The UC Board of Regents Committee on Investments reviewed the current performance of the UC system’s investment portfolios at its open meeting Tuesday.
The Office of the Chief Investment Officer of the Regents, or UC Investments, grew $22.1 billion over the past year to $174.8 billion in assets, an 84% growth since 2014, according to the meeting agenda. UC Investments also suggested possible paths forward in an “uncertain” and “volatile” global financial environment characterized by high inflation, geopolitical disturbance in Europe, supply chain disruptions and the prospect of higher interest rates.
“Inflation is (not) transitory at this point,” said Jagdeep Singh Bachher, the chief investment officer at UC Investments, at the meeting. “Inflation is here to stay longer.”
UC Investments Director of Global Rates and Trading Dave Schroeder said inflation was likely due to disruptions in the supply chain, as well as changes in consumer demand for goods such as home furnishings and apparel during the pandemic.
Schroeder noted that the significant increase in prices for energy, food and other goods during the past year has contributed to inflation.
In response to inflation, the Federal Reserve will most likely announce increases in interest rates and “establish a framework” for quantitative tightening, Schroeder said at the meeting.
“There is going to be a lot of opportunity that comes about from this level of uncertainty in the marketplace,” Bachher said at the meeting.
Bachher predicted that UC Investments would seek its required returns in public equity — including both active and passive stock holdings — while using its $40 billion in fixed-income assets, such as bonds and treasuries, as a source of liquidity.
Given the current financial environment, fixed income assets will not provide the level of returns required for the UC system’s portfolios, including its retirement accounts, according to Schroeder.
Meanwhile, given that the UC system is a long-term investor and that the US economy and stock market are “still in good shape,” UC Investments continues to see equity markets as attractive, said Ronnie Swinkels, managing director of public equity investments at UC Investments.
“This is quite a choppy time, but staying invested is important,” Schroeder said at the meeting. “There are opportunities that are going to arise out of good companies with real earnings with this type of volatility in the marketplace.”
UC Investments also discussed the geographical allocation of its portfolio, especially in light of Russia’s ongoing invasion of Ukraine.
Regent Hadi Makarechian advised the team to look at moving assets to South American markets less exposed to geopolitical risks in Europe and energy price shocks due to the decreased transportation costs to the United States.
“We are long-term investors,” said Satish Ananthaswamy, a senior portfolio manager at UC Investments at the meeting. “We are very nimble. If we are looking for opportunities, this is the right time.”