Ron O'Hanley: OK, Jagdeep, it's really good to see you today, thanks for joining us. It's an honour to have you here. The University of California is one of the world's great institutional investors, one of the world's greatest asset owners. And we're here talking about ETFs today, so I'm looking forward to the conversation. Thanks for doing this.
Jagdeep Singh Bachher: Ron, thanks for having me. And State Street is our biggest partner, and ETFs play a big role in enabling us to invest.
Ron O'Hanley: Oh, it should be a good conversation, then.
Jagdeep Singh Bachher: I think so.
Ron O'Hanley: So maybe let's just start with investment philosophy. The investment philosophy at University of California is grounded by the 10 pillars. How do ETFs fit into the 10 pillars?
Jagdeep Singh Bachher: The last nine years that I've been in the role as chief investment officer are really defined by the 10 pillars. And as we think about less is more, and risk rules, which are the two of the 10 pillars, simplicity is a key part of how we invest. And today, ETFs offer us a simpler way to execute our investment strategies as and when we see opportunities around the world, whether it is seeking returns or, for that matter, managing risks that we want to incorporate in our portfolio.
Ron O'Hanley: So you're a big believer in asset allocation. How do ETFs fit within your asset allocation strategy?
Jagdeep Singh Bachher: Asset allocation is a key driver of investment returns, by which we're all measured. Having said that, there are so many securities or options to invest in on a daily basis, and trying to always find someone who is skilled or an active manager in a sector or a geography or a region, or even a subsector that might be of interest for us to achieve our asset allocation goals, can become a very daunting task. It can become a long task and, candidly, may not be very efficient if we try and always seek an active approach through third-party investment managers. That's where ETFs are beautiful in that they enable us to move nimbly, be efficient, keep costs in check, and really allow us to express our views, because things move quickly, things move dynamically, and things are rapidly changing around us. So ETFs provide not just the efficiency but also the opportunity for us to get to our destination within the umbrella or the context of our asset allocation.
Ron O'Hanley: Let me switch a little bit to ESG. You have been one of the world's leaders on ESG. Do ETFs play a role in ESG for the University of California?
Jagdeep Singh Bachher: Absolutely. So, at the University of California we have some of the best minds, if not the best minds on the planet, thinking about how to address climate change challenges and solutions. And so, eight years ago, we began the journey to think about how we can reflect the views of our community, which is to be less dependent on fossil fuels, to be more dependent on renewable and alternative energies, and to think about transitioning our energy portfolio to where we want to be, which is a cleaner energy portfolio for ourselves and for the planet. And so, as this journey has evolved for us, we have taken fossil fuels out of our portfolio. But that was excluding things we did not want to invest in because we thought they posed a long-term risk to our assets that we own, and to our stakeholders and our returns. And that's where the partnership with State Street has been fantastic, because we came to you with a desire to create a portfolio that aligned with our beliefs. And very quickly we realised we didn't actually need to spend a lot of time customising new bespoke solutions. You had been thinking the same thing. And so that partnership and that conversation very quickly led to our seating climate ETFs that you had designed and launched and were developing, as well. And so we, together, have been able to reflect both our views and your investment solutions for the benefit of our students and our faculty and our staff.
Ron O'Hanley: So you're an asset owner. When you think about asset owners broadly, not just the University of California, what role do you see them playing for asset owners – broadly?
Jagdeep Singh Bachher: Well, in 2020, at the depth of the pandemic, in March and then shortly thereafter, when we saw an extremely quick rebound in the equity markets, we wanted to move and express our views to go long equities at that time, and the solution that came back to me was: if we wanted to do some of the things we'd like to, ETFs were the solution, and they were a solution for us because we wanted to move almost at the span of billions of dollars. Without ETFs, we couldn't have done that. And that's true now for us generally as we think about whatever we'd like to do. If we want to express a view in a country, we want to express a view in a sector, we first now start with having a conversation around: is there an ETF solution we can be in, even if it's in a transitory sense, getting us prepared for the final destination we want to get to. ETFs provide a better opportunity for us to do what we want to simpler, whilst focusing on fewer decisions that have much more of an impact.
Ron O'Hanley: And provide you with the liquidity that you need and the speed.
Jagdeep Singh Bachher: Liquidity is paramount. I mean, that's one of the benefits of ETFs for us.
Ron O'Hanley: One final question. You're one of the deepest thinkers in the investment profession that I know. As you think about ETFs, what do you think is the next big thing for ETFs?
Jagdeep Singh Bachher: I think ETFs provide flexibility, liquidity, a menu of choices and, candidly, the ability to implement the destination you want to get to in a much quicker way. ETFs offer you the solution today as you try to figure out what the future holds.
Ron O'Hanley: And keep you fully invested.
Jagdeep Singh Bachher: Absolutely.
Ron O'Hanley: When you want to be involved.
Jagdeep Singh Bachher: Correct.
Ron O'Hanley: Jagdeep, it's been good to be with you today. Thanks very much.
Jagdeep Singh Bachher: Thank you for having me.
Ron O'Hanley: You've been great partners. Thanks very much.
Jagdeep Singh Bachher: Pleasure.
