The University of California Regents is planning a major overhaul of the target asset allocation and benchmarks for its long-term investment pool.
CIO Jagdeep Bachher proposed more than doubling the $7.6 billion Total Return Investment Pool’s (TRIP) exposure to fixed income, and wants to slash the target for equities, according to documents on the UC Regents’ website.
The new strategic asset allocation would also involve cutting out real estate investment trusts altogether—currently TRIP has a specific allocation of 10% to this sector—and removing “cross asset class” as a specific allocation, following a “strategic review and exposure analysis.” The fund’s current 10% allocation to absolute return strategies would be increased to a target of 15% under the proposals.
In a presentation to the board of the Regents, Bachher recommended changing the pool’s equity benchmark to the MSCI ACWI IMI index, cutting back on emerging markets and increasing exposure to non-US developed markets.
In fixed income, the new benchmark informing its revised target allocation would be the Barclays Capital US Aggregate index. This would remove emerging market and high yield debt from the target allocation.
“Allocation to emerging market debt and high yield represents opportunistic bets in fixed-income markets, and removing them from benchmark will provide the ability to better assess the impact of our decision to over or underweight these exposures given market conditions,” Bachher wrote in the presentation.
The changes are designed to reduce the risk in the TRIP and “optimize allocation” between the three main investment pools overseen by the Bachher’s office.
Since August 2008, TRIP’s equity has doubled from 25% to 50% of the portfolio, while fixed income has fallen from 75% to 37%. The portfolio had 13% in alternatives at the end of March, having introduced this exposure in August 2013.
As well as TRIP, Bachher and his team manage a short-term investment pool, with $8.3 billion in assets, which is designed to provide funding to briefer projects for the university, and the general endowment fund, which provides income for individual endowments.
Since Bachher took charge of the University of California’s investment department last April, he has hired or promoted more than a dozen staff members, including two former public pension CIOs: Scott Chan and Sam Kunz.
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