2010 Annual Report of the Investment Committee

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2 2010 Annual Report of the Investment Committee

This has been the second consecutive year of gains for stocks after the sharp decline in the financial markets in 2008. Purdue s fiscal year return of 14.

3 This has been the second consecutive year of gains for stocks after the sharp decline in the financial markets in Purdue s fiscal year return of 14.4 percent for the period ending June 30, 2010 is top quartile in the Study of Endowments (NCSE). On June 30, 2010 the combined Endowment assets of Purdue University and the Purdue Research Foundation totaled $1.663 billion, up $175 million from the end of the previous fiscal year. In the NCSE, 62 endowments were over $1.0 billion. Purdue s market value ranked 32 nd in the study, moving up from 33 rd in 2009, and remained the country s 11 th largest endowment held by a public university. As in the previous year, the Endowment ranked 4 th in the Big Ten and 4 th in the Strategic Plan peer group by market value (Appendix A). Purdue s 14.4 percent return was ranked 10 th this year when compared to the 62 endowments over $1.0 billion, up 16 spots from the 2009 study results. The endowments over $1.0 billion had a range of returns from percent to 6.8 percent, which reflects the impact of the financial markets decline and changes to asset allocation to meet liquidity requirements after the market decline in NCSE Total Return For Fiscal Years Ended June 30, 2010 One Year Three Year Five Year Ten Year Purdue University 14.4% 4.0% 3.4% 3.1% All Institutions Median Public Endowments Over $1.0 Billion $501 Million to $1.0 Billion $101 Million to $500 Million S&P 500 Index The goal for the Endowment continues to be to produce competitive results within our peer groups with an acceptable level of risk. Working with talented managers who can generate returns under varying conditions and market cycles, Purdue adopted a prudent approach that has reallocated assets toward a more diversified portfolio following the established policy targets. The result is that Purdue has a solid core spread around the globe that participates when the financial markets rise, but with a reduced correlation when financial markets fall. Over the past ten years the Purdue Endowment has undergone a transformation by increasing the alternative exposures from zero to nearly 40 percent as a part of the diversification strategy. Inaugural exposures to private equity, venture capital and natural resources investments have been layered in overtime as the right opportunities were available. Hedge 1

4 funds were added in a meaningful way in 2004 to reduce volatility and protect assets when the financial markets contract like in In order to effectively manage a diversified investment strategy with a sizeable allocation to alternative assets, Purdue reorganized the investment efforts in the middle of the decade and created a full time dedicated Office of Investments. This office implemented new processes and procedures and developed internal expertise across the asset class spectrum. The guiding principle continues to be to provide the proper level of governance and oversight based on the need for an increased level of due diligence driven by the complexity of the underlying investments. These efforts are lead by Scott Seidle as Chief Investment Officer in coordination with the Investment Committee. The Purdue Endowment s investment strategy provides an excellent combination of public market exposure, private investing for enhanced return opportunities, and a prudent level of downside protection through hedge fund allocations. Purdue achieved the June 30, 2010 results with a higher exposure to the public markets and a much smaller allocation to alternative assets than the other endowments over $1.0 billion. Continued diversification of the portfolio reduces the correlation to the board financial markets and expands the sources of returns eliminating concentrated dependence on one portion of the asset allocation to outperform year after year. The differences between Purdue s asset allocations and the endowments greater than $1.0 billion are displayed in the table below. Purdue Asset Allocation Comparison* Asset Class Purdue Over $1.0 Billion Variance Policy Target Public Equities Alternative Assets (18.7) 49.0 Fixed Income/Cash % 100.0% *Additional Purdue asset allocation information contained in Appendix B It is interesting that the public equities variance between Purdue and the billion dollar endowment remained relatively unchanged from the previous year, while the fixed income gap narrowed significantly. This change is likely the result of continued liquidity issues that have not completely dissipated, or an overall risk reduction of portfolios due to the overhang of unfunded private commitments. Compared to the other billion dollar endowments, Purdue s 2.2 percent outperformance for the fiscal year was primarily driven by asset allocation decisions. A 17.9 percent overweight U.S. equity position compared to the over $1.0 billion peers contributed 40 basis points to outperformance. Purdue s high yield bond position was added in the first quarter of 2009 and added 30 basis points to performance above the peers for the fiscal year. The 3 percent opportunistic investment in high yield bonds increased the Endowment s distressed exposure and took advantage of the mispricing of debt. Purdue held a 3 percent underweight to private real estate compared to the peers, adding 103 basis points to outperformance. Private real estate was the only asset class that did not rebound and produced negative returns for the fiscal year. The Endowment s underweight to hedge funds added 56 basis points to 2

