Advisory panel may rid UC portfolio of tobacco stocks

  DAVE HILL/Daily Bruin Senior Staff Regent Gerald
Parsky, chair of the Investment Advisory Committee, speaks
at a committee meeting in the James West Center. He has pushed for
changes in the management of the UC’s $53 billion investment
fund.

By Benjamin Parke
Daily Bruin Contributor

The question of tobacco stocks and the search for a new
treasurer were the topics of discussion in Tuesday’s meeting
of the UC Board of Regents’ Investment Advisory
Committee.

In the James West Alumni Center, the members of the committee
discussed the possible exclusion of tobacco stocks from planned
investments in a Russell 3000 index fund.

The regents created the advisory committee a year ago to provide
additional oversight of the University of California’s $53
billion investment fund, which is comprised of the
university’s retirement and endowment pools.

A portion of the UC investment portfolio will be placed into the
index fund, which consists of 3,000 different stocks.

If six tobacco stocks were to be excluded from that investment
““ Philip Morris being the largest ““ the money would
have to be redistributed to the other 2,994 stocks, said Stephen
Nesbitt, senior managing director of Wilshire Associates, the
regents’ investment consultant.

That would create a slightly higher margin of error in
monitoring the index, Nesbitt said.

He added that the committee members need to be cautious of
creating a “slippery slope” if other kinds of stocks
that are part of the index are excluded.”If you start
excluding more and more stocks, you start to accelerate the
difficulty of tracking that index,” Nesbitt said.

Saying that the tobacco industry “has had a lot of
attention in recent years,” Nesbitt estimated that two dozen
public and private colleges have already taken similar measures
with regard to these stocks.

Since the advisory committee cannot act on its own, any action
on the tobacco stocks will not occur until the regents’ next
meeting in November.

UC investments are currently undergoing a restructuring, as
recommended in a study conducted by Wilshire Associates. The study
formed the basis for a new investment plan which was adopted by the
regents in March.

Part of that plan calls for funds previously managed by the
treasurer to be allocated to index funds. For instance, the Russel
3000 index will be used for 30 percent of the UC’s domestic
stocks. That represents 15.9 percent of the UC’s entire
investment portfolio.

In August, Patricia Small, who had been treasurer since 1996,
resigned because she was reportedly unhappy with a reduction of her
independence in managing the fund.

Regent Judith Hopkinson said, at Tuesday’s meeting, that
she was a member of a committee looking for a replacement for
Small. The search committee had already held its first meeting, and
another was scheduled for December.

Selection criteria is under consideration, and a firm helping
with the search has already come up with a list of 60
candidates.

“There are letters going out to foundations and members of
this committee ““ and to faculty, staff ““ soliciting
candidates and any comments on qualifications or selection
criteria,” Hopkinson said.

She added that interviews of candidates would be starting in
January, with recommendations to be made to the Board of Regents no
later than February.

The August resignation of Small had been anticipated a month
earlier in reports by the San Francisco Examiner, which suggested a
rift between her and Regent Gerald Parsky, then-chair of the
Committee on Investments, over changes he wanted to make in the
UC’s investment policies and governance of the treasurer.

The steps toward additional oversight grew out of concern that
the quarterly reports the treasurer made to the Investment
Committee were insufficient in updating the regents on the
investment portfolio.

In a November 18, 1999 meeting of the Committee on Investments,
the regents approved the creation of a permanent Investment
Advisory Committee, to continue with oversight of the treasurer,
for investments as well as personnel.

It replaced a previous committee, also chaired by Parsky, setup
to review the UC’s investment policies and governance of the
treasurer’s office.

Like its predecessor, the majority of the Investment Advisory
Committee’s members are not regents ““ something which
concerned Regent David Lee, according to minutes from the
meeting.

In addition to UC President Richard Atkinson, two other regents
currently serve on the board ““ its chair, Parsky, and
Hopkinson. Atkinson was represented Tuesday by Senior Vice
President Joseph Mullinix.

The committee also includes five members from outside the UC
system, one of whom has advisory status.

“Regent Lee suggested that the advisory committee was
being given too much power,” the minutes read.

“He agreed that it would be helpful to have outside
experts to provide advice to the regents, but he did not want them
to be in control.”

But, Regent S. Sue Johnson said at the meeting that the
committee would provide an additional layer of expertise to help
the regents carry out their fiduciary duty.

Lee was the only member at the meeting to vote against creating
the Investment Advisory Committee. The minutes show that Parsky
intended to meet with Lee to alleviate his concerns.

But, as of last month, the two had not met.

“He’s a busy person,” Lee said at the
September regents’ meeting.

Regent William Bagley said outside members on the advisory
committee shouldn’t be a concern.

“It’s simply advice,” said Bagley, adding that
the regents had never really exercised oversight in the past with
regard to investments.

OVERSIGHT FOR THE UC OFFICE OF THE TREASURER
With changes made earlier this year, the UC Treasurer became an
officer of the President in addition to the Regents, while extra
oversight accompanied the creation of the Investment Advisory
Committee almost a year ago. PAST Board of Regents
Committee of Investments <— reports to Treasurer
PRESENT Board of Regents Office of the President
Committee of Investments <—advises Investment Advisory
Committee <—reports to Treasurer and Vice President for
Investments ^advises Outside Consultants ^advises SOURCE: UC
Regents’ bylaws and meeting minutes Original graphic by MAGGIE WOO
Web adaptation by ROBERT LIU/Daily Bruin Senior Staff