The UC Regents Committee on Investments and the Investment Advisory Group, a group established by the Regents to provide guidance and oversight, took part in a teleconference on May 7 with participants from all over California and Texas, to discuss strategies to alleviate the UC budget. The meeting was streamed through a live public broadcast.
To begin the teleconference, the committee gave a brief overview of the need for more revenue in order to stabilize the UC budget. One of the issues discussed to alleviate this problem was the impending establishment of the Total Return Investment Pool. The Regents discussed this plan in March 2008, but has yet to approve it.
TRIP will supplement the current policy, Short-Term Investment Pool, which functions like a mutual fund and holds UC campuses as its “shareholders.” The STIP income is vital to supplement campus budgets, and the assets gained from this income help support university programs. However, STIP only deals with current income and does not have the same benefits as long-term funds.
This is where TRIP comes in. TRIP would allow UC campuses to maximize returns on their long-term working capital, take advantage of the current economy and use these investments through different assets that are available.
The plan emphasizes that, by investing its current income in the market, maximum returns can be attained. As a result, more money in the budget can be allocated for campus needs.
Although this plan seems like a reasonable answer to the budget crisis, the committee discussed the potential drawbacks that may occur, depending on the performance of the market. The plan would be subject to interest-rate fluctuation risks, credit risks and equity risks. These risks could result in severe repercussions, considering that the campus contributions for this plan would range from $1.5 to $2 billion.
Second-year economics major Kim Kel expressed his feelings about the new plan to rebalance the budget.
“If the consequence of losing the money is minimum, meaning it won’t affect the school’s spending or increasing tuition – which is already too high – among the students, I’d approve of the program because if there is more income for the universities, they’d be able to provide more grants for students and more money for research and development,” Kel said.
Nonetheless, the investment consultants in the meeting stood by this plan.
If the plan succeeds, the amount of revenue allocated from this investment would ultimately benefit the universities. According to the consultants, despite the current recession, there are still good investment opportunities in the market for high profitability. Even though the risks are still important factors that should be taken into consideration, the probability of gaining extra revenue outweighs the possibility of the severe repercussions that could come from these risks.
The plan seems a little too good to be true for second-year biological sciences major Michelle Ding.
“I would disapprove [of this plan] because I am not truly convinced that the so-called ‘money’ that will be invested is actually going to be used for the right purpose,” Ding said.
Regardless of whether this initiative is passed, there is an urgency to rebalance the budget for more revenue.
Should TRIP pass for approval, the policy will take effect on July 1, 2008.
The Investment Advisory Committee was established in 1999 as an advisory group for the Regents on investment strategies.
AE Anteater contributed to this report.