5 outperformance. The Hedge Fund Program posted a 12.7 percent return for the fiscal year, slightly behind the S&P 500 Index s return of 14.4 percent. Additional exposure to distressed opportunities added 21 basis points to performance. Global non U.S. developed equities overweight and private equity underweight distracted a total of 30 basis points from returns compared to the peers. Purdue s returns are a function of both the asset allocation and the selection of the individual managers. In the past year, the Office of Investments held 125 regular review meetings with new and existing Endowment managers. Of the 125 meetings, 25 percent were with hedge fund managers, 27 percent were private equity and venture capital managers, 11 percent were private real estate managers, 9 percent natural resources, and 28 percent were with the traditional asset class managers. The Office of Investment staff met with over 72 percent of the current Purdue Endowment managers over the calendar year ending December 31, The journey to diversify the Endowment s assets has taken considerable time and effort, but the results have been a reduced correlation to the broad equity markets and further expansion of the sources of return. With a reduction in correlation and expansion of the asset classes, the Purdue Board of Trustees was able to approve an increase in the Endowment s spending rate from 4.5 percent to 5.0 percent in The Investment Committee continues to monitor the small incremental increase back to 5.0 percent and will keep the Board of Trustees apprised if any future changes are required. In 2010, the Endowment distributed $86.0 million, up from the previous year s distribution by about 3 percent. The fourth quarter was a strong finish to calendar year The Dow Jones Industrial Average closed up 7.80 percent, marking an 11 percent increase for the year and the S&P 500 ended the year up 15.1 percent. On a calendar year basis, the Endowment s performance was 12.8 percent versus the Target Benchmark return of 10.7 percent and the S&P 500 Index return of The Purdue Endowment s performance for the fiscal year for the period June 30, 2010 to December 31, 2010 was 16.2 percent versus the Target Benchmark return of 13.6 percent and the S&P 500 Index return of 23.3 percent. The current results are an encouraging start for fiscal year

6 Appendix A Comparison Institutions Ranked by Total Endowment Asset Value June 30, 2010 Rank Public Big Ten Universities Assets 1) University of Michigan $6,564 2) University of Minnesota 2,196 3) Ohio State University 1,869 4) Purdue University $1,633 5) University of Wisconsin 1,551 6) Michigan State University 1,449 7) Indiana University 1,371 8) Penn State University 1,368 9) University of Illinois 1,290 10) University of Iowa 791 Rank Strategic Plan Peer institutions Assets 1) University of Texas System $14,052 2) University of Michigan 6,564 3) Texas A&M System 5,738 4) Purdue University $1,633 5) University of Wisconsin 1,551 6) Penn State University 1,368 7) University of Illinois 1,290 8) Georgia Tech 1,051 9) University of California Berkeley 855 Source: NCSE 4

7 Appendix B Purdue Asset Allocation Comparison Asset Class Purdue Over $1.0 Billion Variance Purdue Policy Targets U.S. Equity 24.6% 11.0% 13.6% 18.0% Non U.S. Equity Emerging Markets (0.3) 5.0 Total Equities Private Equity (10.5) 5.0 Venture Capital (1.6) 5.0 Hedge Funds (2.9) 25.0 Real Estate (3.2) 7.0 Natural Resources (0.5) 7.0 Total Alternatives (18.7) 49.0 Fixed Income/Cash % 100.0% 100.0% Source: Office of Investments and the NCSE 5

8 CASH MANAGEMENT INVESTMENT POOL Investment Committee Monthly Report For Quarter Ending December 31, 2010

9 Purdue University Cash Management Investment Pool Performance Statistics As of December 31, 2010 NET OF FEES Calendar Year Fiscal Year Current Month 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 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 Current Month Current Month Loomis Sayles $ 349,347, A (0.78) (1.16) 0.38 BlackRock** B (0.58) - 1 Reams 374,735, B (0.23) (0.58) 0.35 Chicago Equity Partners *** 184,445,870 (1.02) - - B (1.02) - - (0.58) - - Short-Term MMF 198,616, (0.02) C (0.01) (0.01) Total CMIP $ 1,107,145, D* (0.42) (0.66) 0.24 A B C D 50% Barclays Capital Corporate Intermediate Index / 50% Barclays Capital Aggregate Bond Index Bank of America/Merrill Lynch 1-5 Year Government/Corporate Bond Index Bank of America/Merrill Lynch 90 Day T-Bill Index 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. ** BlackRock was terminated on November 1, Performance data reflects returns through October, 2010 for information purposes *** Chicago Equity Partners was hired November 1, Performance tracking will begin in January, However, the CEP Portfolio returns will be reflected in the Total CMIP performance immediately The CMIP Investment into the Purdue Endowment was valued at $204,090,289 at December 31, SOURCE: Mellon Analytical Solutions

Purdue University Cash Management Investment Pool Portfolio Statistics As of December 31, 2010 Performance Results- Net of Fees Calendar Year to Date Fiscal Year to Date Oct through Dec Rolling

