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.
“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.