April 9, 2009 OFFICE OF THE TREASURER. discussion Much has. been written. certainty. budgetary. Enclosure

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1 FC Discussion Item 1a April 9, 2009 OFFICE OF THE EXECUTIVE VICE PRESIDENT AND TREASURER March 30, 2009 To: Fr: The Board of Trustees of Purdue University James S. Almond, Interim Executive Vice President for Business and Finance and Treasurerr Re: 2008 Annual Report of the Investment Committee Enclosed for your review is the 2008 Annual Report of the Purdue Investment Committee, which summarizes the characteristics of the Purdue Endowment, reports on comparative performance, and outlines the progress toward the policy asset allocation plan. Also enclosed for your review and our discussion is the performance report for the Cash Management Investment Pool (CMIP) on December 31, In the 2007 Annual Endowment Report it was stated that the coming year promised to be a period of performance uncertainty, as the global liquidly crunch and slowing economic growth have resulted in a market correction and lower returns than have been witnessed in the past few years. When this statementt was written it was clear that a storm was brewing, but it remained unclear how the markets would be impacted. As it turns out, the following months have been one of the most difficult periods in history since the great depression. Liquidity and investor confidence fell to all time lows and the financial markets have come to a grinding halt. Much has been written that once the economy began to unravel very little could be done to stabilize the markets. Many reasons have been vetted to explain the total deterioration in the broad market, but subprime mortgages and lax credit standards were significant contributors. In the end, it was all about liquidity and the market began a process of devaluation that continues today. The Purdue Endowment has been and continues to be impacted by the volatility in the market. However, the Endowment s defensive investment strategy has served well in these difficult times. The Endowment assets were repositioned over the past five years to be broadly diversified and lesss correlated to the equity markets. Although it has been difficult, the Endowment s investment strategy has helped to protect the asset base compared to the broader market. CMIP is a very important source of funds to meet the General Fund budget and the strategic needs of the University. For calendar year 2008, the CMIP portfolio returned percent versus the blended benchmark return of 5.16 percent. Although the calendar year total return is below the CMIP benchmark, monthly income has remained fairly stable, generating about $3.7 million monthly, ensuring some level of budgetary certainty. Please call Scott Seidle ( ) or me ( ) if you have any questions or would like additional information before our meeting. Enclosure cc: President France A. Córdova Senior Vice President Joseph B. Hornettt Interim Assistant Treasurer John R. Shipley Senior Director Scott W. Seidle Legal Counsel Anthony S. Benton Secretary Roseanna M. Behringer Hovde Hall, Room Purdue Mall West Lafayette, IN (765) Fax: (765)

2 2008 Annual Report of the Investment Committee

3 Overview of The Purdue Endowment Assets Under Management (As of June 30) FY 09 FY 08 FY 07 FY 06 FY 05 FY 04 Market Value (in millions) $1,736 $1,786 $1,495 $1,341 $1,207 Investment Return -2.7% 19.4% 11.5% 11.9% 17.9% Spending Distributions $82.2 $73.6 $60.9 $53.1 $48.5 $47.9 Asset Allocation Policy U.S. Equity 26.0% 26.3% 33.5% 34.2% 41.9% 54.8% International Equity Emerging Markets Total Equities Public Real Estate Private Real Estate Hedge Funds Private Equity Venture Capital Natural Resources Total Alternatives Fixed Income/Cash Total Endowment Funds Under Management FY 99 - FY 08 $2,000 $1,500 $1,000 $500 $0 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08 Purdue Endowment Investment Returns FY 99 - FY % 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07 FY 08

