University of California’s Pensions, Endowments Drive Asset Outperformance

An 8.1% total return sees the institution’s asset growth beat most benchmarks.

The University of California’s assets under management returned 8.1% in fiscal 2018, bringing its total value to $118.7 billion.

The institution’s main drivers for the fiscal year, which ended June 30, were its $12.3 billion endowment and $66.8 billion pension fund, which returned 8.9% and 7.8%, respectively.

The endowment beat its 8.5% benchmark in the period ended June 30, and has consistently outperformed, returning 6.5%, 8.8%, 5.6%, and 5.9% over the past three-, five-, 10-, and 20-year periods, respectively. However, it returned a little more than half of last year’s 15.1%, although the shortfall can be attributed to the stock market’s selloff in first quarter, which has been echoed in October.   

Its pension plan, while missing this year’s 8.4% benchmark by 0.6 percentage point, has still outperformed its benchmarks for the five-, 10-, and 20-year spans (it missed the three-year by just 0.1 point). It is also 90% funded. 

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“Whether it’s a fund we’re investing in or a partner co-investment or even direct investing, we’re now finding more ways to earn returns while being ever-cognizant of the risks we’re taking,” said Jagdeep Bachher, the organization’s chief investment officer, who added that it conducted more private market transactions in the past year than ever.

All assets are encompassed into five separate divisions, including the endowment and pension pools—retirement savings, working capital (total-return investments and short-term investments), and captive insurance. The bulk is invested in public equity (51%), followed by fixed income (29%). Another 14% is invested in absolute return strategies, which is made up of private equity, real estate, and real assets. The remaining 6% is in cash.

A whopping 73.1% of the university’s assets are invested in the US.

The report did not mention whether the University of California surpassed its total benchmark, or what the aggregate benchmark currently is.

Bachher was unable to be reached for direct comment.

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Canadian Pension Funds Post Negative Q3 Asset Returns

Funded ratio still rises as declining liabilities offset losses.

Despite reporting negative asset returns for the third quarter, the funded ratio of Canadian pension funds increased during the period due to declining actuarial liabilities that more than offset the disappointing investment performance, according to consulting firm Morneau Shepell. 

“Global stock markets delivered mixed returns in the third quarter with US equities outperforming other major markets,” Jean Bergeron, head of Morneau Shepell’s asset and risk management consulting team, said in a release. “Although asset returns were negative, the decrease in actuarial liability was larger.”

Bergeron added that the solvency ratio for an average Canadian pension plan improved by about 0.5% to 2.0% since the beginning of the third quarter.

Canadian equities were down 0.6% during the quarter, while bond returns in Canada were off 1.0%, and emerging market equities were down 2.7% in Canadian dollars. Long-term bonds posted a loss of 2.4%, while medium-term bonds lost 0.8%, and short-term bonds were 0.0%. High-yield bonds posted 1.0% returns, while real return bonds reported a loss of 2.2%.

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Although the report said the median return for Canadian equity managers during the quarter was a loss of 0.3%, that still outperformed the S&P/TSX Index, which lost 0.6% during the same time period. Meanwhile, the S&P/TSX Small Cap Index lost 2.8%, and the S&P/TSX Completion Index representing mid-cap stocks registered a decrease of 0.3%, and the large-cap S&P/TSX 60 Index was down by 0.7%.

Foreign equity managers’ median returns were 5.4% for US equities, below the S&P 500 Index benchmark, which returned 5.9% during the quarter, while international equities lost 0.7%, compared to the benchmark MSCI EAFE Index, which only lost 0.4%. Global equities managers reported a 2.8% return, short of the 3.2% return of the benchmark MSCI World Index. And emerging markets equities lost 2.6%, slightly outperforming the benchmark MSCI Emerging Markets Index, which lost 2.7% during the same period.

The results of Morneau Shepell’s study are based on the returns provided by portfolio managers, ranging from independent investment management firms to insurance companies, trust companies and financial institutions. The returns are calculated before deduction of management fees. The Performance Universe covers 327 pooled funds managed by 51 investment management firms, with a market value of more than C$268 billion ($204 billion).

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