THE STATE

UC Missed Out on Extra Stock Gains, Records Say While the university's portfolio lagged Wall Street's average for a decade, the retirement and endowment fund still grew, officials say.

By Stuart Silverstein
Times Staff Writer

January 15, 2004

The University of California missed out on $2.5 billion or more in extra investment profits because its U.S. stock market portfolio for a decade performed far behind the Wall Street average, according to newly released UC records. The records, released Monday, provide details of a financial assessment that UC Treasurer David Russ gave two regents' committees in October 2002. The university was compelled to release transcripts and minutes of the meetings by a recent ruling of the state Supreme Court. According to the transcripts and minutes, if UC's in-house investment managers had kept pace with stock market indexes such as the Standard & Poor's 500, about $2.5 billion in extra gains could have been realized.

In addition, perhaps another $2.3 billion could have been earned if UC's stock investments were handled by successful outside money managers who outperformed the overall stock market, according to the records. The UC Board of Regents later agreed to overhaul its stock investment practices, shifting management of the funds to outside money managers. On Wednesday, UC officials pointed out that, even though the university system's retirement and endowment fund stock portfolio lagged Wall Street's overall performance from 1992 to 2002, it nevertheless grew by $20 billion. The retirement and endowment funds now total $58.5 billion.

Officials also said employees' retirement funds, which make up most of the investment pool, would not be affected because the pension accounts still contain billions of dollars more than required. "The pension fund is in an extremely healthy position," UC spokesman Trey Davis said.

UC released the transcripts as a result of litigation brought by the Coalition of University Employees union, retired UC Berkeley professor

Charles L. Schwartz and the San Jose Mercury News.

The plaintiffs were seeking to shed light on UC's investment practices, but were rebuffed by the university system, which claimed the discussions were confidential. After the plaintiffs prevailed in the case, following appeals that reached the California Supreme Court, UC turned over the transcripts.

Karl Olson, a San Francisco lawyer representing the union and Schwartz, said, "We said throughout that all this was about was the regents trying to avoid embarrassment?.They were treating billions of dollars as though it were a private poker game."

The transcripts also show that the regents on the two committees were concerned there would be news coverage about their intent to change investment procedures before they could directly inform other regents, UC staff and faculty representatives. At one point, John J. Moores, the regents' chairman, said to Russ, "I think you need to provide at least a one-sentence cover for why we're doing this. And I don't think we want to say that we're doing it because we're embarrassed to find out we lost $3 billion."

In an interview Wednesday, Moores said his remarks were intended "to emphasize that on balance, the performance of the investment fund has really been very good. I was afraid that some casual reader might come away with the wrong impression."