UWINCO Board Update and Investment Performance Quarterly Report Quarter Ended September 30, 2017

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1 STANDING COMMITTEES F 9 Finance and Asset Management Committee UWINCO Board Update and Investment Performance Quarterly Report Quarter Ended September 30, 2017 INFORMATION This item is being presented for information only. Attachment UW Quarterly Investment Performance Report as of September 30, 2017 F 9/201-18

2 University of Washington Quarterly Investment Performance Report University of Washington Investment Management Company Published December 2017 ATTACHMENT

3 University of Washington Quarterly Investment Performance Report Table of Contents UW Financial Assets Overview Consolidated Endowment Fund (CEF) Asset Allocation CEF Performance Summary CEF Performance Update CEF Activity and Campus Support From Investments CEF Exposures Invested Funds Portfolio Summary

4 UW Financial Assets Overview 1 ($ Millions) Total Assets $5,338 Endowment & Similar Funds Operating 2 & Reserve Funds Endowment Funds $2,608 IF - Short & Intermediate-term Pools 3 $1,652 IF - Long-term Pool IF - Capital Assets Pool 5 Endowment & 138 Consolidated Endowment Fund $3,237 Similar Funds Bond Retirement & Building Funds 6 20 Life Income Trusts 104 $3,511 Operating & Bond Proceeds and Reserves 7 17 Outside Trusts 116 Reserve Funds Non-CEF Endowments 16 $1,827 Permanent Fund 4 38 $3,511 $1,827 1 Assets whose management falls under the auspices of the Finance & Asset Management Committee of the Board of Regents, excluding Metro Tract and Forest Trust Lands. 2 Invested Funds (IF) Long-term Pool holds units of the Consolidated Endowment Fund (CEF) valued at $629 million. To avoid double counting, the dollars are included only in the CEF total. 3 Excludes general operating account balances of $30 million held to meet the next day operating expense payments. 4 Proceeds from sale of land grants and subsequent investment returns on deposit with the state of Washington. 5 Invested Funds (IF) Capital Assets Pool (CAP) consists of UW internally financed projects. 6 Bond Retirement Fund and Building Fund on deposit with the state of Washington. 7 Debt service reserve funds and construction project funds which have not yet been disbursed. 1

5 CEF Asset Allocation ($ Millions) Total CEF $3,237 Absolute Return 17% Fixed Income 9% Emerging Equity 20% Current Allocation Emerging Equity $632 20% 17% Developed Equity 1,177 36% 30% Private Equity % 15% Real Assets 184 6% 5% Opportunistic 54 2% 3% Policy Target Range Capital Appreciation $2,413 75% 70% 55% - 85% Real Assets 6% Absolute Return % 19% Fixed Income 283 9% 11% Capital Preservation $824 25% 30% 15% - 45% Private Equity 11% Developed Equity 36% Consolidated Endowment Fund* $3, % * Uncalled capital commitments: 13% Opportunistic 2% Note: Percentages may not sum due to rounding. 2

6 CEF Performance Summary Rolling Year Returns (%) Fiscal Year 1 Returns (%) 1 Year 3 Year 5 Year 10 Year 20 Year CEF Return CEF Return Passive Benchmark Passive Benchmark Capital Appreciation Capital Appreciation MSCI ACWI (Net) MSCI ACWI (Net) Capital Preservation Capital Preservation BB/BC Intermediate Gov't Bond BB/BC Intermediate Gov't Bond % MSCI ACWI (Net) + 30% BB/BC Intermediate Government Bond Index 1 The University of Washington fiscal year runs from July 1st to June 30th 2 70% MSCI ACWI (Net) + 30% BB/BC Intermediate Government Bond Index Public Peers with Endowments $1-5 Billion University of Washington Cambridge Associates Median ($ Millions) $5,000 $4,500 $4,000 $3,500 $3,000 Market Value and Distributions Over 20 Years CEF Campus Distributions CEF Market Value $2, % 12.5% $2, % 5.6% 9.3% 8.0% 4.6% 4.5% $1,500 $1,000 $500 1 Year 3 Year 5 Year 10 Year 2nd Quartile 1st Quartile 1st Quartile 2nd Quartile $0 3

