, according to a white paper study released by AFSCME Local 3299, which represents more than 22,000 employees across the university's 10 campuses. The union announced the study on Tuesday, March 1, 2016, arguing that the system's hedge fund program lacks transparency and has delivered weak returns. The union characterized the program as an "experiment" that "has fallen far short of the expectations on which they were sold," and said fees on performance and management had been paid for returns that largely mirrored the stock market.
The study, titled "Missing the Mark: How Hedge Fund Investments at the University of California shortchange students, staff and California taxpayers," focused on about $6 billion in hedge fund holdings within the $55 billion University of California Retirement Plan and the $8.9 billion General Endowment Pool. It found that in fiscal 2014-2015, the $4.8 billion invested in hedge funds through these plans generated an estimated $158 million in fees for managers. The S&P 500 Index outperformed UC's hedge fund investments by more than 52 percent over the 12-year period, according to the study. Thomas Gilbert, an assistant professor of finance and business economics at the University of Washington's Foster School of Business, is quoted in the study saying the situation has been "compounded by enormous fees which come at the expense of the UC's stakeholders."
AFSCME Local 3299 President Kathryn Lybarger said the findings raise questions about whether recent tuition increases and pension cuts could have been avoided or minimized. Union officials noted that UC student tuition has tripled over the last 12 years while academic services have been cut and staff have been asked to contribute more to their pensions. The white paper was released as UC officials consider a new round of pension changes, according to union officials. Joe Kiskis, vice president of the Council of UC Faculty Associations, warned that "more pension cuts could do irreparable damage" to UC's ability to attract faculty, doctors and researchers.
The study recommended that the UC Board of Regents require full public fee disclosure from hedge fund managers and consultants dating back to 2003, and conduct an asset allocation review to examine less costly investment approaches. Background from the primary report notes that Jagdeep Singh Bachher was appointed chief investment officer in 2014 with an annual base salary of $615,000, and that UC's retirement plan was invested 55 percent in public equities, 22 percent in bonds and 23 percent in alternatives including real estate, hedge funds and private equity, as Bachher reported the prior year.
The study, titled "Missing the Mark: How Hedge Fund Investments at the University of California shortchange students, staff and California taxpayers," focused on about $6 billion in hedge fund holdings within the $55 billion University of California Retirement Plan and the $8.9 billion General Endowment Pool. It found that in fiscal 2014-2015, the $4.8 billion invested in hedge funds through these plans generated an estimated $158 million in fees for managers. The S&P 500 Index outperformed UC's hedge fund investments by more than 52 percent over the 12-year period, according to the study. Thomas Gilbert, an assistant professor of finance and business economics at the University of Washington's Foster School of Business, is quoted in the study saying the situation has been "compounded by enormous fees which come at the expense of the UC's stakeholders."
AFSCME Local 3299 President Kathryn Lybarger said the findings raise questions about whether recent tuition increases and pension cuts could have been avoided or minimized. Union officials noted that UC student tuition has tripled over the last 12 years while academic services have been cut and staff have been asked to contribute more to their pensions. The white paper was released as UC officials consider a new round of pension changes, according to union officials. Joe Kiskis, vice president of the Council of UC Faculty Associations, warned that "more pension cuts could do irreparable damage" to UC's ability to attract faculty, doctors and researchers.
The study recommended that the UC Board of Regents require full public fee disclosure from hedge fund managers and consultants dating back to 2003, and conduct an asset allocation review to examine less costly investment approaches. Background from the primary report notes that Jagdeep Singh Bachher was appointed chief investment officer in 2014 with an annual base salary of $615,000, and that UC's retirement plan was invested 55 percent in public equities, 22 percent in bonds and 23 percent in alternatives including real estate, hedge funds and private equity, as Bachher reported the prior year.
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