The University of California’s investment fund will stop betting on hedge funds and allocate more of its assets to the growing private credit market.
(Bloomberg) — The University of California’s investment fund will stop betting on hedge funds and allocate more of its assets to the growing private credit market.
“Within two or three years, whenever we can get liquidity from our hedge funds, we will be primarily all out,” Chief Investment Officer Jagdeep Bachher said in a meeting on Thursday. “Once we’re out, we’ll replace that obviously with private credit — which has been a better place to be.”
Private credit has gained traction as high interest rates make traditional bank loans less attractive. UC Investments will be making the shift to private credit after investing in hedge funds for two decades, Bachher said.
University of California’s investment office manages about $152 billion, including retirement, endowment and cash assets.
As of Dec. 31, the university had $4.38 billion in absolute return funds, which use a hedge fund risk parity index as a benchmark.
“For 20 years, there are three times we needed hedge funds to work for us — 2000, 2008 and 2020,” Bachher said, referring to years when the stock market fared poorly. “They didn’t really help us tremendously in our portfolio.”
Last month, a Goldman Sachs survey found that pension funds’ hedge fund investments fell sharply over the past five years.
In 2014, The California Public Employees’ Retirement System, the largest public pension in the US, dropped a $4 billion hedge fund portfolio because pension officials deemed the investments too expensive and complex.
When it comes to venture capital, the university’s investment office aims to focus on companies coming out of the UC ecosystem, Bachher said. In the last eight years, the investment office has allocated between $800 million and $900 million to companies tied to UC, he said.
“We are very active in our own backyard,” Bachher said.
Bachher also presented a proposal Thursday to set up a special purpose entity to invest $2 billion in student housing, laboratories and other real estate around the university system’s 10 campuses.
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(An earlier version of this article corrected the spelling of Bachher’s name.)
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