7 CEF Performance Update Rolling Returns % Quarter CYTD 1 Year 3 Year 5 Year 10 Year CONSOLIDATED ENDOWMENT FUND Passive Benchmark CAPITAL APPRECIATION MSCI ACWI (Net) Emerging Equity Developed Equity Opportunistic (started 7/1/2010) Subtotal MSCI ACWI (Net) Private Equity PE Benchmark Real Assets RA Benchmark CAPITAL PRESERVATION BB/BC Intermediate Government Bond Absolute Return Policy Benchmark Fixed Income BB/BC Intermediate Government Bond MARKET INDICES S&P Russell MSCI EAFE MSCI EMF BB/BC High Yield % MSCI ACWI (Net) + 30% BB/BC Intermediate Government Bond Index 2 Reported on a quarter lag 3 Preliminary 4

8 CEF Activity and Campus Support Rolling Years FYTD 2018 FY 2017 FY Year 5 Year 10 Year 20 Year Beginning Balance $3,144 $2,968 $3,076 $2,875 $2,177 $2,166 $700 Endowment Gifts ,219 Transfers Operating Funds (0) (163) (25) (107) Total Additions $16 ($61) $88 $163 $501 $997 $1,712 Net Investment Return (55) 618 1,209 1,211 2,564 Distributions to Unit Holders (29) (113) (113) (335) (520) (909) (1,419) Internal Fees Advancement Support (6) (23) (23) (67) (104) (183) (251) Investment Administration (1) (6) (6) (17) (26) (46) (68) Ending Balance $3,237 $3,144 $2,968 $3,237 $3,237 $3,237 $3,237 Net Investment Return $114 $378 ($55) $618 $1,209 $1,211 $2,564 Less: Passive Return 1 (117) (351) 34 (515) (984) (1,028) (1,947) Less: Investment Administration (1) (6) (6) (17) (26) (46) (68) Net Active Management ($4) $21 ($26) $86 $200 $137 $548 CEF Distributions to Unit Holders ,419 Advancement Support from CEF Invested Funds Distributions Total Campus Support $35 $177 $185 $536 $833 $1,527 $2, % MSCI ACWI (Net) + 30% BB/BC Intermediate Government Bond Index ($ Millions) CEF Activity Active Management Contribution Campus Support from Investments 2 Invested Funds Distributions are made annually in June. 5

9 CEF Exposures Exposure by Strategy Short-Term Liquidity as a % of CEF 2017 Emerging Developed PE RA * Absolute Return FI 2016 Emerging Developed PE RA * Absolute Return FI 80% 2015 Emerging Developed PE RA * Absolute Return FI 44% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% PE = Private Equity; RA = Real Assets; * = Opportunistic; FI = Fixed Income 22% Weekly Monthly Quarterly 1 Year Geographic Exposure* Equity Sector Exposure Industrials 11% Information Technology 18% Materials 5% North America 59% 2nd Quartile EM Asia 15% Healthcare 9% Telecom 2% Utilities 2% Cash 2% Dev Europe & Middle East 11% EM EMEA 3% EM LatAm 4% Japan 5% Dev Asia ex Japan 3% Financials 19% Energy 10% Consumer Discretionary 14% Consumer Staples 8% *Foreign currency exposure: 36%. 6

10 Invested Funds (IF) Portfolio Summary Returns (%) Fund Allocation Duration (Years) Range Quarter 1 Year 3 Year 5 Year 10 Year $ Millions Actual Maximum Short & Intermediate Pools Short-term Pool $1,240 51% 10%-40% Weighted Benchmark Intermediate-term Pool % 25%-60% Long-term Pool % 15%-45% IF including LTP IF excluding CAP $2,281 94% Weighted Benchmark Fund Allocation By Pool Capital Assets Pool % 0%-15% IF including LTP 1 & CAP Total Invested Funds $2, % Information Purposes Only 1 Long-term Pool (LTP) is designed to improve the risk profile and/or enhance the IF performance through investment in CEF units or other investment vehicles. 2 Capital Assets Pool consists of UW internally financed projects. 1 Short-term Pool includes $231M of restricted Supplemental Retirement Funds. 2 Long-term Pool consists of CEF units and are included in the CEF market value. 3 Capital Assets Pool (CAP) consists of UW internally financed projects. Mix of Investments Growth of $10,000: Impact of Long-term Pool (LTP) Mortgage Related 18% Cash 4% CAP 6% $14,000 $13,000 $13,097 Long-term Pool 26% Asset Backed 4% Other 0% Sovereign 4% $12,000 $11,000 IF including LTP $12,643 Treasury & Agencies 39% IF excluding LTP $10,000 $9,000 Sep-07 Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 7