10 Purdue University Cash Management Investment Pool Portfolio Statistics As of December 31, 2010 Performance Results- Net of Fees Calendar Year to Date Fiscal Year to Date Oct through Dec Rolling Quarter Total Cash Management Investment Pool 4.91% 1.68% -0.47% Weighted Composite Index 3.89% 1.02% -0.71% Variance 1.02% 0.66% 0.24% Asset Growth Summary Calendar Year to Date Fiscal Year to Date Oct through Dec Rolling Quarter Total Beginning Market Value $1,122,852,159 $1,035,939,655 $1,166,171,748 Net Contributions/(Distributions) ($69,979,084) $53,188,386 ($54,318,671) Market Appreciation/(Depreciation) $54,272,643 $18,017,677 ($4,707,360) Total Ending Market Value $1,107,145,718 $1,107,145,718 $1,107,145,718 Portfolio Characteristics-Weighted Average Coupon Rate 3.87 Duration 2.90 Credit Quality AA2 Current Yield 2.90 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 Jun-09 Jun-10 Dec-10 Internally Managed Mellon Agg Bond Fund Loomis Sayles Reams BlackRock Chicago Equity Commonfund S/T Commonfund I/T Short-Term MMF CE: Mellon Analytical Solutions Mellon Trust Global Securities Services Internal Calculations 2

11 Purdue University Cash Management Investment Pool Pool Statistics Graphs Avg Current Yield 5.00% 4.50% 4.00% 3.50% 3.00% 3.35% 2.82% 2.90% 3.01% 2.89% 2.90% 2.50% Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Total Net Earnings (Accrual Basis) $ Thousands 10,500 9,500 8,500 7,500 6,500 5,500 4,500 3,500 2,500 1, (500) (1,500) (2,500) Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 6mo AVG $524 $3,144 $374 $2,414 $1,811 $2,403 $3,388 $1,895 $979 $2,628 $2,552 $2,661 $2,661 $2,875 $2,248 $2,604 Interest Net Gain/Loss CMIP Quasi-Endowment Income SOURCE: Mellon Analytical Solutions Internal Calculations 3

12 Purdue University Cash Management Investment Pool Gain/Loss Detail December 31, 2010 Dec 2010 Mortgage-Backed Asset-Backed Cash and Cash Corporate Total Gain/Loss US Treasuries US Agencies Corporates Securities Securities Equivalents Actions Loomis Sayles $ (442,480.24) $ (469,802.20) $ - $ 47, $ (20,649.77) $ $ - $ - Chicago Equity 1,044, (21,835.76) 138, , (2,090.10) Reams 376, , , Total CMIP $ 978, $ (491,637.96) $ 138, $ 1,003, $ 329, $ (1,400.02) $ - $ - Fiscal Year to Date Mortgage-Backed Asset-Backed Cash and Cash Corporate Actions Total Gain/Loss US Treasuries US Agencies Corporates Securities Securities Equivalents Loomis Sayles $ 2,605, $ 790, $ - $ 1,908, (95,559.89) $ 1, $ - $ - BlackRock 2,812, ,134, , , , Chicago Equity 3,644, (58,657.42) 1,060, ,628, (12,879.15) 27, Reams 2,304, , ,161, , (67,936.99) 18, Total CMIP $ 11,367, $ 2,386, $ 1,060, $ 6,288, $ 1,469, $ 144, $ 18, $ - 4 Calendar Year to Date Mortgage-Backed Asset-Backed Cash and Cash Corporate Actions Total Gain/Loss US Treasuries US Agencies Corporates Securities Securities Equivalents Loomis Sayles $ 7,113, $ 739, $ 348, $ 4,179, $ 1,827, $ 3, $ - $ 14, BlackRock 7,431, ,108, , ,451, ,192, , , Chicago Equity 3,644, (58,657.42) 1,060, ,628, (12,879.15) 27, Reams 7,080, , ,359, ,894, (69,905.38) 28, , Total CMIP $ 25,270, $ 3,633, $ 1,801, $ 14,619, $ 4,902, $ 239, $ 29, $ 43, SOURCE: Mellon Analytical Solutions Internal Calculations

Purdue University Cash Management Investment Pool Asset Allocation As of December 31, 2010 Loomis Reams Chicago Equity Short-Term MMF Total CMIP Treasury $ 71,339,656 21% $ 23,035,699 6% $ 66,846,015

73,254,827 21% 111,844,284 30% 60,504 0% - 0% 185,159,615 17% Asset Backed 12,308,767 4% 19,907,814 5% - 0% - 0% 32,216,581 3% Total Fixed Income $ 333,890,815 96% $ 353,305,860 94% $ 181,437,565 98%

