Working Capital Investment Review as of December 31, 2016

Transcription

1 UNIVERSITY OF CALIFORNIA Office of the Chief Investment Officer Growing Portfolios Building Partnerships Working Capital Investment Review as of December 31, 2016 UC Investments

2 Table of Contents Office of the Chief Investment Officer Working Capital Total Return Income Absolute Return Equity Short Term 2

3 Office of the Chief Investment Officer 3 3

4 Our Products: $15.2 Billion Working Capital represents 15% of our $103.1 Billion of assets Market Value in Billions ($) Endowment Pension Retirement Savings 1 Year Ago 5 Years Ago December 31, 2016 December 31, 2015 December 31, 2011 $9.9 $8.8 $6.3 $57.1 $53.6 $39.7 $20.8 $19.6 $15.6 Working Capital Total Return $8.8 $8.6 $3.6 Short Term Total $6.5 $5.1 $7.3 $103.1B $95.7B $72.5B 4

5 How we invest our assets As of December 31, 2016 Public Equity: $52.1B 50% Fixed Income: $33.0B 32% Other Investments: $14.4B 14% Absolute Return: $5.9B 6% Private Equity: $3.9B 4% Real Estate: $3.5B 3% Real Asset: $1.1B 1% $103.1B Total Assets Cash: $3.6B 4% $103.1 Billion 100% 5

6 Working Capital 6 6

7 Our Working Capital Assets: 58% TRIP and 42% STIP TRIP $8.8 B 58% STIP $6.5 B 42% 7

8 UNIVERSITY OF CALIFORNIA Office of the Chief Investment Officer Total Return Investment Pool Investment Review as of December 31, 2016 Growing Portfolios Building Partnerships UC Investments 8

9 The investment objective of the Total Return Investment Pool ( TRIP ) is to generate a rate of return, after all costs and fees, in excess of the policy benchmark, and consistent with liquidity, cash flow requirements, and risk budget. As its name implies, TRIP is managed according to a total-return objective, and will be subject to interest-rate risk, credit risk, and equity risk. It is appropriate for longer-term investors who can accept this volatility in exchange for a higher long-term expected return than high quality, short duration fixed income products such as STIP 9

10 Total Return Assets Assets Under Management Attribution Assets Under Management June 30, 2016 Market Gains $8.87 billion $0.11 billion Value Added $0.07 billion Net Cash Flow Assets Under Management December 31, 2016 ($0.26 billion) $8.79 billion 10

11 Total Return Asset Allocation As of December 31, 2016 Market Value in $ Billions Percentage Over/Underweight Relative to Policy Policy Weight Growth % 1.3% 35.0% Public Growth % Private Growth % Income % -1.4% 50.0% Public Income % Private Income % Absolute Return % 0.0% 15.0% Absolute Return % 0.0% Cash % 0.1% 0.0% Total TRIP % 0.0% 100.0% 11

12 Total Return Performance Net Returns (%) Annualized Returns As of December 31, Month Fiscal YTD 1 Year 3 Year 5 Year 7 Year Since Inception (August 2008) Total Return (0.3) Total Return Benchmark (1.1) Value Added Net Returns (%) One Year Returns As of December Total Return 5.1 (0.2) Total Return Benchmark 4.4 (0.2) Value Added Policy benchmark as of July 1, 2015 is 50% Barclays US Aggregate Index + 35% MSCI All Country World Index + 15% HFRX Absolute Return Index. Prior is a weighted average composite of the historical policy benchmarks and targets. 12

13 Working Capital Performance 13

14 Performance Attribution Fiscal YTD As of December 31, 2016 Average Weight Active Weight Allocation Attribution Selection Attribution Total Attribution Equity Public Growth Private Growth Income Public Income Private Income Absolute Return Absolute Return Cash Total TRIP 100% 0% +0.2% +0.6% +0.8% 14

15 Growth Returns Net Returns (%) Market Value Annualized Returns As of December 31, 2016 ($ Million) % Allocation 3 Months Fiscal YTD 1 Year 3 Year 5 Year 7 Year Since Inception Growth 3, % MSCI All Country World IMI TF Index (net dividends) Value Added Public Growth 3,099 97% Private Growth 80 3% Policy benchmark as of July 1, 2015 is MCSI ACWI IMI TF and is shown for all periods. Policy would be a weighted average composite of the historical policy benchmarks and targets. Inception date is August 1,

16 Growth Portfolio Emerging Market Private Growth $3.2 Billion U.S. Equity Non-U.S. Equity U.S. Equity: 50% Non-U.S. Equity: 33% $1.6B $1.1B Emerging Market: 14% Private Growth: 3% $0.5B $0.1B As of December 31,

