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Paul Wachter, outgoing investment chair, UC RegentsAnyone watching the US institutional investment world over the last 18 months will have noticed the University of California (UC).
A new CIO, new investment team, overhauled portfolio, strong returns, invitation to the White House, partnership with Bill Gates, and, most recently, a long-awaited venture fund: These mark the culmination of Investment Committee Chair Paul Wachter’s transformative tenure at UC.
After nearly a decade leading board oversight for the $100 billion fund, Wachter’s term as a regent ends March 1. He will be succeeded as investment chair by Richard Sherman, CEO of Hollywood mogul David Geffen’s management company, and a regent since 2014.
Wachter’s day job offers plenty to keep him busy. His firm Main Street Advisors—a high-net-worth investment specialist—counts LeBron James, Arnold Schwarzenegger, Boston Red Sox Chair Tom Werner, and Beats Electronics founder Jimmy Iovine as clients, according to media reports.
In an exclusive interview, Wachter spoke to CIO’s Leanna Orr about hiring superstars, competing with the Ivys, and crafting a legacy at the University of California.
CIO: Your committee and the investment office recently made headlines—again!—with a unique venture capital [VC] project and a Silicon Valley celebrity to lead it. Tell me about the genesis of UC’s innovation fund, and why you chose this pioneering structure.
Wachter: I’ve been saying for years that we haven’t optimized the UC’s incredible access to technology, new business ideas, research, and the Office of Technology Transfer for the institution’s investment side. Think about all the great things that have come out of Berkeley, UCLA, San Diego, Davis, Riverside, etc. Investment-wise, we’ve had major opportunities available to us. And now, with the new team, we have people who can help us leverage it. “You can’t tell in an interview how good of an investor someone is. When we hired Jagdeep, that was a little bit of a question mark.”
This venture fund—the GP [general partner]—is not going to be effectively owned by the UC, but rather invested in by the UC as an anchor. Others will co-invest, and the fund will have very good access to what the institution has to offer. That said, I felt that it was only worth doing if we could find someone amazing to lead it.
CIO: And you certainly did: Vivek Ranadivé is a tech legend from founding TIBCO Software, and now owns the Sacramento Kings NBA team. Since he’s surely not in it for the salary, how did you pull off this hire?
Wachter: We do have an unbelievable guy to run the fund in Vivek, someone who would be of tremendous value in the free market. Vivek is willing to come on as a leader because he loves the UC, and cares about giving back.
We want the fund and its staff to be competitive venture capitalists—that’s why the organization’s ownership is independent. Personally, I’m hoping it will grow a lot bigger than our approved $250 million anchor investment, and all along I have been pushing to make that initial allocation a meaningful number. My vision is a long-term project that will be truly valuable to the UC’s professors, students, institutional reputation, and investment office.
CIO: Ranadivé and the venture fund are just the latest in a string of high-profile hires and initiatives by the investment office in the last 18 months. The staff, portfolio, reputation, and even physical office have radically transformed since the prior administration. As chair, what motivated you and your fellow regents to hire Jagdeep Bachher—a fairly young Canadian from the sovereign fund world—and give him carte blanche?
Wachter: In quality management, sometimes it’s good to have change. Change can be good. In fairness to Marie [Berggren, UC’s former CIO], she was there for a very rough time. I want to say for the record: She did very well.
In searching for her successor, we screened a ton of people. We had to decide as a board, what were we really looking for in a candidate? It came down to three qualities, in no particular order.
“David Swensen is a genius and a master and a teacher to us all—and that’s all good. But we are huge, even compared to those guys.” Number one: Someone with serious organizational skills, who would understand how to deal with an institution this big, with so many different portfolios and stakeholders. It’s very public. There’s a lot of criticism, from a lot of different corners. You have the Board of Regents, the students, the donors, and then the entire public and the taxpayers of California. In this aspect, we unanimously felt Jagdeep was a 10 out of 10.
Number two: Personality. We needed someone who can deal well with all of those different constituents, from the board and president to student groups. Again, Jagdeep was the right fit.
Number three: Investment skill. The CIO won’t be making every investment decision, but rather hiring a team, delegating, and supervising. It’s about working with that team on risk management, manager selection, and asset allocation. The CIO has to be good at all three. What you can’t tell in an interview is how good of an investor someone is. If you look at their track record in their previous position, you’re seeing the product of an entire giant institution. In my mind, when we hired Jagdeep, investment skill was a little bit of a question mark.
Luckily, our first-year performance under Jagdeep was strong. It may not be only because of him, needless to say, but we’re going to give him credit for it anyway. He has turned out to be very good at all of the different CIO functions. And thank goodness!
Also, one footnote: He doesn’t have carte blanche in the sense he reports to the investment committee and the Board of Regents, but I believe anyway that when you hire someone good you give them some leeway within the established policies. When it comes to manager selection and operating within the general asset allocation parameters, Jagdeep and his team have a ton of discretion.
CIO: I had the opportunity to spend a couple of days with Jagdeep and his team, watching them prepare to report their inaugural annual returns to you and rest of the investment committee. What struck me was how little discussion centered on UC’s performance vs. Yale, or Harvard, or MIT. How has UC escaped the elite endowment world’s peer-performance mania?
Wachter: Well, if you listen to the public comments, some people are obsessed with that. I do think that comparing ourselves to public and private institutions of size is important. But I don’t obsess on it; I obsess on our absolute performance. I know David Swensen is a genius and a master and a teacher to us all—and that’s all good. But we are huge, even compared to those guys. We’re bigger than Harvard, Yale, and the University of Pennsylvania put together if you look at all our investable assets.
“This is a public service position: You better do it for the right reasons, or why else would you do it?” That said, one mistake that I think we’ve made—and I take some responsibility for—is managing the endowment and the pension fund too much alike. We didn’t focus on the fact that they’re fundamentally different missions. But we’re fixing this, and Jagdeep has been great about strategizing to manage them as separate portfolios. Maybe over time, as we move down that path, we will become more obsessed about competing with the Ivys. And there’s nothing wrong with aspiring to be the best. We should aspire to be the best.
CIO: Your term as a regent ends on March 1. After more than a decade serving UC—most of which you’ve spent as chair of the investment committee—what do you consider your legacy?
Wachter: I think I really helped move this investment office to the endowment—‘Swensen’—model, which it wasn’t on when I arrived eight or nine years ago. The process took a long time, but we got there. I’m very proud of that. Also, I feel confident about leaving this organization in the hands of Jagdeep and Richard Sherman. I think they are perfect for where we are and what we’re doing.
Finally, I’m proud of how we did in the financial crisis: It was brutal, and we held up very well. That proved we knew what we were doing risk-wise. Maybe we didn’t have the top returns—as Institutional Investor pointed out—in the years just ahead of the crisis, but we did it right.
This is a public service position: You better do it for the right reasons, or why else would you do it? We’re not getting paid, and there’s no business overlap with our professional lives. The incentive is the good feeling that you moved the ball forward, that the investment office is better than it was 12 years ago, that I’ve helped pick a strong CIO. I’m 59 years old, and looking back at my tenure, I honestly feel good.