13 Purdue University Cash Management Investment Pool Asset Allocation As of December 31, 2010 Loomis Reams Chicago Equity Short-Term MMF Total CMIP Treasury $ 71,339,656 21% $ 23,035,699 6% $ 66,846,015 36% $ - 0% $ 161,221,370 15% Agency 11,817,734 3% 48,238,070 13% 96,884,683 52% - 0% 156,940,487 14% Corporates 165,169,831 47% 150,279,993 40% 17,646,363 10% - 0% 333,096,187 30% Mortgage Backed 73,254,827 21% 111,844,284 30% 60,504 0% - 0% 185,159,615 17% Asset Backed 12,308,767 4% 19,907,814 5% - 0% - 0% 32,216,581 3% Total Fixed Income $ 333,890,815 96% $ 353,305,860 94% $ 181,437,565 98% $ - 0% $ 868,634,240 79% Total Cash and Cash Equivalents $ 15,456,688 4% $ 21,430,122 6% $ 3,008,305 2% $ 198,616, % $ 238,511,478 21% Total Net Assets $ 349,347, % $ 374,735, % $ 184,445, % $ 198,616, % $ 1,107,145, % 5 Total Cash and Cash Equivalents 21% Asset Backed 3% Treasury 15% Agency 14% Mortgage Backed 17% Corporates 30% SOURCE: Mellon Analytical Solutions Pending Trades are excluded in this report as of July, 2006

14 Purdue University Cash Management Investment Pool Asset Allocation As of December 31, 2010 Total Cash and Cash Equivalents 4% Asset Backed 4% Loomis Treasury 21% Corporates 10% Chicago Equity Mortgage Backed Asset Backed 0% 0% Total Cash and Cash Equivalents 2% Mortgage Backed 21% Agency 3% Treasury 36% 6 Corporates 47% Agency 52% Total Cash and Cash Equivalents 6% Asset Backed 5% Reams Treasury 6% Agency 13% Mortgage Backed 30% Corporates 40% SOURCE: Mellon Analytical Solutions

15 Purdue University Cash Management Investment Pool Loomis Sayles As of December 31, 2010 Performance Results Calendar YTD Fiscal YTD Oct through Dec Rolling Quarter Manager-Net of Fees 7.62% 2.19% -0.89% Manager-Gross of Fees 7.79% 2.27% -0.85% Benchmark 6.22% 1.21% -1.37% Portfolio Statistics Average Coupon Average Duration Average Maturity Average Credit Quality Current Yield Manager AA Barclays Capital Govt/Credit Intermediate Aa Barclays Capital Aggregate Aa Asset Growth Summary Calendar YTD Fiscal YTD Oct through Dec Rolling Quarter Beginning Market Value (In Thousands) 292, , ,490 Net Contributions/(Distributions) 32,497 (268) (136) Market Appreciation/(Depreciation) 23,913 7,748 (3,006) Ending Market Value 349, , ,348 Adherence to Investment Policy Objectives Objective Met Value Asset Allocations -US Treasuries and Agencies between 15% and 100% of portfolio YES 23.80% -Corporate Bonds (incl. 144A and Yankee Bonds) between 0% and 50% of portfolio YES 47.28% -Rule 144A securities no greater than 20% of portfolio YES 2.25% -Yankee Bonds no greater than 20% of portfolio YES 7.41% -Mortgage Backed Securities (incl. TBA's) no greater than 30% of portfolio YES 20.96% -Asset Backed Securities no greater than 25% of portfolio YES 3.52% -High Yield Bonds no greater than 5% of portfolio YES 4.38% -Cash less than 5% of portfolio YES 2.42% Portfolio Restrictions -Bonds rated Baa1 or worse: less than 20% of portfolio YES 16.85% -No security purchased with a rating less than Baa3/BB- YES - -No security of individual issuer, excl. US Treas and Agency, greater than 5% of portfolio YES - -No investments in the following investment vehicles: -Options, Forward or futures contracts, swaps, short sales, or trades on margin YES - -Foreign currencies on non-dollar denominated securities YES - -Non-marketable securities YES - -CMO's YES - Net Assets Asset Allocation vs Blended Benchmark Pvt Place Percentage CMBS Percentage Millions Asset Sector Asset Back Percentage Gov't Mortg Percentage 100 Corporate Percentage 50 Government Percentage - Amount Invested Book Value Unrealized Gain/loss Net Receivable Total Market Value % of Total Loomis Benchmark Lomis Sayles - Intmed SOURCE: Mellon Analytical Solutions Mellon Trust Global Securities Services Loomis Sayles: Barclays Capital Index Data 7

16 Purdue University Cash Management Investment Pool Loomis Sayles Portfolio Intermediate Bond Universe For Period Ending Friday, December 31, Min/Max Return (%) # # # $ $ # $ $ # $ Current Quarter Year To Date 1 Year 3 Years 5 Years Period Return (% tile) Return (% tile) Return (% tile) Return (% tile) Return (% tile) Maximum th Percentile Median th Percentile Minimum # of Portfolios # Loomis Sayles-Net of Fees $ Intermediate Composite Benchmark Universe Source: (c) Russell Investment Group Russell/Mellon Analytical Services LLC, All Rights Reserved.

