Regents hear UBS: legacy endowment trimmed U.S. equities and parked cash to cover distribution

UBS presenters told the University of Hawaiʻi Institutional Success Committee that the Legacy Endowment performed in line with expectations in fiscal-year 2025 second quarter and that portfolio changes made earlier in the fiscal year left the fund positioned to cover the February distribution without forced sales.

Kayo Yunashige, presenting for UBS, said the firm proactively trimmed $4,000,000 from U.S. equities and placed $2,500,000 in a money-market fund yielding about 5% so the endowment could pay the fiscal-year 2025 distribution on Feb. 10 without liquidating securities. "By proactively taking this action, we were able to avoid having to liquidate any securities during this relatively volatile time," Yunashige said.

The presentation to the Regents said the portfolio complies with Regent Policy RP 8.207 and the university's fossil fuel mandate. UBS reported total investment fees of 0.43% of assets, of which 0.20% goes to UBS and 0.23% goes to external managers.

UBS analysts emphasized valuations as the rationale for the U.S. equity trim. They showed U.S. equities at higher-than-average valuations relative to other regions in a 25-year comparison, while noting the United States still has the strongest earnings growth. The UBS presenter illustrated fixed-income positioning by modeling three scenarios for a U.S. aggregate bond allocation: a 1% fall in interest rates (11.9% return), no change (4.9% return) and a 1% rise in rates (-1.2% impact).

On portfolio strategy, UBS cautioned that rapid policy changes in Washington could increase market volatility and said it wanted additional clarity from federal policymakers before making further changes. "We need further clarity from Washington," the UBS presenter said, adding the team views the portfolio as "well aligned to weather this storm" but will wait for policy clarity before additional tactical moves.

Regents asked questions about sector risk and fossil-fuel exposure. One regent asked whether recent Nasdaq weakness suggests sector-specific concern; UBS responded that technology valuations are rich but that sector earnings growth remains the strongest, and the firm continues to monitor it closely. On energy exposure the presenter reminded the committee that the endowment is prohibited from owning the 100 largest fossil-fuel producers, limiting its direct energy exposure.

The presentation closed with a reminder that the Legacy Endowment is a perpetual fund intended to support both current students and future generations and that volatility, including typical intra-year drawdowns, is expected.

The committee did not take any formal vote on the presentation; UBS's remarks were informational.