4 In the coming year, performance return expectations are uncertain. Fears of a continued recession will cause many of the economic conditions to show little improvement in the next twelve months. What is clear is that the Endowment s investment strategy, implemented in 2003, has helped protect the Endowment s assets as the financial markets declined. The beginning of a market bounce back is quick, usually unprecedented and occurs when least expected. Missing a few key days in the equity markets in the next few quarters reduces an investor s opportunity to recapture the gain from stocks. The Office of Investments will continue to rebalance the Endowment to the Policy Targets to maintain the proper level of exposure, making sure that the risk and return are at expected levels, as well as maintaining spending needs. Liquidity will never be far from our sight as the Investment Committee continues to make commitments to private equity, venture capital, private real estate and natural resources with the right strategies and the right managers. With many endowments experiencing liquidity constraints, Purdue may find opportunities to gain access to some very restricted funds that have been on our forward calendar for some time. Our relationships with the Endowment s managers are strong and transparent as we continue to watch and review their actions. There may be changes in the manager lineup over the next year as the Investment Committee continues to evaluate the portfolio and the ever-changing financial market landscape. The Endowment continues to be diversified by asset class and individual manager strategies but remains heavily allocated and exposed to equity markets. This is not by accident as we are optimistic that the financial markets will begin to recover in the next eighteen to twenty-four months. The decline in the equity and fixed income markets has significantly reduced the Endowment s market value. On June 30, 2008, the combined Endowment assets of Purdue University and the Purdue Research Foundation totaled $1.736 billion and was ranked 37 th in the NACUBO Endowment Study and was the country s 11 th largest endowment held by a public institution. The Endowment was ranked 4 th largest in the Big Ten and 4 th in the Strategic Plan Peer group (Appendix A). By the end of December 2008, the market value had fallen to just over $1.4 billion. After four previous years of double digit returns, fiscal year 2008 marked the return of negative performance not seen since 2000 and The Purdue Endowment returned -2.7 percent for fiscal year 2008 against the broad equity market as measured by the S&P 500 index that returned percent. In the six-months that followed the end of the fiscal year, the Endowment lost an additional 24.5 percent. For the calendar year the endowment returned percent versus the S&P 500 index return of percent. The Endowment s investment goal, as stated in the Investment Policy, is to generate consistent returns in up and down markets that exceed inflation plus the annual spending rate over long periods of time, providing intergenerational equity over a market cycle. The Endowment is now slightly ahead of the goal for three years (9.2 percent versus 8.7 percent), and about 3 percent ahead over a five year period (11.4 percent versus 8.3 percent). The Purdue Endowment s June 30, one, three, five and ten year returns were better than the NACUBO median of all institutions, and well ahead of the other public endowments. When Purdue s returns are 1

5 compared to endowments by size, the results continue to be mixed. Investment strategies, regardless of the endowment s size, can have a wide range of returns based on specific managers and asset class concentrations. The 77 endowments over $1 billion had a dispersion of returns for 2008 from a high of 8.6 percent to a low of percent. Some of the over $1.0 billion endowments have continued to have better returns over time by investing in more and more illiquid opportunities many times with portfolio leverage. Considering the change in financial markets, it is unknown if the out performance will continue. NACUBO Endowment Study Mean Total Return* For Fiscal Years Ended June 30 One Year Three Year Five Year Ten Year Purdue University -2.7% 9.2% 11.4% 6.6% All Institutions Median Public Over $1.0 Billion >$500 Million to <$1.0 Billion >$100 Million to <$500 Million S&P *NACUBO individual asset class returns contained in Appendix B At June 30, 2008, the asset allocations were closer to the policy targets than in recent years. For the fiscal year and through the end of the calendar year the Purdue Endowment has stayed within the Investment Policy s asset allocation ranges. The difference between Purdue and the over $1 billion endowments continues to be an underweight to alternative assets accounting for a portion of the variance in returns. In 2008 liquidity became a pressing concern for many endowments due to sizable commitments made to private investments over the past several years. Because Purdue s investments are still early in the commitment, investment and realization process liquidity has not been an issue; however, returns have been adversely impacted as the program is being established. Asset Class Purdue Asset Allocation Comparison* Policy Target Purdue Over $1.0 Billion Variance Purdue Public Equities Alternatives Assets (9.9) 40.8 Fixed Income/Cash % 100.0% 100.0% 100.0% *Additional Purdue asset allocation information contained in Appendix C The Purdue Investment Committee has reviewed and continues to support the current Investment Policy asset allocation targets that were established by the Purdue Board of Trustees in The following discussion provides additional information about the individual asset class strategies with several comparative points to put Purdue s results in context to our peers and the broader market. 2