17 Purdue University Cash Management Investment Pool Reams As of December 31, 2010 Performance Results Calendar YTD Fiscal YTD Oct through Dec Rolling Quarter Manager-Net of Fees 5.61% 1.77% -0.31% Manager-Gross of Fees 5.71% 1.83% -0.27% Benchmark 4.17% 1.14% -0.56% Portfolio Statistics Average Coupon Average Duration Average Maturity Average Credit Quality Current Yield Manager AA ML 1-5 Year Govt/Credit AA Asset Growth Summary Calendar YTD Fiscal YTD Oct through Dec Rolling Quarter Beginning Market Value 290, , ,898 Net Contributions/(Distributions) 66,530 (250) (132) Market Appreciation/(Depreciation) 18,139 6,755 (1,030) Ending Market Value 374, , ,736 Adherence to Investment Policy Objectives Objective Met Value Asset Allocations -US Treasuries and Agencies between 15% and 100% of portfolio YES 19.02% -Corporate Bonds (incl. 144A and Yankee Bonds) between 0% and 50% of portfolio YES 40.10% -Rule 144A securities no greater than 20% of portfolio YES 0.24% -Yankee Bonds no greater than 20% of portfolio YES 4.00% -Mortgage Backed Securities (incl. TBA's) no greater than 30% of portfolio YES 29.85% -Asset Backed Securities no greater than 25% of portfolio YES 5.31% -High Yield Bonds no greater than 5% of portfolio YES 4.66% -Cash less than 5% of portfolio YES 4.01% Portfolio Restrictions -Bonds rated Baa1 or worse: less than 20% of portfolio YES 17.07% -No security purchased with a rating less than Baa3/BB- -No security of individual issuer, excl. US Treas and Agency, greater than 5% of portfolio YES - -No investments in the following investment vehicles: -Options, Forward or futures contracts, swaps, short sales, or trades on margin YES - -Foreign currencies on non-dollar denominated securities YES - -Non-marketable securities YES - -CMO's YES - Net Assets Asset Allocation vs ML 1-5 Yr Index Pvt Place Percentage 300 CMBS Percentage Millions Asset Sector Asset Back Percentage Gov't Mortg Percentage 100 Corporate Percentage 50 - Amount Invested Book Value Unrealized Gain/loss Net Receivable Total Market Value Government Percentage % of Total ML 1-5 Reams Asset Mgt CM SOURCE: Mellon Analytical Solutions Mellon Trust Global Securities Services Merrill Lynch: Merrill Lynch Index Data 9

18 Purdue University Cash Management Investment Pool Reams Portfolio Short Term Intermediate Universe For Period Ending Friday, December 31, Min/Max Return (%) # # $ $ # $ # $ # $ Current Quarter Year To Date 1 Year 3 Years 5 Years Period Return (% tile) Return (% tile) Return (% tile) Return (% tile) Return (% tile) Maximum th Percentile Median th Percentile Minimum # of Portfolios # Reams-Net of Fees $ BOFAML G/C Universe Source: (c) Russell Investment Group Russell/Mellon Analytical Services LLC, All Rights Reserved.

19 Purdue University Cash Management Investment Pool Chicago Equity Partners As of December 31, 2010 Performance Results Calendar YTD Fiscal YTD Oct through Dec Rolling Quarter Manager-Net of Fees Manager-Gross of Fees Benchmark 4.17% 1.14% -0.56% Portfolio Statistics Average Coupon Average Duration Average Maturity Average Credit Quality Current Yield Manager AAA 2.63 ML 1-5 Year Govt/Credit AA Asset Growth Summary Calendar YTD Fiscal YTD Oct through Dec Rolling Quarter Beginning Market Value Net Contributions/(Distributions) 186, , ,349 Market Appreciation/(Depreciation) (1,903) (1,903) (1,903) Ending Market Value 184, , ,446 Adherence to Investment Policy Objectives Objective Met Value Asset Allocations -US Treasuries and Agencies between 15% and 100% of portfolio YES 84.08% -Corporate Bonds (incl. 144A and Yankee Bonds) between 0% and 50% of portfolio YES 14.98% -Rule 144A securities no greater than 20% of portfolio YES 0.00% -Yankee Bonds no greater than 20% of portfolio YES 0.55% -Mortgage Backed Securities (incl. TBA's) no greater than 30% of portfolio YES 0.03% -Asset Backed Securities no greater than 25% of portfolio YES 0.00% -High Yield Bonds no greater than 5% of portfolio YES 0.00% -Cash less than 5% of portfolio YES 1.63% Portfolio Restrictions -Bonds rated Baa1 or worse: less than 20% of portfolio YES 0.69% -No security ypurchased with a rating less than Baa3/BB- YES - -No security of individual issuer, excl. US Treas and Agency, greater than 5% of portfolio YES - -No investments in the following investment vehicles: -Options, Forward or futures contracts, swaps, short sales, or trades on margin YES - -Foreign currencies on non-dollar denominated securities YES - -Non-marketable securities YES - -CMO's YES - Net Assets Asset Allocation vs ML 1-5 Yr Index Pvt Place Percentage 200 CMBS Percentage Millions Asset Sector Asset Back Percentage Gov't Mortg Percentage 50 Corporate Percentage - (50) Amount Invested Book Value Unrealized Gain/loss Net Receivable Total Market Value Government Percentage % of Total ML 1-5 CHICAGO EQ PTRS CMIP SOURCE: Mellon Analytical Solutions Mellon Trust Global Securities Services Merrill Lynch: Merrill Lynch Index Data 11

