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The College of California’s Investment Chief Claimed It is ‘Fossil Cost-free.’ So Why Does It Personal Oil Businesses?

On Might 19 at a College of California Board of Regents assembly, main investment officer Jagdeep Bachher built a bold announcement: “As of today, the endowment, the pension, and all of our operating funds swimming pools are fossil cost-free at the College of California. In reality, you could lengthen that to say that our $125 billion of property are fossil free of charge.” 

Months before in September 2019, Bachher and Regents board member Richard Sherman wrote in a Los Angeles Situations post that all through the 5 several years considering that Bachher experienced joined the investment fund, “we designed no new investments in fossil fuels and 4 a long time back, we bought our exposure to coal and oil sands.”

Nonetheless, community files display that the UC endowment owns stakes in oil manufacturing and exploration corporations. As a short while ago as 2017, Bachher and his workforce invested in private fairness resources that purchased this sort of businesses. 

For case in point, in 2017 the endowment fully commited $50 million to a fund called Warburg Pincus Non-public Fairness XII, according to the university’s alternate investment rate disclosure report, which involves allocations produced “on or soon after January 1, 2017.” In February 2016, affiliates of that fund, as effectively as a further Warburg Pincus fund held by the endowment, invested up to $500 million in RimRock Oil & Fuel, an oil and gasoline exploration and manufacturing enterprise. 

Similarly, entities relevant to a separate Warburg Pincus fund — Non-public Equity XI — also held by the endowment, invested up to $500 million in Independence Resources Management, one more oil and gas exploration and creation business. A spokesperson for Warburg Pincus declined to comment. 

The holdings also consist of Ridgewood Electrical power Fund II, and its co-expenditure fund. Even though the fund was raised just in advance of Bachher joined UC in April 2014, Ridgewood’s website states it finds and develops “oil property in the Deepwater Gulf of Mexico.”

UC’s non-public holdings also contain Lime Rock Partners Resources V and VI. According to the private fairness firm’s announcement of its sixth fund shut, Lime Rock invests in “high expansion, differentiated oil and fuel businesses in the E&P [exploration and production] and oilfield expert services sector.” 

Investments in both equally cash were manufactured prior to 2017, the rate disclosure doc demonstrates. Each of those people cash shut fundraising prior to Bachher signing up for UC however, they continue to be in the endowment’s portfolio.

A spokesperson for UC Regents acknowledged by means of email that the firm could still be invested in fossil fuels by using commingled funds, which private equity automobiles generally are. “If there are any legacy fossil gasoline assets in co-mingled resources — which we do not control — we are doing work to get out of those people as well,” explained Stett Holbrook, the spokesperson, through e mail. “This is our focus now.” He extra that info on what is held in the commingled accounts is not publicly accessible. 

UC Regents’ May perhaps announcement of the fossil free information did not contain any mention of legacy assets or commingled funds. News retailers like the Los Angeles Moments and CNN heralded the shift, with headlines stating that the endowment experienced “fully divested” from fossil fuels. 

The truth of the matter, even though, is substantially extra difficult than that. For 1 thing, the endowment has not divested from fossil fuels, according to Holbrook himself.  The spokesperson claimed by way of email that “UC Investments has never ‘divested’ from fossil gas property nor have we reported that we are divesting or would divest.”

Divesting, he included, is a official policy selection at UC — 1 that the Board of Regents would have to make. If it experienced divested, the endowment would be prohibited from buying people property once again, except there was yet another formal policy alter.

Given that its May possibly announcement, UC Regents has clarified its definition of “fossil free,” both of those publicly and by using e-mails to Institutional Investor. “We outline these belongings as providers that very own ‘proved and probable’ reserves of thermal (not metallurgical) coal, oil, and fuel,” Holbrook explained through e mail. In accordance to Holbrook, the endowment bought off coal and oil sand investments entirely in 2015.  

“Price Waterhouse Cooper has certified that as of July 31, 2020, our public asset separate accounts are fossil cost-free,” Holbrook mentioned. “It focuses on reserves due to the fact we see oil in the ground as stranded asset threat,” reported Arthur Guimarães, chief operating officer for the UC’s financial investment office environment through a September 17 conference. “We arrived up with a record of just about every public firm that has any total of reserve, regardless of whether that is a great deal or a minor. That is the checklist of things we do not possess.”

This particular definition has still left UC’s endowment area to hold on to operations corporations like Halliburton, which performed a function in the Deepwater Horizon explosion in 2010. 

There are 3 styles of functions connected to the extraction of oil and gasoline. 

“Upstream is the exploration side,” mentioned Curtis James, a geophysicist who works with upstream property. “You’re searching for oil and gasoline. You are drilling for it and you’re producing it to the area.” These are the property UC Regents claimed it has eradicated from its portfolio — but that it also seems to keep on being invested in by means of private equity cash. 

But there are firms that offer machines to do that extracting, organizations that transportation fossil fuels to refineries, refineries, and infrastructure corporations that transport the remaining product to people. In market parlance, these are midstream and downstream firms. 

In accordance to Eric Halgren, a UC neuroscientist who has been component of the faculty’s initiatives to convince the endowment to divest, it is difficult to different upstream from midstream or downstream property. “It’s like inquiring what element of the overall body does not get the blood source,” Halgren stated through a video clip simply call.  

UC holds a couple of of these companies in its community equities portfolio, like Halliburton, pipeline enterprise Phillips 66 Companions, and petroleum refinery business Valero Power. These styles of property also appear in the endowment’s non-public asset portfolio.

A team of faculty at UC, such as Halgren, stays concerned about the amount of transparency encompassing the endowment’s sale of fossil gasoline assets. On July 1, the school’s Tutorial Senate despatched a letter to Bachher and Janet Napolitano, president of UC, asking the endowment to offer additional transparency into its fossil fuel assets. 

According to Halgren, the group continue to has not received a reaction.