6 Public Equities (Policy Target 46 percent) Purdue s public equity investments include U.S., international developed and emerging markets. The 46.1 percent allocation to equities in the Endowment reflects our continued commitment to the broad equity market. The Endowment s equity returns were similar to results in the NACUBO Study; however, Purdue s exposure was 6.7 percent higher than the other billion dollar endowments. This asset allocation overweight, compared to the peers, should position the Endowment well when the financial markets improve. Private Equity and Venture Capital (Policy Target 10 percent) After several years of making commitments and investing capital, this year Purdue s returns are in line with the NACUBO over $1 billion endowments. Of more importance in terms of the broad equity markets the Program has done well, out performing the S&P 500 index by a significant amount as displayed in the table below by quarter over trailing one-year periods. 1-Year Ending 1-Year Ending 1-Year Ending 1-Year Ending 12/31/07 3/31/08 6/30/08 9/30/08 Venture Capital Buyouts Special Situations Fund of Funds Total Return 17.6% 12.9% 5.9% -5.0% S&P 500 Index 5.5% -5.1% -13.1% -22.0% Like all investments in 2008 private equity and venture capital investments were not spared the sudden decline in the equity markets. In fact the early warning signs related to market liquidity impacted private equity investments first as the debt markets came to a halt. Although the Purdue Program has committed $265 million to 36 managers in the last 5 years only half the funds have been invested. The remainder of the commitments will be drawn and invested by the managers over the next several years under very different market conditions. The Purdue Endowment s investments in private equity and venture capital were made with the expectation that over time the returns would be higher because private markets should be less efficient and a premium should be paid for the long investment time horizon. The Program s assets are diversified by manager, vintage year and geographic orientation to reduce risk concentrations where possible but the coming year will be a challenging time for private equity and venture capital investments as the market continues to seek a balance in uncertain times. Hedge Funds (Policy Target: 15 percent, Tactical Target: 17.5 percent) The Hedge Fund Program posted a -1.0 percent return for the fiscal year, well ahead of the S&P 500 Index s percent return. This demonstrated that the asset allocation change to invest 50 percent of the Program in absolute return strategies to protect the Endowment s assets was both correct and prescient. The first two quarters of fiscal year 2009 were challenging for all investments; the Hedge Fund Program also declined, but protected capital in the face of plummeting equity markets, returning percent versus percent for the S&P 500 Index. For calendar year 2008, the Hedge Fund Program returned percent versus percent for the S&P 500 Index. With regard to the NACUBO Study, Purdue s return was below the study mean for endowments greater than $1.0 billion and below the $500 million to $1.0 billion group. Although the reasons for this performance dispersion are unclear, it seems reasonable to conclude that material differences in allocations to certain strategies (e.g., absolute return, long/short equity and multi-strategy) contributed to 3