17 Public Growth Portfolio Composition Sector Exposure: 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Public Equity MSCI ACWI Cons Disc Cons S t aples Ener gy Financials Healt h Car e Indust r ials Inf o Tech Mat er ials Real Est at e Telecom Ut ilit ies Cash P ublic Equit y 12.6% 7.6% 6.6% 18.3% 10.8% 11.7% 15.4% 5.7% 4.2% 3.3% 3.0% 0.8% MS CI ACWI 12.4% 8.8% 7.0% 18.1% 10.7% 11.6% 15.2% 5.7% 4.2% 3.2% 3.1% 0.0% Act ive 0.2% -1.2% -0.4% 0.2% 0.1% 0.1% 0.2% 0.0% 0.0% 0.1% -0.1% 0.8% Regional Exposure: 60.0% 50.0% 40.0% Public Equity MSCI ACWI 30.0% 20.0% 10.0% 0.0% Canada Asia ex- JP Eur ope ex- UK Emer g Asia Emer g EU Japan Lat in Amer UK US Rest of Wor ld Cash P ublic Equit y 3.1% 4.6% 16.5% 6.5% 1.4% 8.2% 1.2% 5.2% 52.0% 0.5% 0.8% MS CI ACWI 3.3% 4.5% 16.0% 7.3% 1.6% 8.2% 1.3% 5.4% 51.9% 0.5% 0.0% Act ive -0.2% 0.1% 0.5% -0.8% -0.2% 0.0% -0.1% -0.2% 0.1% 0.0% 0.8% As of December 31,

18 Absolute Return Performance Net Returns (%) Market Value Annualized Returns As of December 31, 2016 ($ Million) % Allocation 3 Months Fiscal YTD 1 Year 3 Year Since Inception Absolute Return 1, % HFRX Absolute Return Value Added Relative Value Arbitrage % Multi-Strategy 1,112 84% Emerging Market 35 3% * Prior to July 1, 2015, the portfolio benchmark was 50% HFRX Absolute Return + 50% HFRX Market Directional. Thereafter the benchmark has been the HFRX Absolute Return. Since inception date of Absolute Return August

19 Absolute Return Portfolio Emerging Relative Market Value Arbitrage $1.32 Billion Multi- Strategy Relative Value Arbitrage: 13% Multi-Strategy: 84% $0.17B $1.11B Emerging Market: 3% $0.04B As of December 31,

20 Income Returns Net Returns (%) Market Value Annualized Returns Since As of December 31, 2016 ($ Million) % Allocation 3 Months Fiscal YTD 1 Year 3 Year 5 Year 7 Year Inception Income 4, % (1.9) (0.7) Barclays U.S. Aggregate Bond Index (3.0) (2.5) Value Added Public Income 3,825 90% (2.3) (1.1) Private Income % (1.5) Policy benchmark as of July 1, 2015 is Barclays US Aggregate Index and is shown for all periods. There was no total TRIP income performance composite and total income policy benchmark didn t exist prior to July 1, Policy would be a weighted average composite of the historical policy benchmarks and targets. Inception date is August 1,

21 Public Income Portfolio Composition Maturity Profile: 50.0% 40.0% Public Income Barclays US Agg 30.0% 20.0% 10.0% 0.0% 0 to 3 3 to 5 5 to 7 7 to Public Income 35.2% 26.5% 17.6% 10.5% 10.2% Barclays US Agg 22.8% 33.4% 21.9% 8.4% 13.5% Active 12.4% -6.9% -4.3% 2.1% -3.3% Rating Distribution 100.0% 80.0% Public Income Barclays US Agg 60.0% 40.0% 20.0% As of December 31, % AAA to A BBB BB B CCC or low er NR Public Income 54.2% 24.6% 8.4% 3.9% 0.6% 8.3% Barclays US Agg 86.5% 13.5% 0.0% 0.0% 0.0% 0.0% Active -32.3% 11.1% 8.4% 3.9% 0.6% 8.3% 21

22 Private Income Portfolio Private Debt $0.4 Billion Real Estate Private Debt: 26% Real Estate: 74% $0.1B $0.3B As of December 31,

