UC's Bachher Indicates De-risking of Commodities Portfolio in Near Term

The University of California Regents Chief Investment Officer Jagdeep Bachher says he sees the university taking steps soon to de-risk its commodities portfolio, transferring investments away from oil and gas funds.

Student and environmental groups have been pressuring UC to stop all fossil fuel investments in its $11.5 billion endowment, $66.6 billion pension, and other investments pools, a move that has been resisted by university officials.

The comments by Bachher would potentially affect a smaller group of securities since the university’s commodities portfolio exposure to oil and gas investments is much smaller than the university’s equity investments in those areas.

“I can see a point in the near future where we will start to fundamentally reduce those assets,” Bachher said of oil and gas commodities investments, as he spoke at a Regents Investments subcommittee meeting in Los Angeles on Tuesday.

Bachher also made it clear that there will be no new investments in oil and gas-related commodity funds.

Money managers and hedge funds have made bullish bets on oil futures this year, a move that Bachher believes is too risky over the long term.

“We have to believe based on where the commodities are trading at, in the long term, investing in fossil fuels and putting in money today, and locking that money up for a decade, and underwriting a particular price of oil is just a financial risk that we do not want to take in the context of real assets,” he said.

Bachher said oil and gas assets could be transferred to other investments such as infrastructure and energy-generation investments, which could include transmission lines.

Bachher told CIO after the meeting that the university’s oil and gas commodity holdings are less than $500 million. He did not elaborate on how quickly assets could be transferred away from commodity funds that can require a lock-up of money for as long as a decade.

“I am not a big fan of investing in fossil fuels in a private sense going forward, and, for that matter, in a public sense because of the financial risks attached to it,” he said.

The  potential move to reduce commodities exposure in the oil and gas arena does not affect oil and gas holdings in the university’s index equities. Those holdings are estimated at more than $3 billion.

In a joint statement in June 2017, Bachher, Richard Sherman, chairman of the subcommittee on investments, and Amy Myers Jaffe, senior advisor, energy and sustainability in the office of the CIO, said the university was committed to investments in cleaner energy initiatives but resisted calls for divestment of all fossil fuel holdings.

Bachher’s office has invested in several clean energy funds and has also divested around $200 million in stock from coal mining industries and oil companies focused on tar sands.