7 the disparity. Purdue s portfolio was defensively positioned by increasing absolute return and adding long/short managers that are more hedged to the equity markets. This may have detracted from relative performance in fiscal year 2008 but should serve the portfolio well this year. Because the Hedge Fund Program did not decline at the same rate as the other assets in the Endowment, the Program s total assets approached the upper policy range of 20 percent. In December 2008 several actions were taken to bring the allocation back to the tactical policy target of 17.5 percent. The rationale for rebalancing is the expectation that hedge funds by design may underperform the traditional public equity markets when equities begin to seek positive territory. Finally, several major fraudulent schemes were uncovered in the last half of 2008 that rocked investor confidence and certainly gave any prudent investor pause. Purdue did not have any exposure to these, but fraud, as witnessed, is difficult to detect. Nevertheless, it s important to note that the staff in the Office of Investments and Cambridge Associates are fully engaged in the due diligence process before and after an investment in a hedge fund is made. Real Estate (Policy Target 7 percent) Purdue s real estate exposure increased in the fiscal year as a public international manager was added to the mix to globally diversify the assets. This increase in allocation hurt overall fiscal year performance and Purdue s comparison to the real estate returns of the billion dollar endowments in the NACUBO Study. The Purdue real estate investments returned percent for the fiscal year losing 8 percent in the month of June as the real estate market, already under pressure, began to re-price assets at an accelerated pace. Although Purdue s allocation was underweight 2.2 percent to the billion dollar endowments, Purdue s investments were mostly publicly traded real estate. Public real estate stocks felt the brunt of the market decline more quickly than private real estate investments. The real asset investments should provide some protection against unanticipated spikes in inflation, as well as lower volatility in the portfolio. The strategy is intended to perform well in periods of rising inflation, yet still produce real returns in other periods. Natural Resources (Policy Target 7 percent) The allocation to natural resources was increased by 3.5 percent from the previous June 30 by increasing the allocation to a publicly traded vehicle. The Endowment s natural resource investments returned 23.5 percent for the fiscal year and were one of only two asset classes that posted a positive return. The Endowment also had a 3.2 percent allocation overweight compared to the billion dollar endowments. The Endowment s exposure to natural resources is primarily in publicly traded funds; however, the direction continues to build the structure with private investments. Fixed Income (Policy Target 15 percent) The Endowment held a 2.4 percent overweight to fixed income at the end of June 2008 compared to the peers. Although the fiscal year return was a positive 3.2 percent the Purdue investments underperformed all groups in the NACUBO Study and the fixed income markets. With considerable downward pressure on bond prices, Purdue portfolio returns suffered. The Investment Committee s expectation, even under difficult market conditions, is that a fixed income manager should produce results close to the Bond Index. The Office of Investments has reviewed the individual holdings of the portfolios. The Investment Committee is considering changes to improve returns. The Office of Investments was reminded every day of the importance of our fiduciary role as we managed the assets of the Endowment on behalf of the organizations to protect and ensure funds would be available to meet the annual spending needs of the Endowment. In 2008, the Endowment distributed $82.2 4

8 million 1 up from the previous year by 11 percent on an absolute basis. However, the dividend per participating unit for the annual period was flat and the increase in the distribution was the result of new endowments established in the calendar year. The Endowment s spending policy has allowed the distributions to continue at levels that are higher than would have been possible if the policy was not based on a twelve quarter average. The policy smoothes the amount distributed by forcing savings in good times and pays out higher amounts in periods when there is a severe, sustained market decline. The following graph, of the twelve quarter market value average and the monthly unit value, shows the smoothing effect which has occurred since the market decline began. $14.0 Purdue Endowment 12 Quarter Average Compared to the Monthly Unit Value $12.0 $10.0 $8.0 $6.0 $4.0 Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Monthly Unit Value 12 QTR Average Unit Value The long term effect of the decline in the market value on spending distributions is still uncertain because it is unclear when the financial markets will stabilized. Market value estimates suggest that the distributions for fiscal year could fall by as much as 10 percent. Nine months into fiscal year 2009, the economy and the financial markets have not improved although investor confidence appears to be better. Uncertainty and volatility remain the norm. The Investment Committee continues to be active in its manager due diligence and relationship with Cambridge Associates. The investment portfolio is being positioned positively for long-term performance. This amount reflects the total of the June 30, 2008 and December 31, 2008 distributions, including the Trusts. 5

