February 15, 2010 | Erica Perez
The Joint Legislative Audit Committee on Wednesday will review a request from Sen. Leland Yee, D-San Francisco, to audit the University of California – a move that Yee said was bolstered by reports from California Watch and Spot.us.
California Watch reported last week that UCLA had hired a consulting firm that is being investigated by the U.S. Securities and Exchange Commission because of major accounting errors that resulted in a $57 million overstatement of the company’s income.
Schwarzenegger UC Regents
Reporter Peter Byrne of Spot.us revealed in a story last week that some members of the UC Board of Regents, who oversee the university’s pension and endowment portfolios, have financial stakes in the companies in which the university system has invested.
Regent Paul D. Wachter and Gov. Arnold Schwarzenegger, an ex-officio regent, each have more than $1 million in stock in Dimensional Fund Advisors, Inc., according to their statements of economic interests. Wachter has been Schwarzenegger’s longtime personal investment adviser and manager of his blind trust.
In 2006, the UC retirement fund invested $226 million in a Dimensional Fund Advisors emerging market fund. By the end of 2008, the value of the investment had fallen to $151 million. As of December 2008, the UCLA campus endowment fund had placed $82.3 million in three market funds offered by the firm, Spot.us reported.
Wachter told Spot.us that the regents do not direct university staff to select specific investment fund managers. Rather, the regents decide the types and amounts of investments that are to be made, e.g. certain percentages of the total retirement fund are slated for private equity funds or emerging market funds, etc. Considering DFA’s size, he commented, ‘It is not surprising to see [DFA] represented in part in any endowment or pension fund.’
Neither Schwarzenegger, Dimensional Fund Advisors, nor the Regent’s press office responded to a request for comments. But it is remarkable that Schwarzenegger and Wachter allowed the UC Treasurer to invest hundreds of millions of public dollars with an investment management firm which they partly own. The regent’s investments with DFA were not a secret: they were publicly reported to the board. And Schwarzenegger’s and Wachter’s large stake in DFA has long been a matter of public record, so the Treasurer could easily have refrained from investing in DFA.
In a press release sent out last week, Yee described the California Watch and Spot.us stories as highlighting “just the latest in a long series of improprieties and poor decision-making by university executives.”
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