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Thursday, May 16, 2024

Watch the Regents Meeting of May 14, 2024

The Regents met at UC-Merced on Tuesday, May 14, beginning a three-day regular session. The Tuesday meeting featured public comments, a session of the Investments Committee, and another on the Special Committee on Athletics.

Public comments focused on calls for divestment, complaints that President Drake's money for "neutral" programming had been used at Davis for indoctrination, complaints about low pay for childcare workers, and a complaint that the definition of nonresident for tuition purposes was inconsistent.

Apart from the usual review of investment returns, there was a lengthy session about the divestment issue at the Investments Committee during the presentation by the Chief Investment Office Jagdeep Bachhar. Early on, he stressed that the Regents and his office had legal fiduciary responsibilities to the pension, endowment, and other funds managed by his office. He noted that IT companies such as Google (which the divesters don't like) produced some of the highest long term returns. 

He was pushed on the issue of how come UC divested from fossil fuels. His story, which is somewhat of a stretch, was that fossil fuel companies had "stranded assets" and therefore they had come to be seen as bad long term risks. That;s why he divested and not just because of social and environmental issues. When asked if he would have divested from fossil fuels if there had not been such risks, he said he would not, again stressing fiduciary obligations. But, at another point in the meeting, he said that he would divest if the Regents told him to since they are his bosses.

UC has an ESG (environment, social governance) policy in which issues falling into that category are raised with companies in which UC is a significant stockholder through a process of "engagement" and sometimes through votes at shareholder meetings. BMW was given as an example in which such engagement had occurred because it was perceived as moving too slowly toward electric cars.

One Regent - Makarechian - noted that you really can't divest from fossil fuels since such fuels are directly or indirectly in almost everything. Bachhar agreed.

When the student regent Tesfai raised the question of student demands, Bachhar broke down the portfolio as follows. (Note that much investment is through index funds rather than direct holding by UC.)

$3.3 billion in companies that could be classified as weapons manufacturers.

$12 billion supporting the current war - since that is the U.S. government, he counted just the $12 billion in US Treasury securities in the portfolio.

$163 million (not billion) in Blackrock

Blackrock invests on behalf of UC $2.1 billion, i.e., they are UC's agent.

Blackstone (not to be confused with Blackrock): $8.6 billion.

Companies that do business with Israel: $3.2 billion

He somehow added this up to $32 billion out of about $175 billion in assets held by UC. (Yours truly gets a somewhat lesser amount but maybe he missed something.) So, to divest all of that would chop 18% out of the portfolio.

Regent Hernandez said maybe - given the uncertainty of the world and US political situation - UC should pause any additional investments in weapons manufacturers. Bachhar pushed back saying there is always an uncertain situation. Hernandez said he was a UC pensioner and wouldn't mind divesting from weapons. Bachhar said he (Hernandez) was just one of over 300,000 and again focused on fiduciary obligations.

An interesting fact was pointed out: UC did divest from tobacco and fossil fuels for the pension and endowment. But for the voluntary savings plans, employees have to choose a fund that doesn't have tobacco and fossil fuels. UC doesn't take away the option of a complete fund that includes tobacco and fossil fuel. Those savers that have so chosen account for only $32 Million (not billion) out of $38 Billion (not million). (It might be further noted, although it wasn't raised at the meeting, that voluntary participants in the saving plan can take their funds out of UC and invest with Fidelity. They can then invest in, and divest from, anything Fidelity offers as individual investors.)

It should be noted that in the traditional finance view, divesting mainly hurts the divester by making the portfolio more volatile. If UC sells share in company X, someone else buys them at the market price and company X is largely unaffected. In a prior post, we noted that Bachhar's predecessor had a jaundiced view of divestment for that reason.*

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*https://uclafacultyassociation.blogspot.com/2024/05/ten-years-ago-remarks-of-retired-uc.html.

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The Special Committee on Athletics met following the Investments Committee with the headline item being a $10 million tax on UCLA to be transferred to Berkeley due to UCLA's decision to change athletic conferences. The $10 million number originated in a prior meeting of the Committee where a range of $2 million to $10 was approved, subject to further financial review. There was a closed-door meeting ahead of the open session this time and occasional references were made in open session about the grave financial impact that had been revealed. So, the recommendation of $10 million came about only because it was at the top of the earlier range. Originally, the proposal was for $10 million per year for 5 years. But it was cut to 3 years due to the new undisclosed findings and the rapidly changing college athletics situation. The alumni regent voted against the transfer. The student regent (from UCLA) went along reluctantly. It was noted that it was USC that made the first move and that if UCLA hadn't followed, some other team would have, thus producing much the same outcome.

The Committee then heard presentations by UC-Merced on its athletics program and by a group of student-athletes from various campuses. 

Finally, there was discussion of general trends in college athletics with references to the development of NIL payments and transfer portals, eroding the old idea of student-athletes as amateurs. State legislatures have been intervening and there is litigation occurring. Perhaps most revealing was the use of the word "industry" by presenters when describing college athletics. As in earlier parts of the meeting, there was reference to developments that had been discussed in closed session.

As always, we preserve the recordings of Regents meetings indefinitely since the Regents have no set policy on retention. The general web address for the May 14th meeting is:

https://archive.org/details/regents-5-14-2024-investments-committee.

For Public Comments and the Investments Committee:

https://ia600400.us.archive.org/2/items/regents-5-14-2024-investments-committee/Regents%205-14-2024Investments%20Committee.mp4.

For the Special Committee on Athletics:

https://ia600400.us.archive.org/2/items/regents-5-14-2024-investments-committee/Regents%205-14-2024%20Special%20Committee%20on%20Athletics.mp4.

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