9 Appendix A Comparison Institutions Ranked by Total Endowment Asset Value June 30, 2008 Rank Public Big Ten Universities Assets 1) University of Michigan $7,571 2) University of Minnesota 2,751 3) Ohio State University 2,076 4) Purdue University 1,736 5) University of Wisconsin 1,735 6) Indiana University 1,546 7) Penn State University 1,545 8) University of Illinois 1,460 9) Michigan State University 1,282 10) University of Iowa 935 Rank Strategic Plan Peer institutions Assets 1) University of Texas System $16,111 2) University of Michigan 7,571 3) Texas A&M University System 6,659 4) Purdue University 1,736 5) University of Wisconsin 1,735 6) Penn State University 1,545 7) University of Illinois 1,460 8) Georgia Institute of Technology 1,344 9) University of California-Berkeley 872 Source: NACUBO Endowment Study 6

10 Appendix B NACUBO Average Rate of Return by Asset Class For the Fiscal Year Ending June 30, 2008 Investment Pool Assets Study Mean Purdue Return Over $1.0 Billion Assets $500 Million to $1 Billion Assets Equity - US % Equity - Non-US Fixed Income - US Fixed Income - Non-US Real Estate - Public Real Estate - Private Cash - US Hedge Funds Private Equity * Venture Capital * Natural Resources *Trailing one-year return ending March 30, 2008 Source: NACUBO Endowment Study 7

11 Appendix C Purdue Asset Allocation Comparison Asset Class Purdue Over $1.0 Billion Variance Purdue Policy Targets U.S. Equity 26.3% 18.8% 7.5% 26.0% Non-U.S. Equity (0.3) 15.0 Emerging Markets (0.5) 5.0 Total Equities Private Equity (4.8) 5.0 Venture Capital (1.7) 5.0 Hedge Funds (3.6) 15.0 Real Estate (2.2) 7.0 Natural Resources Total Alternatives (9.9) 39.0 Fixed Income/Cash % 100.0% 100.0% Source: Office of Investments and the NACUBO Endowment Study 8

12 CASH MANAGEMENT INVESTMENT POOL Performance Evaluation Report For Period Ending December 31, 2008

13 Purdue University Cash Management Investment Pool Performance Statistics As of December 31, 2008 NET OF FEES Calendar Year Fiscal Year Category Ending Market Value Portfolio Rate of Return Index Rate of Return Rate of Return Variance Index Key Portfolio Rate of Return Index Rate of Return Rate of Return Variance Dec Calendar YTD Dec Calendar YTD YTD Dec Fiscal YTD Dec Fiscal YTD FYTD Loomis Sayles $ 262,763, (1.20) A (1.12) BlackRock 252,359, (2.35) B (2.32) Reams 251,582, (3.24) B (0.56) 2.80 (3.36) Short-Term MMF 137,333, C Total CMIP $ 904,039, (2.39) D* (2.44) A 50% Barclays Capital Corporate Intermediate Index / 50% Barclays Capital Aggregate Bond Index B Merrill Lynch 1-5 Year Government/Corporate Bond Index C Merrill Lynch 90 Day T-Bill Index D Composite of Weighted Average of all indices calculated by Mellon * The Benchmark Composite is constructed by using current month index returns weighted by prior month actual market values for each portfolio segment. Calendar year returns include those of Commonfund Intermediate Term Fund, which was terminated April, 2008 The CMIP Investment into the Purdue Endowment was valued at $116,207,910 at month-end. SOURCE: BNY/Mellon Analytical Services 1

