The University of California’s $11.2 billion endowment has produced the worst investment returns of any of the richest colleges in the country over the past decade, an analysis by The Center for Investigative Reporting shows.

From the 2004 through 2013 fiscal years, the investment payout for the UC endowment ranked last among the 10 U.S. universities with the largest endowment funds. The university earned an average of 7.3 percent on the combined endowment of the system and individual campuses, while the other nine colleges – which include the public University of Michigan and University of Texas – averaged 10 percent.

In 2013, the UC endowment’s return improved dramatically. But better performance over the previous nine years would have meant tens of millions of dollars a year to spend during a decade when the state’s premier public university system saw massive cuts in state funding.

Thousands of employees in the 10-campus system lost their jobs and students felt the pain acutely, as their education costs more than doubled.

UC Endowment- protest photo

Protesters angry about budget cuts and other issues rally outside a teleconference meeting of the University of California’s Board of Regents on the UCLA campus in 2011.Associated Press

“It’s very disappointing and disgraceful that the university isn’t managing its money better,” said Kareem Aref, a UC Riverside junior and president of the University of California Student Association, which represents 220,000 students systemwide. “Students are being priced out of the university right now. And the university has been sitting on the potential for more revenue, and they’re not doing anything about it.”

Over the past decade, Yale and Columbia universities earned the highest returns, tied at 11 percent. Stanford University earned 9.9 percent. If the University of California had done as well as the top-ranked institutions, it would have earned an additional $5.4 billion over the decade – funds that could have been tapped for financial aid, research, faculty recruitment and other needs.

UC Chief Financial Officer Peter Taylor told CIR that the University of California has to invest more conservatively than its peers because it is a public institution. That has depressed returns, he said.

“Would I have liked to have earned 10 percent a year… ? Absolutely. Sure,” he said. “But how risky should a public university be?”

In recent years, Taylor noted, the university has become less conservative and performance has improved. As the market rebounded during the last fiscal year, the university system earned 12.2 percent, second to Yale University among the 10 largest endowments. 

The UC system’s investment performance has drawn criticism on several occasions in recent years. From 2006 until her retirement last summer, Chief Investment Officer Marie Berggren was in charge of managing much of the university’s endowment.

The issue flared during one particularly heated teleconference last February, when T. Gary Rogers, the former CEO of Dreyer’s Grand Ice Cream and a longtime UC benefactor, complained that the university had the worst-performing large endowment fund in the United States.  

“As I’ve been saying for some time now, but haven’t had any response or action, I think it’s irresponsible for us to continue to ignore this absolutely bottom-of-the-heap performance year in and year out,” said Rogers, who at the time was the only outspoken critic on a UC system advisory board.

A video shows Berggren thumbing through documents as Rogers spoke. She did not respond to Rogers. Several regents downplayed Rogers’ concerns.

“It has never been quite as crystal clear as Gary is making it look right now,” said Regent Paul Wachter, financial adviser to former Gov. Arnold Schwarzenegger and now chairman of the Board of Regents’ Investments Committee.

Berggren didn’t respond to requests for comment on CIR’s findings.

Three times in the last decade – in the 2008, 2009 and 2012 fiscal years – the University of California actually lost money. During bull markets in 2005 and 2006, when the stock market surged, UC’s rate of return was at least 10 percentage points lower than that of Yale, the top performer in those years. While its investment performance lagged behind the other big universities, the UC system experienced deepening financial stress.

As state revenues plummeted because of the recession, the Legislature between 2008 and 2012 slashed its annual appropriation to the university system by $900 million, or more than 25 percent, records show. In all, about 4,200 employees were laid off, and 9,000 job openings remained unfilled. And students faced tuition increase after tuition increase.

If the endowment had matched the returns of even an average performer in the CIR analysis, the university system would have increased its endowment by an additional $3.2 billion over 10 years.

The university spends roughly 5 percent of the endowment’s value each year, UC records show. Average investment performance could have supplied a windfall of about $682 million over the decade, CIR’s analysis shows.

The University of California’s endowment, built over the years with contributions from alumni, foundations and corporations, ranked sixth in size among American universities as of June, according to CIR’s analysis. Harvard, the biggest, had about $33 billion.

The endowment is a nest egg. Generally, investment earnings, rather than the principal, are spent on university needs, providing an especially critical source of funding in lean budget times.

More than half of the UC endowment – a total of $11.2 billion as of June – is supervised by the regents and managed by the chief investment officer. Investment officers on individual campuses manage the rest.

The University of California’s endowment is held in a mix of stocks, bonds, real estate and other investments. Investment decisions are made by financial professionals, including four consultants, 240 outside money managers and 53 members of the university staff. The university declined to disclose outside money managers’ fees, which financial experts say likely amount to millions each year.

UC Endowment - board of regents photo

Board of Regents then-Chairwoman Sherry Lansing talks with schools chief Tom Torlakson, left, Assembly Speaker John Perez, bottom left, and Lt. Gov. Gavin Newsom during a student demonstration in Sacramento in 2012. The protesters called for a crackdown on UC mismanagement of executive pay, tuition hikes and police violence towards students.Associated Press

For years, UC officials have been aware of the endowment’s lackluster performance, minutes of the regents’ investment committee show.

In those meetings, Berggren acknowledged that UC had missed an opportunity by investing too late in so-called alternative investments such as private equity and venture capital funds. Berggren and other officials also complained that some top-tier private venture capital funds refused to allow the university to invest, fearing that proprietary information would be disclosed via the state’s Public Records Act.