Purdue University Cash Management Investment Pool Portfolio Risk December 31, 2010 Total CMIP BAA1-BAA3 8% BA1 or lower 3% Total CMIP Portfolio Moody's Rating AA2 AA1-A3 19% AAA or

85% 60.00% 50.00% 50.00% 50.00% 40.00% 30.00% 25.90% 40.00% 30.00% 24.08% 40.00% 30.00% 20.00% 10.00% 12.47% 4.38% 20.00% 10.00% 12.41% 4.66% 20.00% 10.00% 14.18% 0.69% 0.00% 0.

20 Purdue University Cash Management Investment Pool Portfolio Risk December 31, 2010 Total CMIP BAA1-BAA3 8% BA1 or lower 3% Total CMIP Portfolio Moody's Rating AA2 AA1-A3 19% AAA or better 70% 12 Loomis Reams Chicago Equity Partners % % % 90.00% 90.00% 90.00% 85.13% 80.00% 00% 80.00% 00% 80.00% 00% 70.00% 70.00% 70.00% 60.00% 57.25% 60.00% 58.85% 60.00% 50.00% 50.00% 50.00% 40.00% 30.00% 25.90% 40.00% 30.00% 24.08% 40.00% 30.00% 20.00% 10.00% 12.47% 4.38% 20.00% 10.00% 12.41% 4.66% 20.00% 10.00% 14.18% 0.69% 0.00% 0.00% AAA or better AA1-A3 BAA1- BAA3 BA1 or lower 0.00% AAA or better AA1-A3 BAA1- BAA3 BA1 or lower 0.00% AAA or better AA1-A3 BAA1- BAA3 BA1 or lower SOURCE: Mellon Analytical Services

21 The Office of Investments 2010 Annual Report of the Investment Committee Office of Investments

22 Purdue Endowment Market Value June 30 $2,000 $1,500 $1,217 $1,099 $1,058 $1,207 $1,341 $1,494 $1,787 $1,736 $1,633 $1,457 $1,914 $1,000 $500 $ Dec 10 2

23 The Office of Investments Purdue Endowment Market Value Comparison June 30, 2010 Rank Big Ten Universities Assets 1) University of Michigan $6,564 2) University of Minnesota 2,196 3) Ohio State University 1,869 4) Purdue University $1,633 5) University of Wisconsin 1,551 6) Michigan State University 1,449 7) Indiana University 1,371 8) Penn State University 1,368 9) University of Illinois 1,290 10) University of Iowa 791 Source: 2010 NCSE Study 3

24 The Office of Investments Purdue Endowment Market Value Comparison June 30, 2010 Rank Strategic Plan Peers Assets 1) University of Texas System $14,052 2) University of Michigan 6,564 3) Texas A&M System 5,738 4) Purdue University $1,633 5) University of Wisconsin 1,551 6) Penn State University 1,368 7) University of Illinois 1,290 8) Georgia Tech 1,051 9) University it of California Berkeley i l 855 Source: 2010 NCSE Study 4

25 Endowment Investments Goals 1. Performance better thaninflation plus spending of5.0percent. 2. Performance better than the broad market as measured by the S&P 500 Index. 3. Competitive median return compared to the NCES Billion Dollar Endowments. 5

20.0% 15.0% 10.0% 5.0% 00% 0.0% 5.0% 1 year 3 Years 5 Years 14.4% 6.

26 The Office of Investments Purdue Endowment Performance Profile Compared to the Investment Policy Goal For Fiscal Years Ended June % 15.0% 10.0% 5.0% 00% 0.0% 5.0% 1 year 3 Years 5 Years 14.4% 6.0% 6.6% 7.1% 3.4% 4.0% Inflation Plus Spending Purdue Source: 2010 NCSE Study 6

Period ending June 30, 2010 10.0% 8.0% 6.0% 40% 4.0% 2.0% 0.