14 Purdue University Cash Management Investment Pool Portfolio Statistics As of December 31, 2008 Performance Results- Net of Fees Calendar Year to Date Fiscal Year to Date October through December Rolling Quarter Total Cash Management Investment Pool 2.77% 1.20% 2.77% Weighted Composite Index 5.16% 3.64% 3.61% Variance -2.39% -2.44% -0.84% Asset Growth Summary Calendar Year to Date Fiscal Year to Date October through December Rolling Quarter Total Beginning Market Value $1,120,413,088 $1,062,179,030 $984,699,046 Net Contributions/(Distributions) ($243,754,482) ($166,988,505) ($105,951,275) Market Appreciation/(Depreciation) $27,381,110 $8,849,191 $25,291,945 Total Ending Market Value $904,039,716 $904,039,716 $904,039,716 Portfolio Characteristics-Weighted Average Coupon Rate 4.19 Duration 2.77 Credit Quality AA2 Current Yield 4.47 Policy Objectives Total Portfolio's Average Credit Rating > AA Investment Allocations within guidelines Objectives Achieved YES YES Portfolio Market Value 1,200 1, $ Millions Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Dec-08 Internally Managed Mellon Agg Bond Fund Loomis Sayles Reams BlackRock Commonfund S/T Commonfund I/T Short-Term MMF SOURCE: Mellon Analytical Solutions Mellon Trust Global Securities Services Internal Calculations 2

15 Purdue University Cash Management Investment Pool Pool Statistics Graphs Avg Current Yield 6.00% 5.50% 5.00% 4.50% 4.00% 4.78% 4.47% 4.68% 4.76% 4.75% 4.47% 3.50% Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Total Net Earnings (Accrual Basis) 7,500 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 6mo AVG 6,500 $ Thousands 5,500 4,500 3,500 2,500 1, (500) (1,500) (2,500) (3,500) $403 $747 $3,511 $263 $3,795 $3,812 $3,433 $3,827 $3,742 $3,664 $3,712 ($1,055) ($1,356) ($673) Interest Net Gain/Loss SOURCE: Mellon Analytical Solutions Internal Calculations 3

16 Purdue University Cash Management Investment Pool Asset Allocation As of December 31, 2008 Loomis Reams BlackRock Short-Term MMF Total CMIP Treasury $ 32,461,636 12% $ 5,982,455 2% $ 36,393,655 15% $ - 0% $ 74,837,746 8% Agency 25,885,012 10% 44,721,016 18% 35,772,906 14% - 0% 106,378,934 12% Corporates 119,363,266 45% 107,699,938 43% 76,690,682 30% - 0% 303,753,886 34% Mortgage Backed 74,733,294 29% 69,602,042 28% 60,918,963 24% - 0% 205,254,299 23% Asset Backed 7,205,087 3% 2,351,503 1% 39,066,535 16% - 0% 48,623,125 5% Total Fixed Income $ 259,648,295 99% $ 230,356,954 92% $ 248,842,741 99% $ - 0% $ 738,847,990 82% Total Cash and Cash Equivalents $ 3,115,481 1% $ 21,225,517 8% $ 3,516,813 1% $ 137,333, % $ 165,191,726 18% Total Net Assets $ 262,763, % $ 251,582, % $ 252,359, % $ 137,333, % $ 904,039, % Asset Backed 5% Total Cash and Cash Equivalents 18% Treasury 8% Agency 12% Mortgage Backed 23% Corporates 34% SOURCE: Mellon Analytical Solutions Pending Trades are excluded in this report as of July,

17 Total Cash and Cash Equivalents 1% Asset Backed 3% Mortgage Backed 29% SOURCE: Mellon Analytical Solutions Loomis Purdue University Cash Management Investment Pool Asset Allocation As of December 31, 2008 Treasury 12% Total Cash and Cash Equivalents 1% Asset Backed 16% BlackRock Agency 10% Mortgage Backed 24% Corporates 45% Total Cash and Cash Equivalents 8% Asset Backed 1% Reams Treasury 2% Agency 18% Mortgage Backed 28% Corporates 43% Treasury 15% Corporates 30% Agency 14% 5

