If you
listen to the audio, you get the impression that not all committee members were
able to understand fully what was being proposed, although eventually what was
proposed was endorsed. This area is
really complex and the Regents could have benefited from another independent “second opinion.” There was a consultant on hand. But there are top financial experts on the
faculty at various UC campuses that might have been consulted through the
Academic Senate. Apparently, however,
the only real expertise the committee had from the academic side of UC was a
graduate student observer – an MBA student interested in finance – who was
grateful to be there and said so in a short statement at the end of the meeting.
In some
cases, if we were to have significant portfolio losses in the future, the
joking around at the hearing - on the public record - could come back to haunt
us. Members were reminded at the beginning
that the meeting was going out on the Internet - but it is easy to forget that
people are listening. The larger problem
is that the argument that allowing more flexibility could produce higher
returns – sometimes with after-the-fact anecdotes cited as evidence – by itself
is too abstract to make a judgment. More
flexibility could also produce lower
returns. The precise incentives given to
investment managers can sometimes produce perverse results, a kind of
asymmetric reward for risk taking. That is one reason why constraints are
imposed. That’s why true due diligence
would involve obtaining more independent analysis and why getting such advice
from faculty financial experts would have been a Good Thing to do. It may be that everything ultimately endorsed
by the Regents was for the best. Yours
truly can only judge the process, not the outcome.
Review of
the campus foundation endowments was rather perfunctory. An earlier post on this blog noted that
UCLA’s endowment investment strategy, as reported to the Regents, seemed somewhat
unconventional. But it was noted also
that whether in the long-term or the short-term, UCLA seemed to be getting
lower returns than the median for the UC campuses. UCLA was
described as “aggressive” in its investment strategy at the meeting but all the
campuses’ strategies – including that of UCLA - were blessed. The presentation concluded that the analyst
was “comfortable” with all the campuses.
It may be that the Regents feel they have less of a role in campus-level
endowment management than they have for the UC-level endowment and pension.
You can hear
the meeting at the link below. Audio
quality varies. In some cases, the
live-stream seemed to freeze and had to be restarted. Hence, some brief audio is missing. The audio below has been edited to shorten
the silent periods during which the audio was lost.
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