27 The Office of Investments 20 Years Purdue Endowment Performance Profile Compared to the Investment Policy Goal Period ending June 30, % 8.0% 6.0% 40% 4.0% 2.0% 0.0% 9.7% Endowment 2.7% 5.0% Spending & Inflation Source: 2010 NCSE Study 7

28 The Office of Investments Purdue Endowment Performance Profile Compared to the Broad Equity Market For Fiscal Years Ended June % 15.0% 10.0% 5.0% 0.0% 5.0% 10.0% 15.0% 1 Year 3 Years 5 Years 10 Years 14.4%14.4% 3.4% 3.1% 4.0% 40% 0.8% 1.6% 9.8% S&P 500 Index Purdue 8

29 The Office of Investments Purdue Endowment Performance Compared to Other Endowments June 30, 2010 One Year Three Year Five Year Ten Year Purdue University 14.4% 4.0% 3.4% 3.1% All Institutions Median Public Endowments Over $1.0 Billion $501 Million to $1.0 Billion $101 Million to $500 Million S&P 500 Index Source: 2010 NCSE Study 9

30 The Office of Investments Purdue Endowment Performance Attribution Purdue s 14.4 percent return outperformed the NCES Greater Than $1 Billion Mean by 220 bps. Value Added: Overweight U.S. Equity + 40 bps Overweight High Yield Bond + 30 bps Underweight Private Real Estate bps Underweight Hedge Funds + 56 bps Distressed Outperformance +21 bps Value Detracted: Overweight Global Non US Developed Equity y( (26 bps) p) Underweight Private Equity (4 bps) 10

30, 2001 U.S. Equity 70.0% U.S. Equity 35.

31 The Office of Investments Purdue Endowment Asset Allocation June 30, 2001 U.S. Equity 70.0% U.S. Equity 35.0% International 9.3% PURDUE PEERS 23% 2.3% Emerging Mkt. Hedge Funds 18.0% International 7.5% Fixed Income 19.9% Fixed Income Real Estate Real Estate Venture 19.3% 3.2% 32% 4.7% 6.4% Private Equity 4.5% Source: 2010 NCSE Study 11

9% 9% Emerging Mkt. 5.7% Hedge Funds 22.

4% U.S. Equity 11.0% PEERS Fixed Income 14.

6% Private Equity 7.5% Natural Resources 7.

32 The Office of Investments Purdue Endowment Asset Allocation June 30, 2010 U.S. Equity 24.6% PURDUE International 13.9% Emerging Mkt. 5.4% Hedge Funds 19.9% 9% Emerging Mkt. 5.7% Hedge Funds 22.8% International Natural 9.3% Resources 8.4% U.S. Equity 11.0% PEERS Fixed Income 14.8% Real Estate 3.4% Venture 2.6% Private Equity 7.5% Natural Resources 7.9% Fixed Income 14.0% Real Estate 6.6% Venture 4.2% Private Equity 18.0% Source: 2010 NCSE Study 12

33 The Office of Investments Purdue Endowment Policy Asset Allocation One Year Later Investment Pool Assets Policy Targets Actual Over $1.0 Billion 2009 Variance 2010 Variance Equity (7) 18.0% 24.6% 11.0% 10.1% 13.6 Non U.S. Equity (4) Emerging Markets (2) (0.3) Total Equities (13) Hedge Funds (23) (7.3) (2.9) Private Equity and Venture Capital (37) (13.6) (12.1) Real Estate (8) (3.5) (3.2) Natural Resources (11) (0.5) Total Alternatives (79) (24.2) 2) (18.7) Fixed Income, High Yield and Cash (4) % 100% 100.0% 13

2010 U.S. Equity 24.6% PURDUE International 13.

7% Real Estate 3.4% Natural Resources 7.

34 The Office of Investments Purdue Endowment Asset Allocation Liquidity Profile June 30, 2010 U.S. Equity 24.6% PURDUE International 13.9% Emerging Mkt. 5.4% Hedge Funds 19.9% 9% Emerging Mkt. 5.7% Hedge Funds 22.8% International Natural 9.3% Resources 8.4% U.S. Equity 11.0% Venture 2.6% PEERS Private Equity 18.0% Fixed Income 14.7% Real Estate 3.4% Natural Resources 7.9% Private Equity 7.5% Fixed Income 14.0% Real Estate 6.6% Venture 4.2% Source: 2010 NCSE Study 14

35 Hedge Fund Investment Strategy Increasing the Hedge Fund allocation from 18.5 to 25 percent with additional exposure to absolute return strategies 80.0% 0% 60.0% 40.0% 20.0% 0.0% Hedge Funds Equity 15

36 The Office of Investments Purdue Endowment Hedge Fund Program For Fiscal Years Ended June 30 70% 60% 50% 40% 30% 20% 10% 0% 16.67% 0.00% 58.33% 13.64% < $100 MM > $100 $500 MM Institutional Quality AUM $750 M to $3.0B Leverage 1.0 to 1.5 times 36.36% 18.18% 18.18% 12.50% 13.64% 8.33% 4.17% 0.00% > $500 MM $1 B > $1 B $3 B > $3 B $10 B > $10 B Source: Office of Investments 16