18 100.00% 90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% SOURCE: Mellon Analytical Services AA1-A3 18% Loomis 57.88% 23.15% 15.36% 3.61% AAA or better AA1-A3 BAA1- BAA3 BA1 or lower Purdue University Cash Management Investment Pool Portfolio Risk December 31, 2008 Total CMIP BAA1-BAA3 9% BA1 or lower 2% Reams % 90.00% 80.00% 70.00% 60.59% 60.00% 50.00% 40.00% 30.00% 25.36% 20.00% 12.11% 10.00% 1.94% 0.00% AAA or better AA1-A3 BAA1- BAA3 BA1 or lower AAA or better 71% BlackRock % 90.00% 80.00% 77.81% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 15.72% 10.00% 5.47% 1.00% 0.00% AAA or better AA1-A3 BAA1- BAA3 BA1 or lower Total CMIP Portfolio Moody's Rating AA2 6

19 The Office of Investments 2008 Annual Report of the Investment Committee

20 Purdue Endowment Market Value June 30 $2,000 $1,500 $1,000 $500 $ 'Dec th Largest Public Institution Endowment 37 th by Rank in the NACUBO Study 2

21 The Office of Investments Purdue Endowment Market Value Comparison June 30, 2008 Rank Big Ten Universities Assets 1) University of Michigan $7,571 2) University it of fminnesota 2,751 3) Ohio State University 2,076 4) Purdue University $1,736 5) University i of Wisconsin i 1,735 6) Indiana University 1,546 7) Penn State University 1,545 8) University of Illinois 1,460 9) Michigan State University 1,282 10) University of Iowa 935 Source: 2008 NACUBO Endowment Study 3

22 The Office of Investments Purdue Endowment Market Value Comparison June 30, 2008 Rank Strategic Plan Peers Assets 1) University of Texas System $16,111 2) University it of fmichigan 7,571 3) Texas A&M System 6,659 4) Purdue University $1,736 5) University i of Wisconsin i 1,735 6) Penn State University 1,545 7) University of Illinois 1,460 8) Georgia Institute of Technology 1,344 9) University of California-Berkeley 872 Source: 2008 NACUBO Endowment Study 4

23 The Office of Investments Purdue Endowment Performance Profile Compared to the Broad Equity Market For Fiscal Years Ended June % 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% 1-Year 3-Years 5-Years 10-Years 11.4% 9.2% 7.6% 66% 6.6% 4.4% 2.8% -2.7% -13.1% S&P 500 Index Purdue 5

24 The Office of Investments Purdue Endowment Performance Profile Compared to the Investment Policy Goal For Fiscal Years Ended June % 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 3-Years 5-Years 11.4% 87% 8.7% 9.2% 83% 8.3% Inflation Plus Spending Purdue Source: 2008 NACUBO Endowment Study 6

25 The Office of Investments Purdue Endowment Performance Compared to Other Endowments June 30, 2008 One Year Three Year Five Year Ten Year Purdue University -2.7% 9.2% 11.4% 6.6% All Institutions Median Public Endowments Over $1.0 Billion >$500 Million to <$1.0 Billion >$100 Million to <$500 Million Source: 2008 NACUBO Endowment Study 7

26 Purdue Endowment 5-Year Return Comparison June % 15.0% 10.0% 6.9% 13.3% 11.4% 50% 5.0% 0.0% 2.1% Purdue Endowment NACUBO Peers Source: 2008 NACUBO Endowment Study 8

27 The Office of Investments Purdue Endowment Asset Allocation June 30, 2001 U.S. Equity 70.0% U.S. Equity 35.0% International 9.3% Emerging Mkt. PURDUE PEERS 23% 2.3% Hedge Funds 18.0% International 7.5% Fixed Income 19.9% Fixed Income Real Estate Real Estate Venture 19.3% 3.2% 47% 4.7% 6.4% 64% Private Equity 4.5% Source: 2008 NACUBO Endowment Study 9