23 Describing the Macroeconomic Factors Factor Name Factor Description Residual 10% Inflation USD 1.7% 3.4% EM Real 1.6% Rates Credit 3.2% 0.6% 5.2% Volatility Equity 79% Equity Real Rates Inflation Credit Broad-market equity index returnsa proxy for general economic growth Inflation-linked bond returns Return of long nominal bonds, short inflation-linked bonds portfolio Return of long corporate bonds, short nominal bonds portfolio Commodity Weighted GSCI Commodity index returns Emerging Markets Equally weighted basket of EM Assets As of December 31,

24 TRIP Risk Exposure and Macro Factors : dominant contribution from equity risk 1. Asset Allocation Absolute Return 15% Cash 2% $8.8 Billion Equity 35% 2. Asset Allocation adjusted for Standalone Volatility Abs Ret 2% Income 24% 5.2% Volatility Growth 74% 3. Macro Factor Standalone Volatility Breakdown Residual 10% Inflation USD 1.7% 3.4% EM Real 1.6% Rates Credit 3.2% 0.6% 5.2% Volatility Equity 79% Income 48% 1. The asset allocation mix provides the lowest order view of risk 2. Adjusting the asset allocation for the standalone volatility of each asset class shows the dominance of Public Equity risk. 3. Decomposing the risk of the portfolio into seven fundamental macroeconomic factors, with Equity interpreted as proxy for general economic growth, demonstrates how this particular factor weaves across the different asset classes and comes to dominate the risk of the portfolio. In this simple heuristic, no correlations are assumed between factors. As of December 31,

25 TRIP Risk Measurement Benchmark Risk (%) Portfolio Risk (%) Active Risk (%) Name Beta vs Benchmark Standalone Volatility Standalone Volatility Volatility Contributions* Tracking Error TE TE Contributions* TRIP Total Equity Income Absolute Return Cash * Additive to Total As of December 31,

26 TRIP Risk Factors and Stress Tests Macro Factor Volatility Contributions 6.0% 5.0% 4.0% 5.2% 5.4% Portfollio Benchmark 3.0% 2.0% 1.0% 0.0% -1.0% Total Volatility Equity Real Rates Infln Credit Emg Mkts Commod USD Idiosync Resid *Each color additive to Total Volatility Historical Stress Tests and Scenario Analysis Portfolio Active 5.0% 1.0% 0.0% 0.0% -5.0% -10.0% -15.0% 07 Credit Crisis As of December 31, Market Crash 15 Chinese Market Crash Pre- Brexit Slow US Int. Deflation Rates Rise US Credit Sprd Widening -1.0% -2.0% 07 Credit Crisis 08 Market Crash 15 Chinese Market Crash Pre- Brexit Slow US Int. Deflation Rates Rise US Credit Sprd Widening 26

27 UNIVERSITY OF CALIFORNIA Office of the Chief Investment Officer Short Term Investment Pool (STIP) Investment Review as of December 31, 2016 Growing Portfolios Building Partnerships UC Investments 27

28 The investment objective of the Short Term Investment Pool ( STIP ) is to maximize returns consistent with safety of principal, liquidity, and cash-flow requirements. STIP investments managed by the Office of the Chief Investment Officer include a broad spectrum of high quality money-market and fixed-income instruments with a maximum maturity of five-and-a-half years. Investment maturities are structured to ensure an adequate flow of funds to meet the University s cash needs as well as to provide the liquidity needed to facilitate asset class rebalancing and other major liquidity events. 28

29 U.S. Rates Federal Funds Rate Year Treasury 2 Year Treasury

30 STIP Performance: Consistently added value across all time horizons Net Returns (%) Annualized Returns As of December 31, Month Fiscal YTD 1 Year 3 Year 5 Year 7 Year 10 Year 20 Year Short Term Policy Benchmark Value Added Net Returns (%) As of December Short Term Policy Benchmark Value Added STIP Policy Benchmark is 66% 2 Year Treasury Income Note + 34% 30-Day Treasury Bill 30

31 STIP Assets: Net Cash Flow driven by Working Capital Optimization Assets Under Management Attribution Asset Allocation As of December 31, 2016 Assets Under Management June 30, 2016 $5.29 billion Corporates $ % Market Gains $0.01 billion Commercial Paper $ % Value Added $0.04 billion Governments $ % Net Cash Flow $1.16 billion Cash $ % Assets Under Management December 31, 2016 $6.50 billion Total $6.50 billion 100.0% 31

32 Portfolio Composition: Shorter duration, higher credit quality relative to 2015 Rating Distribution Maturity Profile Over the past fiscal year STIP portfolio credit quality has improved. Investments rated BBB declined by 12% of portfolio assets, while those rated A and above rose by 17% of portfolio assets. The duration of the portfolio is currently 0.81 and is down from 1.25 in