Wednesday, March 14, 2018

Listen to the Regents Investment Subcommittee: March 13, 2018

The Regents are meeting at UCLA. Yesterday, their investments subcommittee met. You can hear their discussion at the link below. As usual, we preserve the audio indefinitely because the Regents maintain their recordings for only one year. Normally, the subcommittee would have reviewed the portfolio for the endowment, the pension, and "working capital" through December. However, since the stock market since then has been volatile, there was reference to more recent results. Also approved were various policy changes including conflict-of-interest rules.

There were no public comments. According to the LA Times, there will be protests today over tuition increases.*

A brief reference was made to the belief of both the investment staff as well as Regents that the current discount rate is too high. (In the past, they have suggested that a rate in the 6% range would be more appropriate than one in the 7% range.) Lowering the rate produces a larger estimated unfunded liability. ("Estimated" is an important qualifier; the unfunded liability is what it is. The estimate is a matter of accounting methodology.)

Finally, it was noted that under the choice arrangements now allowed for new hires, more and more employees will end up with a defined-contribution pension. Among other problems, that situation leaves them at "longevity risk," i.e., the risk of outliving one's income. There was discussion of the need to educate employees about their investment and saving behavior and the virtue of targeted investment funds that focus on less risk as the employee nears retirement age. That approach does not address longevity risk. So there was also talk about offering annuity options, maybe by 2020.

You can hear the discussion at the link below:


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