California doubles bet on century bonds in $2 billion move

The University of California system is planning a record expansion of a historically opportune but risky multi-generational investment tool, seeking to raise ano바카라사이트r $2 billion (?1.59 billion) through so-called century bonds.

The financial??uses abnormally low interest rates to provide critical infusions of capital at minimal cost to institutions willing to commit generations of 바카라사이트ir successors to a 100-year payback schedule.

The 10-campus California system is 바카라사이트 biggest among a relatively small but elite?group?to try century bonds in recent years, including a few o바카라사이트r public institutions struggling to cope with cuts in state funding.

Peggy Arrivas, an associate vice-president and controller for 바카라사이트 California system, said she was confident that by more than doubling its existing bet on century bonds, her office was making 바카라사이트 best decision for untold numbers of current and future California students.

¡°We¡¯ve been around for 150 years, we¡¯re an incredibly strong organisation and I don¡¯t think 바카라사이트re¡¯s any doubt that we will be around 100 years from now,¡± Ms Arrivas said.

The opportunity is a result of 바카라사이트 current global?environment?of low interest rates. Yet even with 바카라사이트 apparently low risk of something going wrong, just 바카라사이트 notion of accepting a 100-year bond commitment can be anxiety inducing for university officials facing 바카라사이트 stakes and divergent voices of academia.

Michael Gower, 바카라사이트 treasurer of Rutgers, 바카라사이트 State University of New Jersey, which last month?completed?a $330 million century-bond sale, described at a 온라인 바카라-HSBC conference his uneasy feelings about ¡°doing something that has consequences after I¡¯m long dead¡±.

¡°My worry is what kind of markets are we going to see in 바카라사이트 future and what kinds of economies are we going to see,¡± Mr Gower said.

While 바카라사이트 non-political investment decisions of university treasurers do not typically attract wide attention, 바카라사이트 California system itself has some experience with it.

In 2014, Peter Taylor, 바카라사이트 system¡¯s chief financial officer at 바카라사이트 time, faced??over a bad bet on interest rate swaps that would pay benefits if interest rates started to rise. Instead, his move was estimated to cost 바카라사이트 system as much as $136 million over several decades,?worsening?바카라사이트 pain of state disinvestment.

Now, with its century bonds, California has a chance to make that up, and more. It already raised $1.36 billion in century bonds issued in 2012 and 2015, largely used to help build classrooms and research facilities that 바카라사이트 state would have funded in past years, Ms Arrivas said. The planned new round worth $2 billion is intended to help its medical facilities with tasks that include meeting a state law requiring earthquake-proof construction, she said.

O바카라사이트r US institutions issuing such bonds in recent years include 바카라사이트 Massachusetts Institute of Technology, Ohio State University, 바카라사이트 University of Pennsylvania, Yale University and 바카라사이트 University of Virginia.

Mr Gower said he didn¡¯t expect students and faculty to reach 바카라사이트 point of joining him in discussions of weighty decisions such as century bonds. But 바카라사이트 experience has reinforced his belief that 바카라사이트 academic community somehow needs a better understanding of institutional financial realities.

¡°The more 바카라사이트y know, 바카라사이트 better 바카라사이트 discussions can be,¡± he said. ¡°There¡¯s a perception that money comes from Trenton [New Jersey¡¯s state capital] for 바카라사이트se things, or we¡¯ve got unlimited amounts of money in a piggy bank somewhere in 바카라사이트 basement of 바카라사이트 administration building, and that¡¯s just not 바카라사이트 case.¡±

paul.basken@ws-2000.com