University of California investment staff cut management fees by $70 million to $100 million on an annual basis and are “obsessed with costs,” but they’re providing little detail on how they’ve achieved those savings.
The numbers were disclosed by Chief Investment Officer and Vice President of Investments Jagdeep Singh Bachher in response to questions from Regents board members during a meeting of the investments subcommittee in mid-May at the University of California, San Francisco.
“We’re counting every nickel and dime, and we’re taking it from wherever we can,” Bachher said.
Beyond those comments, however, UC is offering little information about its savings strategies. The investment office renegotiated many of its external management fees last year and has cut most hedge funds from its portfolio, UC Regent Hadi Makarechian said. The office has estimated that it pays $600 million to $750 million in management and performance fees each year.
University investment staff did not respond to questions from Buyouts about whether the savings were across all investment products and how much the system is now paying in management fees. A university spokeswoman said the investment office is conducting a more in-depth accounting of the fees and would have further information to share in coming meetings.
Makarechian, formerly chief executive of the real estate investment group Capital Holdings Inc, emphasized his interest in what the investments office had done with those savings. “It would be very important to see how much your efforts have created for the university as a whole,” he said during the meeting.
Bachher was reluctant to provide a more detailed account of his office’s strategies. “Let’s hold that question,” he said.
The focus on tracking and controlling management fees within UC’s investment assets comes as other public institutions, such as California Public Employees’ Retirement System, face criticism for failing to budget for some PE expenses, Buyouts has reported. CalPERS’s assets under management are more than triple those of UC, at $324 billion versus $107.2 billion.
A review of Regents meetings minutes from the past year shed some light on management- and performance-fee savings. At a meeting in May 2016, investment staff told the Regents board that the cost of asset management for the UC entity had been close to $1 billion two years prior when Bachher first became CIO.
At that meeting, Bachher estimated that annual costs including both management and performance fees would be reduced to about $750 million. He also said the PE portfolio costs were roughly equivalent to a 1 percent management- and 10 percent performance-fee structure, below the industry standard of 2 percent and 20 percent.
At a September meeting, however, Bachher estimated that his office pays $600 million annually in active management fees, including both performance and management fees.
At the most recent May meeting, Bachher promised that at future bimonthly Regents meetings, UC would provide a more complete report on where his office produced the $70 million to $100 million in annual savings.
“Expect from us in July and September to give you a more forensic accounting of what these numbers are,” he told Makarechian. “We’ve been building up that knowledge to be able to better explain it to you.”
The next UC Board of Regents meeting is scheduled for July 12-13 at the University of California, San Francisco.
Action Item: For more information: http://regents.universityofcalifornia.edu/
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