Sunday, November 15, 2009

How the Regents Sold the University Down the River

On Sept 17 2008, the Regents Investment Advisory Group met to discuss the UC’s investment strategies in light of the ongoing global financial meltdown. (The notes of the meeting can be found here). The decisions made at this meeting point to a series of questionable judgments, which may have caused serious damage to the university’s fiscal health and a loss of over $23 billion in its investment and pension portfolios. While the regents and the Office of the President would like us to believe that everyone lost money during the great financial meltdown, and so we should not blame management for the loss of billions of dollars, a closer look shows that the regents’ own financial interests could have motivated them to push the UC to raise their stakes in the riskiest investments that were already going bad.

During the early part of the meeting, we find the following entry in the minutes: “President Yudof noted that UC has investments in mortgage-backed instruments. He asked if there has been any investigation into the likelihood of default. He cited the magnitude of the investment and the potential risk of not being able to mark to market.” Yudof here was wisely asking about the UC’s investments in toxic assets and the inability to place a value on these risky investments. The response he got should scare all of us, “As the market turmoil expanded, the non-agency securities became less expensive, and in December, the University bought a fairly significant amount.” In other words, just when things were really going down hill for mortgage-backed securities, the UC increased its investment. While the UC investors thought they saw a bargain, what they were really investing in was a group of assets that they may never be able to sell.

While we do not know how much UC has invested in these toxic assets, we do get some indication, in the following section of the notes: “In response to a question asked by President Yudof, Mr. Wedding stated that the University has about $1.4 billion invested in mortgage-backed securities, of which $0.6 billion is within the UCRP, 40 percent to 45 percent of the total mortgage-backed portfolio.” While $1.4 billion only accounts for a small part of the UCs investment losses, we later read that the investors do not know how much money they have in other types of derivatives and that they cannot value their own assets: “Since May, that market has become very illiquid . . .The University cannot obtain reliable daily or monthly pricing from its pricing providers on many of these securities . . . The majority of them, 95 percent, are still valued AAA, as they were when purchased, but it is difficult to determine a market price . . .The University’s opinion is that it should hold this position rather than liquidate, and that this position will work out over a one-and-a-half to two-year period.” Once again, the UC made a decision to hold onto a large group of investments that it could not value, and even though the bond raters were still giving the mortgage-backed securities high ratings, it was clear that the assets were tied to defaulting loans, and no one could really market these securities.

Instead of putting its money into more stable and safe investments, the UC decided to take advantage of the market instability, and raise its stake in high-risk assets:
“Chief Investment Officer Berggren informed the Committee that this revised policy would result in much higher allocations to both private equity and real estate in the future. . . The recommendation is for an increase in the long-term target for private equity and real estate consistent with the present commitments and with commitments planned for the next few years.” Here we find UC following the failed Yale model of switching university investments from relatively stable bonds and stocks to more volatile investments in securities and real estate.

The question, then, is why did the UC continue to invest in real estate and mortgage-backed securities when it was clear that these areas were seeing the highest level of losses and instability. The answer to this crucial question appears to be that so many of the regents have huge stakes in real estate and financial securities. For example, Richard Blum, who is a major real estate investor, made the following argument at a later investment meeting (2/24/09): “Chairman Blum expressed concern that the University might become too risk-averse. He recalled that, over the last 60 to 70 years, equity and real estate have provided good returns. The current scenario was an event that occurs once in a century. He cautioned that the University’s investment profile might become so conservative that it would prevent the University from achieving its investment goals and taking necessary action when the market begins to recover.” It is clear here that Blum was pushing the regents to investment in his own industry and to continue to take on high-risk investments.

Since the regents are stacked with business people with huge investments in real estate and financial securities, it should be clear that they should not be the one’s managing the UC’s fiscal health. There are simply too many potential conflicts of interest to allow these investors to steer the UC’s investments. As a first step in changing how the regents are chosen, there should be an independent investigation into the UC’s recent investment decisions.


  1. This comment has been removed by a blog administrator.

  2. Best ensure that your proposed investigation of the Regents' financial decisions extends far enough back in time to include the dismissal of UC Treasurer Small and the subsequent parceling out of investment-management fees to a brigade of mostly underperforming managers. If memory serves, our pal Blum was a player in that performance as well...

  3. Anything involving 23 billion dollars should be investigated no matter what the circumstances are. An institution that has control of so many people’s futures should be conservative as possible with its investment especially when it comes to pensions. Trying to make a quick buck and shady lending has caused this and previous financial collapses to occur, and should never be used as a financial plan to fund a university. The university attempts to hide its losses stating it cannot value its current investments. The fact that real estate investment continued after it was so obvious that Regent Blum had ulterior motives baffles me, and cause me to question the motives off all those involved with the UC’s investment plan.

  4. It is absolutely despicable how some members of the UC Regents would lobby the welfare of the state’s future for their own personal benefit. This post shows once again how the wealthy are becoming wealthier at the expense of the poor (the students).

  5. So nice, thank full to post valuable information, you done your best.
    Dissertation Writing Help

  6. I found this article very informative and i must recommend this one to all of my visitors through my blog.

    Thank you for sharing such a nice post.