37 $170 $160 $150 $140 $130 $120 $110 $100 $90 $80 $70 The Office of Investments FY 2010 Performance Attribution Hedge Funds Protected on the Down Side and Continued to Participate on the Up Side PU $154 S&P $134 HFRI $127 6/1/2004 9/1/ /1/2004 3/1/2005 6/1/2005 9/1/ /1/2005 3/1/2006 6/1/2006 9/1/ /1/2006 3/1/2007 6/1/2007 9/1/ /1/2007 3/1/2008 6/1/2008 9/1/ /1/2008 3/1/2009 6/1/2009 9/1/ /1/2009 3/1/2010 6/1/2010 9/1/ /1/

38 18

39 Purdue Endowment Risk Management Reduce Correlation to the Broad Equity Markets (Diversification) Concentrations by geography, sector, vintage year Inflation Hedge (Natural Resources and Fixed Income) Liquidity (Ability to meet Spending Needs and Capital Calls) Individual Manager Exposures (Investment Size Based on Asset Class Risk) Operational Risk (Custodian, Manager, and Counter Party Risk) 19

40 The Office of Investments Purdue Endowment 2010 Due Diligence Manager Contacts Traditional Assets Private Real Estate Natural Resources Hedge Funds Private Equity and Venture Private Equity and Venture Capital 27% Tradational Assets 28% Conference Call 61% Annual Meeting 10% Hedge Funds 25% *As of December 31, 2010 Private Real Estate Natural 11% Resources 9% At Purdue 11% Manager Location 18% 20

41 The Office of Investments Purdue Investment 2010 Due Diligence Manager Contacts Current Managers Contacted % Coverage U.S. Equity % International Developed % Emerging Markets % Public Real Estate % Fixed Income % Private Real Estate % Natural Resources % Hedge Funds % Private Equity and Venture % Total % *As of December 31,

7 $86.0 $73.6 $60.9 $54.2 $51.1 $47.9 $48.5 $53.

42 The Office of Investments Purdue Endowment Historical Annual Distributions $ $ $60.00 $40.00 $20.00 $0.00 $82.2 $83.7 $86.0 $73.6 $60.9 $54.2 $51.1 $47.9 $48.5 $ Distributed $641 Million in the Last 10 Years 22

43 The Office of Investments Purdue Endowment $86.0 Million Scholarships and Fellowships 27% Construction 7% Instruction and Research 53% Loans and Student Awards 13% 23

44 The Office of Investments Purdue Endowment 12 Quarter Average Compared to the Monthly Unit Value Dec 10 Jun 10 Dec 09 Jun 09 Dec 08 Jun 08 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

45 Cash Management Investment Pool Overview 25

46 Cash Management Investment Pool Market Value June 30 $1,250 $1,000 $750 $709 $751 $788 $926 $906 $928 $933 $998 $1,062 $992 $1,030 $500 $250 $ * Does Not Include the Quasi Endowment 26

47 The Office of Investments Cash Management Investment Pool (CMIP) Fixed Income Investment Portfolio Collects and Invests Operating Funds 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 27

48 The Office of Investments Cash Management Investment Pool Asset Allocation December 31, 2010 Agency 14% Corporate 30% Treasury 15% Mortgage Backed 17% Asset Backed 3% Total Cash and Cash Equivalents 21% 28

49 The Office of Investments Cash Management Investment Pool Asset Allocation December 31, 2010 Asset Class Policy Range Actual Cash and Cash Equivalents $50M 100% 21% US U.S. Treasury Bills, Notes, Bonds, and Agencies 0 100% 29% Corporate Bonds 0 50% 27% Mortgage Backed Securities 0 30% 17% Asset Backed Securities 0 25% 3% High Yield Bonds, Including Bank Loans 0 5% 3% 29

50 The Office of Investments Cash Management Investment Pool Due Diligence Full Time Office of Investment Staff Dedicated to Oversight DailyMonitoring of InvestmentActivities Quarterly Manager Reviews CMIP Holdings Internal Watch List 30

51 The Office of Investments Cash Management Investment Pool Calendar Year 2010 Return: 4.91 Percent Benchmark 3.89 Percent Liquid, Short Duration and High Quality $16.5M General Fund Budget Increasing to $20.5M in FY12 Downward Pressure on Income Based on Interest Rates Income Stream is Lumpy due to Gains and Losses Current Yield is Below 3 percent Offset by Gain and Size of Pool Hedged 20 Percent of Annual Income with Quasi Endowment 31

52 The Office of Investments Cash Management Investment Pool Increased the General Fund Allocation by $4.0 million Positioned for Rising Interest Rates Liquid, Short Duration and High Quality Required Liquidity Daily Cash Requirements Internal Loans Self Liquidity for Variable Rate Bonds 32

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

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