Jagdeep Singh Bachher on investing wisely, hedge funds and collaboration
By Anne Wolf, UC Office of the President
Jagdeep Singh Bachher joined the University of California as Chief Investment Officer of the Regents on April 1, 2014. He is responsible for managing the UC pension, endowment, short-term and total-return investment pools. Before joining UC, Bachher was deputy chief investment officer and chief operating officer for Alberta Investment Management Corp. (AIMCo), one of Canada’s largest investment fund managers. He has been a champion for change in the investment business and gained an international reputation as an innovator.
Born and raised in Africa (Nigeria), Bachher moved to Waterloo, Ontario (Canada), to study engineering at the University of Waterloo. In addition to a B.S. in mechanical engineering, he earned an M.S. and Ph.D. in management sciences, also at the University of Waterloo.
What are the challenges and opportunities regarding investing UCRP funds, in particular?
Our UCRP funds are invested 55 percent in publicly traded stocks, 22 percent in bonds and 23 percent in alternatives, that is real estate, hedge funds and private equities. In the past five years, stocks are up almost 200 percent. That can’t last forever, so it’s likely their returns will be lower in the future. We need to make sure our asset allocation is prepared for a lower return environment, while at the same time remembering that lower returns also present opportunities. We’ve increased our cash in order to have the flexibility to take advantage of opportunities.
Last fall the Regents approved UC Ventures, an independent venture capital fund. What do you see as potential benefits from UC Ventures?
UC Ventures aims to pursue investments in UC research-fueled enterprises. Our goal is to capture the economic value UC is creating through its pioneering research while carefully managing potential risk exposures. Let’s invest where we have a competitive advantage.
The Regents approved UC Ventures last September, but it won’t be up and running until mid-2015. We’re currently developing the business plan, which we’ll share with all stakeholders before a dollar is invested.
For the past several years, there have been questions about the CIO’s use of external managers to manage UC’s investments. What is your thinking about external managers?
We actively use external managers for equities and alternatives and even in a few cases for fixed income. I think we’ve been more diversified than we need to be. When I joined on April 1, 2014, we had around 70 external managers in our public equities portfolio. This amounts to holding around 5,000 individual stocks. You end up getting exposure to the passive indexes at the costs of active management. So it’s time to simplify. We need to evaluate whether our assumptions are still working. As we’ve done this in the past few months, our goal is to maximize return per unit of risk and manage costs. As a result, we’ve reduced the number of external managers from 70 to about 40 in public equities, as an example.
CalPERS recently said it would no longer invest in hedge funds. What is UC’s position?
Hedge funds should deliver superior risk-adjusted returns that add diversification to the portfolio, making them an appropriate strategy for investors, like UC, that invest for the long term. Our hedge funds produced a 14.3 percent gain in the year ended June 30, 2014, well above our benchmark.
When you’re not managing investments, what do you do with your time?
I have two young children, 1.5 and 7, so I mostly hang out and play with them, and just generally try to be a good dad. I just went to Disneyland for the first time.
I’ve been visiting all the campuses. I call it “back-to-school days.” That has been a lot of fun. I’ve been meeting with faculty and staff and learning about what is going on across the UC. I think our world-class faculty is a competitive advantage for us. As an investor, learning from experts teaches us where the opportunities might lie ahead of us.
I also like to read. I think reading is important because I need time to think.
During the day, I also enjoy playing Ping-Pong with my team.
What motivates you?
I am passionate about investing. And investing for the university is a great way to make a difference and help retirees, students and UC.
CIO’s 10 beliefs
Chief Investment Officer Jagdeep Singh Bachher says investors have to make many decisions, and an organization should have beliefs, a unified culture — some would call these values — to make sure everyone in the organization is operating in the same way. He’s identified 10 beliefs that the Office of the Chief Investment Officer holds that inform their work.
1. We invest for the long term. We focus on investments over 10 years and beyond where we can. This offers many more opportunities than those available to short- and intermediate-term investors.
2. We invest in people. The contributions of talented people drive the success for any investment organization. So we’ve made the recruitment and retention of exceptional staff a cornerstone of our strategy.
3. We build a high-performing culture. Every organization needs a clearly defined culture to make sure everyone is working toward the same ends and speaking the same language. Our culture is one of responsibility, accountability and high performance.
4. We are all risk managers. Our aim is simple: To earn the best risk-adjusted return that meets the objectives of our various portfolios. An effective risk management function enables leadership to delegate authority to the investment teams.
5. We allocate wisely. The key to investing, and the most important driver of performance, is asset allocation. To make effective investment decisions, and achieve the appropriate combination of risk and return, we have to maintain a clear and balanced understanding of stakeholders’ unique objections, time horizon, risk tolerances, liquidity and other constraints.
6. Costs matter. High-quality advice comes at a cost. But we also believe fees and costs for external managers must be fully transparent. Plus, cost savings can be considered a risk-free return. We intend to capture every dollar of risk-free return we can.
7. We diversify with care. Diversification is invaluable, but it’s not a cure-all. It allows us to spread risk and reduce the impact of any individual loss. But diversifying too broadly can draw you into assets and products you don’t fully understand. We prefer a more focused portfolio of assets and risks we know extremely well.
8. Sustainability affects investing. Sustainability is a fundamental concern that we incorporate into our decision-making, particularly how it can improve investment performance. Sustainable businesses are often more rooted in communities and resilient, which means investing in them makes good business sense.
9. We collaborate widely. We are proud to be a part of the University of California, as well as the broader community of institutional investors. Through active collaboration, we aim to leverage the unique resources of the university.
10. Innovation counts. We must always be innovating and identifying new opportunities. There are advantages in thinking differently and partnering with peers that are willing to work with us on innovative projects. Collaboration is one of the most powerful drivers of innovation.