On August 2, 2000, Regent Judith L. Hopkinson wrote this letter to all UC employees on the revised asset allocation strategy for UCRP, the General Endowment Pool, and the UC-managed Equity and Bond funds for the Tax-Deferred 403(b) and Defined Contribution plans. This letter amplifies an earlier letter by the Regents sent to all UCRS members about these new investment management policies. These policies followed a study by an outside investment firm, Wilshire Associates. You can read the whole Wilshire report or a four-page summary online.
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
August 2, 2000
To Members of the UC Community:
Some University employees have expressed concern about the University pension funds after reading a recent series of articles in the San Francisco Examiner. As the chair of the Regents' Committee on Investments, I would like to comment on the Regents' decision to seek an outside investment adviser and to put the proposed changes into perspective. Above all, I want to assure all University employees that their pension fund assets will continue to be prudently invested and that the University is fully committed to meeting its current and future benefits obligations.
The University of California has one of the fiscally strongest and safest pension funds in the country. The investment activities for these pension funds have produced high returns for its participants, outperforming comparable funds with an annual return of 16 percent over the past 20 years.
Let me briefly share some background information about recent events with you. As part of its fiduciary responsibility for the funds, the Board of Regents initiated a process in late 1998 to evaluate existing policies and risk levels and develop comprehensive investment policies and procedures to provide for the funds' safety and profitability well into the future. Then-Chairman John G. Davies created the Commission to Review the Treasurer's Office, on which three Regents and four outside investment experts served, as the first step in this process.
As part of this review and after a competitive Request for Proposals process, the University retained the additional expertise of Wilshire Associates, one of the world's largest and most respected financial consulting firms. Wilshire Associates also serves as a consultant to CalPERS and several higher education clients, including the Iowa State Board of Regents, the University of Wisconsin and the University of Pittsburgh. California State Controller Kathleen Connell, who sits on the CalPERS board, noted that CalPERS also chose Wilshire because it is "eminently qualified...the premiere firm." The selection of Wilshire Associates was conducted in accord with all University procedures after a public solicitation of proposals, and with knowledge of the full Board of Regents.
The review resulted in the recommendation to develop and adopt a comprehensive asset allocation strategy. In the past year and a half, the Commission and the Treasurer's staff have worked with Wilshire Associates to develop this strategy that provides the flexibility necessary to maximize fund performance within a structure that emphasizes safety. The review process and recently adopted UC asset allocation strategy are consistent with standard practices within the university community. Responsible investment managers of public funds routinely seek independent, external involvement in fund management review, and virtually all pension funds of the size of the University's retain consultants to review and monitor investment practices, policies and performance. You can read more about the report on the UC Office of the President website at www.ucop.edu/bencom/news/revisedasset.html.
Wilshire Associates has acted as an adviser in this process; it has not and will not be manag-ing any University funds. Investment safety and performance are and will continue to be the sole considerations in both the selection of independent investment expertise and the devel-opment of UC's asset allocation strategy.
The asset allocation strategy resulting from this comprehensive effort was adopted by the Regents in March 2000. At this time, the investment portfolio is substantially in line with these new policies. In those few instances where it is not, investment changes necessary to bring it in compliance will be phased in gradually by June 30, 2001. Reviews, discussions and decisions on specific implementation items will be made over the next several months. This includes any decision of the Regents to exclude any specific stocks or investment categories.
On behalf of the Board of Regents, I want to assure you that, despite news reports, these steps have been undertaken with the full input of the Regents and the Treasurer's Office. The review was conducted in a manner consistent with University practices and in the best interests of the University, its employees and pension funds. As a result, we are confident that the pension funds and the benefits the University provides its employees will enjoy a robust, secure future.
Judith L. Hopkinson
Board of Regents Investment Committee Chair
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