WHAT THE NEWSPAPERS ARE REPORTING

From San Francisco Chronicle, "On Politics" column by Carla Marinucci, July 22, 2000:

…leading state Democratic pols, some them Vice President Al Gore's biggest supporters, have repeatedly said they have no reason to believe there are any problems with [Regent Gerald] Parsky - or his fellow UC regents - in the award of a $350,000 contract to Wilshire Associates, a well-known investment firm. … Democratic Gov. Gray Davis' office, contacted more than a month ago about questions on Parsky, said he had "no reason for concern" on the regent's actions. His views haven't changed, his spokeswoman confirmed this week.

The office of Democratic Lt. Gov. Cruz Bustamante, another UC regent, said likewise last month. This week, he told us he still has no reason to believe Parsky had done anything wrong - though he would have preferred that a contract for the second portion of a plan had been bidded out.

Judith Hopkinson, a Democratic insider and Davis appointee who now heads the UC investment committee, defended Wilshire as "a firm of international repute" and came to the defense of Parsky as well.

And State Controller Kathleen Connell - a major Democratic Gore supporter - said of Parsky's accusers: "I don't see any conflict."

Connell sits on the board of CalPERS, the state's $180 billion pension fund, which she said also chose Wilshire as its investment adviser because "they're eminently qualified…They're not a second-tier firm. They're the premiere firm - I can vouch for that."

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From Wall Street Journal, August 15, 2000:

In March the UC's Board of Regents changed the investment guidelines for the university portfolio, which is composed mainly of retirement funds but also includes a $5 billion endowment. The Regents also created a three-member Investment Advisory Committee to monitor holdings. … Those moves grew out of a review of the treasurer's office and investment policies which began in 1998…

Many university governing boards have adjusted their investment management practices in recent years as endowments and the amount of money they control have grown, according to Alice Handy, treasurer of the University of Virginia. Most have turned to outside consultants to oversee hedge fund and venture capital investments, she said. There is "no recipe for success that works everywhere," she said.

Many schools have also set up advisory panels made up of individuals with asset management expertise, she said. …

On Tuesday [August 16] that committee [UC's Investment Advisory Committee] is scheduled to interview two finalists in bidding to provide indexed management services to the University: Barclay's Global Investors and the State Street Global Advisors unit of State Street Corp.

Under new investment guidelines, 30% of the university's U.S. equity holdings will be shifted into a Russell 3000 index fund, while 85% of non-U.S. equities will be put into a fund mirroring the Morgan Stanley All Country except U.S. index. The university has estimated the annual cost of managing the index funds at about $1.3 million a year.

Also under the new guidelines, the target allocation of assets to U.S. equities will be reduced to 53% from 63% by shifting 7% of the assets into non-U.S. equities and 3% into private equities. That will raise the total allocation to private equities - venture capital and buyouts - to 5%. The allocation of assets into fixed-income securities will remain at 35%. Additional spending on outside consultants and managers will be $2.5 million.

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From Los Angeles Times, August 15, 2000:

Although UC regents have been satisfied with [the pension funds'] overall returns, which have averaged 16% over 20 years, they have grown increasingly concerned that the university's portfolio is too heavily concentrated in a small number of high-growth stocks.

Furthermore, they have been displeased with the performance of the university's bond holding. Assisted by outside consultants, the regents have set a new strategy to reduce reliance on higher-risk stocks. They have also outlined policies to diversify the portfolio so it can more smoothly handle any downdrafts in the markets.

Although the Board of Regents, appointed by the governor, has fiduciary responsibility, it historically had delegated most decisions to the treasurer. But in 1998, Los Angeles financier Gerald Parsky took over the regents' investment committee, which exposed the treasurer's office to a thorough review by a special commission and an outside consultant, Wilshire Associates. … independent reviews are common for such large public funds. The regents recently decided to give UC President Richard C. Atkinson joint oversight over the treasurer's office. They have set up an advisory committee, with outside experts, to review UC's investment strategies.

"We think it's extremely healthy to have more than one person deciding how these funds should be invested," said Board of Regents Chairwoman S. Sue Johnson.

"People ask, 'Why are we doing this? [Treasurer Patricia Small] had good returns…' But as we continued to look at different ways to invest, we began to see we are in a higher-risk category than we thought was prudent…"

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Regents' response to San Francisco Examiner editorial, August 17, 2000

S. Sue Johnson, Chair, UC Board of Regents 
Judith L. Hopkinson, Chair, Regents' Committee on Investments

Like your reporter's recent coverage of the University of California's investment management decisions, Thursday's editorial (August 17) simply ignores the facts.

The fiduciary responsibility for ensuring that UC's assets are invested safely rests squarely with the Board of Regents. Far from "meddling" as your editorial suggests, the Regents have properly fulfilled their duty to the University and its employees by establishing policies to assure that the continued strength and security of its funds is maintained. 

The Regents have acted entirely in accordance with the Bagley-Keene Open Meeting Act in fulfilling these responsibilities. The Regents did not "rush to judgment," as you suggest. The process has been diligent and comprehensive and has been ongoing since November 1998-more than a year and a half ago-beginning with the appointment of a commission to review UC's investment policies and practices. The Regents' decision to adopt new investment policies and procedures is not unusual and not unique to UC; such plans are standard practices throughout the university investment community nationwide.

Following consideration of comparative proposals solicited in accordance with established University practice, the Commission selected one of the world's largest and most respected financial management firms to conduct an independent study. The Office of the Treasurer and the Commission were full participants over the many months that the study was underway, recommending many changes that were incorporated in the final report and plan. The full Board of Regents reviewed and adopted the recommendations at its March 2000 meeting, and posted the report and plan, along with an easy-to-understand four-page summary, on the University's web site at www.ucop.edu/bencom/news/revisedasset.html. These documents lay out in a clear and comprehensive fashion the new policies and procedures and the strategies employed to better control risk. 
The implementation of the new strategies, rather than being an "abrupt overhaul" with "sudden changes," as you characterize it, is occurring over a 15-month period. Updates have been presented at the Regents' open meetings in May and July, and will continue to be discussed at open meetings on an on-going basis. 

While the Examiner may have chosen not to report these events as they occurred, that does not translate to "secrecy" on the part of the Regents. Furthermore, your suggestion that politics played a part in these decisions is simply untrue. The Board of Regents is comprised of both Democrats and Republicans, and the vote to adopt the new investment plan was unanimous based on the Regents' shared commitment to maintain the excellence and promise of the University's mission. Your statement that personal political contributions of an officer of the consulting firm played any part in the selection is entirely without foundation.

Regarding the resignation of Treasurer Small, personnel matters are, as you know, properly considered in closed session under the Bagley-Keene Act. The final action of the Regents concerning the severance compensation agreement with Treasurer Small was taken in open session and, again, was unanimous.

The new UC investment plan protects the financial interests of the University and the retirement benefits for which University employees have worked so hard.

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