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If the UC pension fund was performing so well, why was any change needed? The Regents have a duty to continuously monitor investments. Performance is one of the many factors in their evaluation. Although the pension fund was performing well, regents believe their fiduciary overview responsibility mandated including outside, independent consultants as advisors and monitors to review the fund and determine if the risk levels set by the Treasurer's Office were appropriate. Independent consultants are commonly used by pension funds of this size. What are the key changes in UC's investment policies? UC's new asset allocation strategy establishes a slight shift in the UCRP and GEP funds' investments in non-U.S. and private equity, broadening the portfolio's diversification and reducing volatility. It also reduces the average maturity and tightens "quality" criteria to reduce the volatility and risk of the bond portfolio. A diverse portfolio protects the pension funds against inflation, uncertain future economic events and the expected growth in the number of pension members. What changes are planned for the portfolio of the 403(b) and Defined Contribution Plans? Consistent with other defined contribution retirement assets, the new strategy takes a “less-risk” approach to the 403(b) and DCP bond portfolio, including shorter maturity of the portfolio and reduced holdings in non-U.S. and non-investment grade securities. One step in this approach is the use of the Salomon Long Pension Fund Bond Index as the overall performance objective for the funds’ fixed-income investments. This includes bonds for all corporate and U.S. government debt with a minimum maturity of seven years. To improve the diversification of investment in the U.S. equity portion of its portfolios, the new allocation strategy moves to the Russell 3000 Index, a broader benchmark that includes both large and small stocks, replacing the current plan’s reliance on the narrower S&P 500, which gauges market trends and value based on 500 large companies. Can we expect performance to remain as strong under the new asset allocation plan? All investments, including pension funds such as the university’s, are based on a balance between risk and return. The new asset allocation plan shifts slightly the investment mix to a more conservative position. The fund is expected to continue performing favorably when judged against the appropriate benchmarks. Is it true that under the new asset allocation plan, the university could wind up owning millions of dollars worth of stock in the tobacco industry? This concern has been raised because the investment guidelines link a portion of the university's equity investments to companies included in the Russell 3000 index, which contains a wide variety of stocks, including those of conglomerates that own tobacco companies. Regents have the ability to exclude university investments in individual stocks. The issue is under review and may be placed on the Sept. 2000 meeting agenda. What is happening now with the Treasurer's Office? The treasurer, a principal officer of the regents and a member of the senior management group, serves in an "at will" position. After extensive discussions, Treasurer Small and the Board of Regents concluded it was reasonable for her to pursue other opportunities. In light of her long service and entitlements, a settlement was provided to assist in this transition. A nationwide search will be conducted for a new treasurer, who will serve under a new structure that calls for aligning the administrative portfolio under the supervision of the Office of the President. The investment portion of the treasurer's portfolio will continue to be managed by the Board of Regents. The president has delegated oversight responsibility for the treasurer's functions to Senior Vice President for Business and Finance Joseph Mullinix. SVP Mullinix has an extensive background in investment banking and treasurer functions having served as a senior analyst at Goldman, Sachs and Company, as deputy associate director in the U.S. Office of Management and Budget, senior vice president at Columbia University, and most recently as vice president for finance and administration at Yale University where his responsibilities included financial operations, investments and debt management. SVP Mullinix is conducting the search for an interim treasurer. In consultation with the president and the regents, Treasurer Small's resignation is effective Dec. 31, 2000, or upon appointment of an interim treasurer, whichever occurs first. |