University of California

University of California Snags CIO from Sacramento Pension

The University of California has hired former Sacramento County pension chief Scott Chan, according to Chief Investment Officer.

Chan, who will reportedly start on February 17, will be the University’s managing director of public equity.

More from Chief Investment Officer:

Chan has been named senior managing director of public equity, responsible for upwards of $35 billion in endowment, retirement, and operational assets.

The former hedge fund manager took over the Sacramento County Employees’ Retirement System in 2010. Under Chan’s leadership, the $7 billion portfolio climbed from five-year returns in the bottom quartile of public plans to the 53rd percentile as of September 30, 2014.

He spearheaded several opportunistic plays, including a separate account for purchasing discounted infrastructure secondaries. Last month, Chan and the fund took home the CIO Industry Innovation Award for public plans under $15 billion.

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[Jagdeep] Bachher, who took over as CIO in April 2014, has executed a nearly wholesale overhaul of the division’s staff, organizational structure, and compensation scheme.

Identifying and promoting internal talent was his first step in the reorganization, the Canadian sovereign wealth fund alum told CIO in November.

“Second,” he said, “you need to bring in external people. Target those with experience who’ve had leadership roles. Hence, CIOs at other institutions who want to go back to investing have been very attractive.”

In the last few months, the University of California investment officer has made over a dozen new hires and promotions. Read more about the personnel changes here.

Former Canada Pension Exec Now Working on Restructuring University of California Fund

Brian Gibson, former investment executive at the Ontario Teachers’ Pension Plan, went into semi-retirement in 2012.

Now he’s brought his expertise to the United States, and is helping to restructure the endowment and pension fund of the University of California.

From the Financial Post:

Gibson was hired last May about one month after Jagdeep Singh Bachher, a former AIMCo colleague, was named chief investment officer.

Bachher, AIMCo’s former chief operating officer, turned to Gibson for help in restructuring the fund that had a healthy unfunded liability and was plagued by having too many external managers and being ill-equipped to deal with the new markets.

“The market returns over the coming decade aren’t going to be great. Big balanced portfolios might earn 6%, maybe 7% on average,” said Gibson on Monday prior to flying to California. “Those are pretty modest returns, which makes it challenging to fund pensions and endowments.”

Bachher and Gibson’s goal in restructuring the investment operation was “on generating better returns over and above the market and on reducing their costs. They needed a lot fewer investment managers. They had hundreds of them, way too many,” said Gibson, who has spent half his time since May on the assignment.

Gibson said higher costs result when too many managers are hired and when each manager is given a small allocation. “The benefit of having some very good managers was diluted by having a long tail of other managers who were just okay. They had too many median managers,” said Gibson, one of the three former AIMCo employees at the fund. Arthur Guimaraes, chief operating officer, is the other.

To do that, the fund “eliminated half to two-thirds of the existing managers and re-allocated the capital to the better managers,” said Gibson, it was a change aimed at generating “several hundreds of millions of dollars of improved returns effects and lower costs, because of the ability to negotiate lower fees.”

University of California’s pension and endowment fund manages contains $91 billion in assets.

University of California Considers Raising Tuition As Pension Liabilities Mount

The University of California is considering a plan that would raise tuition by 5 percent each of the next five years.

If the plan is approved, the extra revenue will go, in part, towards paying down billions in unfunded liabilities associated with the University’s pension plan.

From the Sacramento Bee:

When the University of California Board of Regents on Wednesday debates a plan to raise tuition by up to 5 percent annually over each of the next five years, they will focus on how the revenue could benefit the university’s academic mission: expanded course offerings, more support services, 5,000 more slots for California students.

But UC officials say the system also needs the money to help rescue its pension fund – neglected for two decades and facing $7.2 billion in unfunded liabilities – and to cover the growing cost of retiree health benefits.

“They’re going to have to ramp up contributions considerably over the next few years in order to maintain the financial health of the system,” said Adam Tatum, a retirement systems specialist at California Common Sense, a nonpartisan policy research organization. “What is certain is that the UC needs more money to pay off these unfunded liabilities – if not now, then in the future. That’s inevitable.”

This year, UC will pay about $1.3 billion to the pension fund, about 5 percent of its overall operating budget.

The University has asked the state to cover a portion of the school’s payments into the system. But California hasn’t taken the school up on their offer. From the Bee:

UC officials want the state’s general fund to pick up nearly a third of the payment, which would cover the university’s portion of pension contributions for faculty and other employees who are paid from state funds.

“Frankly, if the state were to pay that, we would not be proposing a tuition increase,” said Nathan Brostrom, UC’s chief financial officer. “That is money that could go to other resources.”

UC notes that the state covers the costs of employer pension contributions to CalPERS for other state agencies, including California State University. “This is money we’re paying out of our own resources that the state is providing to every other state agency,” Brostrom said. “It’s just a matter of equity. Why do they not take any action to help us with it?”

Gov. Jerry Brown’s administration maintains that UC, with a good deal of governing autonomy and its own retirement system, should cover the costs. H.D. Palmer, spokesman for the Department of Finance, said the state’s taxpayers aren’t obligated to help UC cover its liabilities. He said the state has increased UC’s general fund allocation so the university could determine its own fiscal priorities.

“They have an independent system,” Palmer said. “We don’t have any input on the structure of the system. We don’t have any input on the level of benefits.”

The UC Retirement Plan is 76 percent funded.