The University of California’s $190bn investment arm has exited hedge funds entirely, finalising a wind-down that began in 2020, and delivering a stinging critique of the industry’s failure to protect capital during key market crises, according to a report by the Financial Times.

At a board meeting this week, UC Investments approved reallocating its 10% absolute return portfolio – previously allocated to hedge funds – into public equities, citing consistently underwhelming performance and excessive costs.

Jagdeep Singh Bachher, Chief Investment Officer, said hedge funds failed to act as effective hedges during the major market shocks of 1999, 2008, and 2020, instead adding unintended risks to the portfolio.

“In each of those three scenarios, hedge funds didn’t hedge us,” he said. “They exposed us to the opposite kind of risk, which actually meant they hurt us.”

Bachher added that if the funds had been placed in a traditional stock and bond allocation, UC would have avoided “all the drama, the illiquidity, and the high fees” — and still earned comparable returns.

He didn’t hold back on his criticism of the industry’s evolving fee structures, particularly the rise of “pass-through” expense models in multi-strategy hedge funds. These, he noted, now often charge for everything from office rent to entertainment on top of performance fees.

“Hedge funds are a fantastic business if you’re on Wall Street, and you can charge a great fee,” he said. "My only regret is not the fact that we haven’t invested in hedge funds, it’s that I’m not a hedge fund manager.”