04/03/2010 Author: Kapila Gohel

University of California plans new allocations

The University of California’s $63bn portfolio of retirement and endowment funds made significant allocations to hedge funds across a number of strategies at the end of last year, and is now carving out new allocations to real assets and opportunistic strategies.

During the final quarter of 2009, the Office of the Treasurer, which manages the $36.5bn University of California Retirement Plan (UCRP) and the $5.8bn General Endowment Pool (GEP) among others, made new allocations to hedge fund managers across Europe-focused event driven equity, relative value credit, event driven credit and global macro.

“These allocations included both directional and relative value strategies to ensure a diversified source of returns amid an uncertain market environment,” according to the Treasurer’s executive summary as at 31 December 2009.

The University’s general investment consultant, Mercer Investment Consulting, is recommending adding two new allocations of 0.5% each to real assets and opportunistic investments (with a long-term target of 3% for real assets).

To fund the new asset classes, GEP’s long-term global equity allocation may be decreased, while UCRP proposed to lower its long-term absolute return allocation from 10% down to 6.5%, as well as its US equity allocation. The proposed reductions come despite strong performance last year from long/short equity managers focused on China, natural resources, technology, and healthcare in particular.

Only last May UCRP doubled its long-term hedge fund allocation to 10% of the portfolio; the UCRP’s second increase in three months, as HFMWeek reported exclusively at the time. This was after plans were finalised to increase the allocation to 5% in February the same year.

The funds avoided any hedge fund blow-ups, “due to the rigorous due diligence done prior to manager selection as well as ongoing due diligence for every portfolio manager,” stated the report.