  7. You can buy essay or even buy essays at the best writing service. Just do it.

  8. hmm...your post is good. i really like it. . .nice job keep sharing ;)
    UK Dissertation Help

  9. How the Regents Sold the University Down the River <-- that's what i was looking for
    Writing a Dissertation

  10. I have been reading so many blogs since I am using internet but till now, this one is the one stop solution to all the problems I have been facing. Thank you.

    writing a dissertation

  11. This is my Good luck that I found your post which is according to my search and topic, I think you are a great blogger, thanks for helping me outta my problem..
    UK Dissertation

  12. i really like your post .. i will like to bookmark your site for my future needs :)
    dissertation writing services

  13. I must show some thanks to this writer just for bailing me out of this particular issue. As a result of browsing through the net and seeing views which are not productive, I assumed my life was well over. Being alive devoid of the solutions to the issues you have fixed as a result of your entire post is a serious case, and ones that could have negatively damaged my entire career if I had not come across your web site. That expertise and kindness in dealing with a lot of stuff was crucial. I am not sure what I would’ve done if I had not encountered such a subject like this. I’m able at this time to look forward to my future. Thanks so much for your skilled and sensible guide. I will not hesitate to suggest your blog to anybody who needs and wants support about this topic. Cell Phone Lookup | Outdoor Lighting | Pellet Stoves | Outdoor Flood Lights | Used Pellet Stoves | Outdoor Security Lights | Landscape Lighting Ideas

  14. I read all your blog posts educational,
    and I suspect you will always share different types of knowledge and information on the topic of thesis writing. Keep it up!

  15. I have searched How the Regents Sold the University Down the River on many search engines.You have written it very well.Thanks.

  16. I would like to say that your post is wonderful. We can learn many things from it. You have done a good work. Thanks for posting.
    academic writing service

  17. I would like to say that your article is awesome. You have good command on the topic. I will tell my friends about your website. Thanks for posting.
    step in writing civil rights term paper

  18. We entirely agree with the aforementioned remark, the web has been any uncertainty developing into the most important moderate of communication around the world and it is because of web sites such as this in which ideas are usually distributing so quickly.

  19. I was concerned with my personal study. But exploring the write-up my personal everything are actually set. The post is quite useful. Carry on publishing most of these content articles. We all admire your projects. Thanks for submitting.

  20. The article is worth reading,I finished a search on the topic and learnt most peoples leave hold with your journal. Keep up the good work

  21. Burberry Outlet Air Max Shoes Coach Black Friday Coach Black Friday Coach Cyber Monday Coach Factory Coach Outlet Factory Coach Outlet USA Coach Purses Factory Coach Purses USA Coach Store Outlet Coach Purses On Sale Monster Beats Outlet Louis Vuitton Outlet Louis Vuitton Factory Marc Jacobs On Sale MCM Outlet MCM 店铺 cheap oakley sunglasses Michael Kors Outlet Michael Kors Outlet Michael Kors Factory Michael Kors Outlet Michael Kors Factory Online Coach Factory Outlet North Face Outlet Online Polo Outlet Store Ralph Lauren UK Sac Longchamp Pairs Coach Outlet Online Coach Factory Oultet Barbour Jackets Outlet Online Canada Goose Outlet Gucci Outlet Online Michael Kors Outlet Moncler Clearance Moncler Jackets Outlet Online North Clearace Outlet Polo Ralph Lauren Outlet Online Woolrich Clearance Michael Kors Factory Outlet Coach Outlet Online USA Beats by Dre Coach Purses Outlet Online Michael Kors USA

  22. Nice article, thanks for the information. It's very complete information. I will bookmark for next reference
    jaring futsal | jaring golf | jaring pengaman proyek |
    jaring pengaman bangunan | jaring pengaman gedung

  23. A terrible credit is a result of missed or non installment in the past borrowings, which brings about to defaults, unpaid debts, CCJ, IVA, or even chapter 11. In the event that you are wanting to purchase an utilized auto, then awful credit utilized auto advance is an extreme choice for you. cash advance chicago

  24. I seriously be pleased about your blog, you've got concluded the truly great employment. Cheers to the couple of exceptional formative internet site. Currently follow-up payday loans costa-mesa Cheers pertaining to wonderful operate.

  25. Biology assignment writing services have come up with Biological Science Writing Services for biology coursework writing service students in order for them to score straight A’s in their biology research paper writing services.

  26. MBBS in Philippines Wisdom Overseas is authorized India's Exclusive Partner of Southwestern University PHINMA, the Philippines established its strong trust in the minds of all the Indian medical aspirants and their parents. Under the excellent leadership of the founder Director Mr. Thummala Ravikanth, Wisdom meritoriously won the hearts of thousands of future doctors and was praised as the “Top Medical Career Growth Specialists" among Overseas Medical Education Consultants in India.

    Why Southwestern University Philippines
    5 years of total Duration
    3D simulator technological teaching
    Experienced and Expert Doctors as faculty
    More than 40% of the US returned Doctors
    SWU training Hospital within the campus
    More than 6000 bedded capacity for Internship
    Final year (4th year of MD) compulsory Internship approved by MCI (No need to do an internship in India)
    Vital service centers and commercial spaces
    Own Hostel accommodations for local and foreign students
    Safe, Secure, and lavish environment for vibrant student experience
    All sports grounds including Cricket, Volleyball, and others available for students