Annual Report on the Long-Term Investment Program (For the Endowment Funds) for the Fiscal Year Ending September 30, 2011

Transcription

1 Submitted by: Richard J. Nork, Vice President, Finance and Business Operations Annual Report on the Long-Term Investment Program (For the Endowment Funds) for the Fiscal Year Ending September 30, 2011 Attached is the annual report (the Report) of the University Foundation's endowment fund (the Fund) for the fiscal year ending September 30, It was prepared by the Wayne State University Foundation's independent investment consultants, New England Pension Consultants (NEPC). The Report was reviewed, discussed and accepted by the Foundation 's Investment Committee (the Committee) on November 30, 2011, and was submitted to the Foundation Board at its meeting on December 6, As shown in the Report, the market value of investments in the Fund was approximately $229 million as of September 30. (Favorable market performance during the fourth quarter increased the balance to $238 million at November 30, 2011 ). The Report summarizes the overall performance of the portfolio, the most significant asset allocation and manager changes which took place during the year, NEPC's investment outlook for FY 2012 and the detailed performance of the Fund's investment managers. The Fund incurred a total investment loss before manager fees of 1.0% for the fiscal year 2011 (1.4% loss after manager fees). This performance was somewhat below that of the median fund within the Independent Consultants Cooperative (ICC) peer universe of endowments and foundations, which experienced a gain of 0.5% for the same period. The Fund's performance ranked at the 79 th percentile of this peer universe for the year. The principal reasons for the below average performance in FY 2012 were underperformance of Wellington Funds combined with an overweight to credit related fixed income securities with corresponding underweight to US Treasuries. Compared to this ICC peer universe for longer time periods (three, five and ten years), the Foundation 's fund performance ranked in the top 26th, 21st and 34th percentiles, respectively. In addition to the Report prepared by NEPC, attached is a list of the current members of the Committee and a historical graph of the fiscal year end values of the total assets ($233 million at September 30, 2011) of the endowment funds for the past ten years. If you have questions regarding the content of this report, or the endowment fund in general, please direct them to either me or Roger Kempa, Assistant Vice President for Investment, Debt, and Risk Management at (313) or roger.kempa@wayne.edu. Budget and Finance Committee Agenda

2 WSU FOUNDATION INVESTMENT COMMITTEE MEMBERS As of September 30, 2011 Allan Gilmour, President Wayne State University Paul A. Glantz, President, Proctor Financial, Inc.; Chairperson, WSU Foundation Investment Committee Richard J. Nork, V.P., Finance and Business Operations, Treasurer and, Chief Financial Officer, WSU and Treasurer, WSU Foundation Joseph G. Horonzy, Horonzy and Associates, LLC Leonard Smith, Chair of the Board of Trustees and Chief Investment Officer, Ethel and James Flinn Family Foundation Howard Perlman, Senior V.P Freidman Real Estate Group, Inc David Ripple, V.P., Development and Alumni Affairs, WSU and President, WSU Foundation Alan E. Schwartz, Partner Honigman, Miller, Schwartz and Cohn Stephen Strome, Retired Chairman and Chief Executive Officer, Randleman Company Mitch Wonboy, Director of Global Fixed Income Derivatives, Credit Suisse

3 WAYNE STATE UNIVERSITY FOUNDATION TOTAL ASSETS OF THE ENDOWMENT FUND FOR THE FISCAL YEARS ENDING SEPTEMBER 30, 2002 THROUGH 2011 As Reported in the Annual Audited Financial Statements ($ - in Millons) $275 $250 $225 $200 $175 $150 $125 $ Ca) Total assets in 2011 include 229 million of investments lus 4 million in cash and other assets.

4 Wayne State University Board of Governors Meeting Wayne State University Foundation Endowment Fund FY 2011 Overview

5 TOTAL MARKET VALUE as of September 30 th $ - in Millions $240 $235 $230 $225 $220 $215 $210 $205 $240 $240 $229 $223 $ Market Value at December 31, 2011 was $238 million 2

6 INVESTMENT RETURNS AND PEER GROUP COMPARISONS FOR SELECTED TIME PERIODS 6.5% 5.5% 4.5% 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% -2.5% 6.0% 5.5% 10 Yrs Ending Sept 30, % 2.4% 5 Yrs Ending Sept 30, % 4.2% 3 Yrs Ending Sept 30, % 1 Yr Ending Sept 30, 2011 Peer ranking percentile (Lower is better) 0.5% WSU Peer Median Below average performance in FY 2011 attributable principally to Wellington underperformance, and underweight in U.S. Treasuries. 3

