UC Regents Had a Bad Q4 Surprise, Losing $9 Billion

The late-year market slide happened quickly, CIO Bachher says.

It came about all of a sudden. A troublesome stock market, barely helped by an infinitesimal Santa Claus rally, created a problem for the University of California’s endowment, leading to a $9 billion loss in the period.

“Overall, I think things turned pretty quickly in the fourth quarter of the year … into negative territory,” said Jagdeep Bachher, the endowment’s chief investment officer, adding that fixed-income also caused disruption in the portfolio’s strategy.

The University of California’s considerable loss led total assets to close 2018 at $114 billion, according to the institution’s January 15 board meeting. The $53.1 billion public equity portfolio had been cut to 47% of assets, down from 52% at September’s end, when they totaled $123.1 billion.

Ronnie Swinkels, the endowment’s managing director and head of active equity, cited the Federal Reserve’s December interest rate hikes, trade tensions, economic slowdown concerns, and fears of the now-realized government shutdown  as reasons for the hit.

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“If we look at the numbers, the US had been outperforming for almost the entire calendar year of 2018. That changed quite quickly in December,” said Swinkels in a video broadcast of the meeting. The S&P 500 lost 4.5% last year, a lot of that coming from slumping tech stocks such Apple and Facebook. “If you look at our fiscal year, since July 1, equity markets are down about 10% in December.”

“The biggest shift was really in the pension by about $5 billion,” Bachher said. “If you keep in mind that the pension is about half public equities and if you look at what happened in the markets, down anywhere from 10% to 20% depending on where you are, that was the biggest driver in terms of the move in the assets under management.”

UC Regent’s asset allocation as of December 31 was 46.7% public equity, 32.4% fixed income, 6.6% absolute return, 4.7% real estate, 3.3% cash, and 1.7% real assets.

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