28 The Office of Investments Purdue Endowment Asset Allocation June 30, 2008 U.S. Equity 26.3% International 15.9% Emerging Mkt. 3.9% Hedge Funds 19.0% U.S. Equity 18.8% 8% International 16.2% Emerging Mkt. 4.4% Hedge Funds 22.6% PURDUE PEERS Natural Resources 8.5% Fixed Income Private Equity 12.7% Fixed Income Venture 5.2% Real Estate Venture 15.1% 1% Real Estate 1.9% 19% 6.4% 64% 3.6% 4.2% Private Equity 10.0% Natural Resources 5.3% Source: 2008 NACUBO Endowment Study 10

29 The Office of Investments Purdue Endowment Asset Allocation June 30, 2008 Investment Pool Assets Greater Purdue Purdue Than Variance Policy $1 Billion Targets Equity 26.3% 18.8% 7.5% 26.0% Non-U.S. Equity (0.3) 15.0 Emerging Markets (0.5) 5.0 Total Equities Hedge Funds (3.6) 15.0 Private Equity (4.8) 5.0 Venture Capital (1.7) 5.0 Real Estate (2.2) 7.0 Natural Resources Total Alternatives (9.9) 39.0 Fixed Income/Cash % 100.0% 100.0% 11

30 The Office of Investments Purdue Endowment Due Diligence Manager Contacts Traditional Assets Private Real Estate Natural Resources Marketable Alternatives Non-Marketable Alternatives Totals do not include all the call and contacts made in 3Q and 4Q 12

31 The Office of Investments Purdue Endowment Historical Annual Distributions $80.00 $60.00 $40.00 $20.00 $0.00 $82.2 $73.6 $57.0 $60.9 $54.2 $47.9 $51.1 $47.9 $48.5 $ Distributed $576.3 Million in the Last 10-Years 13

32 The Office of Investments Purdue Endowment $82.2 Million Scholarhips and Fellowships 28% Instruction and Research 50% Construction 7% Loans and Student Awards 15% 14

33 Dec-08 Jun-08 The Office of Investments Purdue Endowment 12 Quarter Average Compared to the Monthly Unit Value Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Jun-04 Dec-03 Jun-03 Dec-02 Jun-02 Dec-01 Jun-01 Dec-00 Jun-00 $14.00 $12.00 $10.00 $8.00 $6.00 $ Monthly Unit Value 12 QTR Average Unit Value

34 The Office of Investments Reasonable Expectations Rebalance to Investment Policy Targets Liquidity Steady and Measured Opportunistically Invest in Undervalued Asset Classes Continue Endowment Distributions Based on the 4.5 % Spending Policy, UPMIFA Eliminated Underwater Endowments 16

35 The Office of Investments Cash Management Investment Pool Fixed Income Investment Portfolio Collects and InvestsOperatingFunds Dollar in Dollar Out No Risk To the Participants Daily Liquidity Needs of the University Self Liquidity Support for Variable Rate Debt Internal loan Program to Match Revenue and Expenditures 17

36 The Office of Investments Cash Management Investment Pool Asset Allocation December 31, 2008 Agency 12% Corporates 34% Treasury 8% Mortage Backed 23% Asset Backed 5% Total Cash and Cash Equilivants 18% 18

37 The Office of Investments Cash Management Investment Pool Asset Allocation December 31, 2008 Asset Class Policy Range Actual Cash and Cash Equivalents $50M 100% 18% US U.S. Treasury Bills, Notes, Bonds, and Agencies % Corporate Bonds 0 50% 30% Mortgage Back Securities 0 30% 23% Asset Back Securities 0 25% 5% High Yield Bonds, Including Bank Loans 0 5% 4% Liquid, Short Duration, High Quality, Overweight to Investment Grade 19

38 The Office of Investments Cash Management Investment Pool Current Income $8,000 $6,000 $4,000 Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Average 12 Month Average $3.9 Million $2,000 $0 20

39 The Office of Investments Cash Management Investment Pool Due Diligence Daily Monitoring of Investment Activities Quarterly Manager Reviews Holdings Internal Watch List Full Time Staff Dedicated to Oversight 21