Despite lost opportunities, Berggren argued that the university’s investments were doing reasonably well, especially when compared with a list of peer institutions provided by the consulting firm Cambridge Associates to assess performance. The peer list includes universities with endowment values of $1 billion or more, including much smaller institutions like 1,500-student Swarthmore College, a private liberal arts college in Pennsylvania with an endowment of $1.6 billion as of June.

The regents seemed satisfied with Berggren’s performance. Her base pay was $470,000 per year, in line with that of investment officers at other public universities. And she received bonuses, including during the 2012 fiscal year – when the endowment lost money. That year, Berggren’s bonus was more than $700,000, bringing her pay to more than $1 million.

James Ryans, a financial expert who analyzed the university’s endowment for CIR, said a big investment in hedge funds had been a drag on performance. 

Hedge funds make up the largest asset class in the endowment portfolio managed by UC’s chief investment officer and were “nearly the worst performer over recent years,” he said.

By contrast, Yale invested 43 percent less in this asset class and achieved a much higher return at the end of the 2013 fiscal year, said Ryans, a chartered financial analyst and doctoral candidate at UC Berkeley’s Haas School of Business.

In top-performing university endowments, investments in private equity paid off handsomely, he said. The University of California has relatively little invested in that asset class, he said. Records show the university had a little more than 9 percent in private equity; Yale had about 31 percent last fiscal year.

Another difference he noted: The top-performing university endowments’ outside money managers “achieved benchmark-beating results.” In general, UC’s money managers didn’t seem to beat the university’s peer benchmarks by a significant margin, though it’s not clear why, he said.

“Was it the investment selection process? The quality of managers they had access to?” he asked. “We don’t have access to enough information to say for sure.”

Assemblyman Das Williams, D-Santa Barbara, chairman of the Assembly Higher Education Committee, said he wants answers.

“I plan to ask UC hard questions about its investment income,” he said. “And if the answers aren’t satisfactory, I will consider calling for a hearing.”

On April 1, a new chief investment officer will take the reins for the UC system. Jagdeep S. Bachher, 41, is an executive vice president at Alberta Investment Management Corp., a Canadian firm that specializes in investing for pensions and endowments. He declined to comment via a UC spokeswoman.

In announcing the hiring, UC President Janet Napolitano cited Bachher’s “investment acumen.” His base pay will be $615,000 per year.

Charles Skorina, a San Francisco financial expert who recruits investment managers for endowments, said he’s optimistic about Bachher, though the regents ultimately will provide his marching orders.

“He comes from a big system that has performed well,” Skorina said. “If they want him to be more aggressive, he’ll be more aggressive. If they want him to be more conservative, he will be more conservative. The board sets the strategic investment plan.”

UC endowment chart photo

 Sam Ward/The Center for Investigative Reporting

This story was edited by Amy Pyle and copy edited by Nikki Frick and Christine Lee.

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Jennifer Gollan is an award-winning reporter. Her investigation When Abusers Keep Their Guns, which exposed how perpetrators often kill their intimate partners with guns they possess unlawfully, spurred sweeping provisions in federal law that greatly expanded the power of local and state police and prosecutors to crack down on abusers with illegal firearms. The project won a 2022 Robert F. Kennedy Journalism Award and has been nominated for a 2022 Emmy Award.

Gollan also has reported on topics ranging from oil companies that dodge accountability for workers’ deaths to shoddy tire manufacturing practices that kill motorists. Her series on rampant exploitation and abuse of caregivers in the burgeoning elder care-home industry, Caregivers and Takers, prompted a congressional hearing and a statewide enforcement sweep in California to recover workers’ wages. Another investigation – focused on how Navy shipbuilders received billions in public money even after their workers were killed or injured on the job – led to tightened federal oversight of contractors’ safety violations.

Gollan’s work has appeared in The New York Times, The Associated Press, The Guardian US and Politico Magazine, as well as on PBS NewsHour and Al Jazeera English’s “Fault Lines” program. Her honors include a national Emmy Award, a Hillman Prize for web journalism, two Sigma Delta Chi Awards from the Society of Professional Journalists, a National Headliner Award, a Gracie Award and two Society for Advancing Business Editing and Writing awards. Gollan is based in the San Francisco Bay Area.

Erica Perez is an investigative reporter focusing on higher education for The Center for Investigative Reporting. She came from the Milwaukee Journal Sentinel, where she covered the University of Wisconsin system, the Wisconsin Technical College system and private colleges. A California native, Erica previously covered K-12 education for the Orange County Register. Before earning her master’s degree in journalism, she taught high school English for two years. Erica graduated from Stanford University and the University of Southern California’s Annenberg School for Communication.

Lance Williams is a former senior reporter for Reveal, focusing on money and politics. He has twice won journalism’s George Polk Award – for medical reporting while at The Center for Investigative Reporting, and for coverage of the BALCO sports steroid scandal while at the San Francisco Chronicle. With partner Mark Fainaru-Wada, Williams wrote the national bestseller “Game of Shadows: Barry Bonds, BALCO, and the Steroids Scandal that Rocked Professional Sports.” In 2006, the reporting duo was held in contempt of court and threatened with 18 months in federal prison for refusing to testify about their confidential sources on the BALCO investigation. The subpoenas were later withdrawn. Williams’ reporting also has been honored with the White House Correspondents’ Association’s Edgar A. Poe Award; the Gerald Loeb Award for financial reporting; and the Scripps Howard Foundation’s Award for Distinguished Service to the First Amendment. He graduated from Brown University and UC Berkeley. He also worked at the San Francisco Examiner, the Oakland Tribune and the Daily Review in Hayward, California.