7 ENDOWMENT FUND ASSET ALLOCATION as of September 30, 2011 Asset Class Investment Policy Range Tactical Target Actual U.S. Equities 20% - 40% 20% 20% Non-U.S. Equities 10% - 30% 15% 13% Fixed Income 10% - 50% 30% 32% Global Asset Allocation ( GAA ) 0% - 20% 13% 13% Hedge Funds 5% - 25% 10% 10% Real Assets 0% - 15% 10% 8% Liquidity Portfolio 0% - 25% 2% 4% Opportunistic 0% - 15% 0% 0% Actual asset allocation is within the Investment Policy range and near the Tactical Target for all asset classes. 4

8 STRATEGIC INITIATIVES FY 2011 NON-U.S. EQUITIES Terminate and replace manager with poor performance Reallocate a portion to emerging market investments FIXED INCOME & LIQUIDITY POOL Maintain necessary liquidity but enhance investment return Reduce interest rate risk of the fixed income portfolio GLOBAL ASSET ALLOCATION Shift funds to managers, principally GMO, that have more flexible investment mandates in order to mitigate market volatility HEDGE FUNDS Less focus on hedge funds and more focus on real assets as an inflation hedge REAL ASSETS Add inflation protection to the portfolio 5

9 INVESTMENT MANAGER CHANGES FY 2011 Manager NON-U.S. EQUITIES Action Amount ($ - millions) Rationale Templeton Terminated ($23.3) Poor performance SSgA EAFE Index Aberdeen Small Cap Emerging Markets FIXED INCOME Hired Hired $6.2 $18.5 Replaced Templeton / index manager vs. active manager Benefit from growing consumer demand in emerging markets PIMCO Total Return Reduced ($20.9) Post Advisory Increased $9.0 Reduce interest rate risk PIMCO Low Duration Hired $14.8 GLOBAL ASSET ALLOCATION ( GAA ) GMO Increased $6.5 Discretionary investment mandate of the manager better suited to volatile markets 6

10 INVESTMENT MANAGER CHANGES FY 2011 Manager HEDGE FUNDS Action Amount ($ - millions) Rationale FrontPoint Terminated ($10.5) Poor performance REAL ASSETS PIMCO All Asset Fund Increased $12.4 Gresham Hired $2.5 Increase portfolio inflation protection LIQUIDITY PORTFOLIO Money Market Mutual Funds Reduced (12.1) Reallocate funds to investments with higher investment returns 7

11 INVESTMENT MANAGER / ASSET CLASS DETAIL as of September 30, 2011 Investment Manager / Asset Class Amount (in Millions) % of Total RhumbLine Advisers, L.P. S&P 500 Index ex Tobacco $ % IronBridge Capital Mgt., LLC Small Capitalization Core Strategy $ % Total U.S. Equity $ % State Street Global Advisors Non-U.S. Developed Equity Index Fund $ % Aberdeen Emerging Markets Equity Fund $ % Aberdeen Emerging Markets Small Capitalization Equity Strategy $ % Total Non-U.S. Equity $ % Pacific Investment Management Co. ( PIMCO ) Total Return Fund $ % Post Limited Term High Yield Strategy $ % Loomis Sayles Multi-sector Full Discretion Fund $ % PIMCO Low Duration Fund $ % Total Fixed Income $ % 8

12 INVESTMENT MANAGER / ASSET CLASS DETAIL as of September 30, 2011 Investment Manager / Asset Class Amount (in Millions) % of Total Grantham, Mayo Van Otterloo & Co. LLC ( GMO ) Global Balanced Fund $ % Wellington Management Co., LLP Opportunistic Investment Fund $ % Total Global Asset Allocation $ % JP Morgan Multi-Strategy Fund II L.P. Hedge Fund of Funds Blackstone Partners Offshore Fund Ltd. Hedge Fund of Funds Investments Liquidated (principally, FrontPoint) Total Hedge Funds PIMCO All Asset Fund $ % $ % $ % $ % $ % Gresham Investment Management LLC Enhanced Tangible Asset Program $ % Total Real Assets $ % Money Market Funds Total Total Liquidity Portfolio $ % $ % $ % 9