Mr. Kevin Harvey Associate Vice President, Finance Washington State University Foundation 255 East Main Pullman, WA 99164

Transcription

1 101 South Hanley Road, Third Floor St. Louis, Mo February 2, 2012 Mr. Kevin Harvey Associate Vice President, Finance Washington State University Foundation 255 East Main Pullman, WA Dear Kevin: Enclosed please find your Investment Performance Analysis for December 31, It was a mixed year for global equity markets. Domestically, the S&P 500 gained 2.1%, while the Russell 2000 index dropped 4.2%. Overseas, the MSCI EAFE index shed 12.1% and emerging markets tumbled 18.4%. In fixed income markets, the yield on the 10-Year Treasury plummeted from 3.3% to 1.9% during the year. The following table details the December 31, 2011 market value and returns, net of all fees and expenses, over several periods for the Composite Portfolio. The performance figures greater than 1 year are annualized. Portfolio Market Value and Returns (net of all fees and expenses) 12/31/2011 Market Value ($) 1 Month 3 Month 1 Year 3 Year 5 Year F Washington State Univ. 309,289, Since Incept. 03/00

2 Page 2 If you would like to receive the report electronically, please send an to SLH- PA@mercer.com. Please contact Jerry Woodham at if you have any questions regarding the enclosed report. If an address change is required please contact your consultant or SLH-AddressChangesDL@mercer.com. Sincerely, Mercer Investment Consulting, Inc. Gregory S. Frese Head of US TPS Operations

3 MARKET SUMMARY- DECEMBER 2011 HAPPY RETURNS OF THE SEASON TO BONDHOLDERS CAP OFF AN ALREADY GREAT YEAR EU DEBT CRISIS CONCERNS CONTINUED After the major Central Bank agreement to provide US dollar liquidity to European banks buoyed financial markets at the end of November, investors again had to wait on news from Europe. In addition to general anxieties about Europe s path, there were specific concerns about the EU Summit meeting on December 9 th and the scheduled rollover of Italian sovereign debt later in the month. If German leaders were to stay their course on austerity and block efforts to remedy current problems or if Italian bond auctions failed, the European credit crisis and recession would most likely worsen. Spillover effects could offset the improvements that had begun to show up in the US economy and exacerbate the slowing of growth in China and other countries. As events unfolded, the Summit meeting had some encouraging results. Chancellor Merkel of Germany and other EU leaders agreed to a fiscal compact, that is, a new arrangement by which the 17 countries in the eurozone and nine outsiders (countries not using the euro currency) will set budgets and tax policies together rather than individually. The UK, the 10 th outsider, refused to join and voted no. Because EU treaty changes require unanimous approval, the new agreement is relegated to pact rather than treaty status. The objectives of such a fiscal union include the ability to rein in current or future offenders like Greece and stabilize economic growth and the euro, but more importantly to set the stage for a Europe wherein national sovereignty gradually fades away. With economist Mario Monti installed as the new Prime Minister, Italy faced the first of a series of auctions to refinance maturing sovereign debt. After yields on Italian bonds skyrocketed earlier in Q4 due to worries about declining economic conditions and vast holdings of Italian debt by European banks, auction concerns were high. The first auction in late December, with the Italian stock market down more than 20% for the month at the time, offered less risky short term government bills. It was declared a success as yields dropped by almost 50%. The second auction for 10-year bonds raised about 7 billion as opposed to the 8.5 billion top target. Although yields were below recent highs, they flirted with the unsustainable 7% level and provided no reason for market relief or rally. Meanwhile, the European Central Bank warned that 2012 will be a perilous year as economic growth is likely to slow and banks will continue to have difficulty obtaining market financing. Banks in fact rushed to borrow almost 500 million against sovereign debt through a new three-year, low-cost loan program offered by the ECB. Most apparently parked the proceeds at the ECB, preferring to enhance liquidity rather than make new loans. DECENT US ECONOMIC NEWS On the domestic front, investors received encouraging news when Congress approved a two-month extension of the payroll tax cuts, unemployment benefits, and temporary aid to needy families that were all about to expire. Markets now, however, worry how election-year politics might affect decision-making as the new February expiration approaches and as deficit decisions must be revisited. US economic conditions improved according to several measures released in December. The Department of Labor reported that jobless claims fell to the lowest level since February. The unemployment rate fell to 8.6% in November, although some of the decrease was explained by a reduction in the labor force. The Consumer Confidence index rose from a revised 55.2 in November to 64.5 in December and widely exceeded expectations. Similarly, the University of Michigan Consumer Sentiment index rose to a six-month high. The Institute for Supply Management said that the US manufacturing sector expanded again in November for the 28 th consecutive month. US housing starts hit a one-and-a-half-year high in November, and future construction permits were the highest since March Although the Case- Shiller housing index is still showing falling prices, homebuilding stocks soared in December, suggesting that the housing market may be bottoming.

4 BOND MARKETS Investors have watched Treasury yields trend downward for thirty years and reach historic lows in September and early October. Each move lower has challenged even the most savvy bond investors to believe further declines barely possible. While back up above the lows at the start of December, yields again declined to end the month lower. 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 5% 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 1/3/2011 2/3/2011 3/3/2011 Treasury Yields /2/1990 1/2/1993 1/2/1996 1/2/1999 1/2/2002 1/2/2005 1/2/2008 1/2/2011 Treasury Yields /3/2011 5/3/2011 6/3/2011 7/3/2011 8/3/2011 9/3/ /3/ /3/ /3/ yr 10 yr 2 yr 1 yr 3 mo 30 yr 10 yr 2 yr 1 yr 3 mo Source: Data from U.S. Department of the Treasury Note: US Treasury did not issue 30-year bonds from 2/2002 to 2/2006. This meant yet another month of positive returns for longer Treasuries. In 2011, Barclays Treasury Index rose 9.8%, and the 20+-year Treasury Index gained an astonishing 33.84%. Concerns over global impacts of the European debt crisis appear to have overshadowed and even minimalized S&P s downgrade of US debt last August. US Treasuries retained their safe-haven status and rewarded investors handsomely this year. December also saw TIPS yields hit new lows. The reissue of the 4-year plus 9-month TIPS on the 12 th was well-enough attended to drive the real yield down to -0.88%. While the December gain in the Barclays TIPS was a muted 0.04%, the calendar year pick-up was 13.56%. Municipal bonds had a good month and a great year. A continued rally in December culminated in new low yields. Barclays Muni Bond Index rose 1.9% in December and 10.7% for Investors added assets to Muni bond funds each week during the month, as defaults predicted early in the year failed to materialize, new issuance dropped, and Build America bond issuance ended. Corporate bonds fared well in December, with the Barclays AGG index rising 1.1% and the Long-Credit Index jumping 3.86%. Although the AGG and the Long-Credit indices had enviable returns of 7.84% and 17.71%, respectively, for the full year, they noticeably underperformed their government counterparts. Finally with respect to debt securities, we report that mortgage rates, not surprisingly, also fell in December. According to Freddie Mac, the average rate on 30-year mortgages fell from 4.0% at the beginning of the month to a low of 3.91% before ending the year at 3.95%. EQUITY MARKETS Although they did not experience the hoped-for Santa Claus rally, US equity markets at least experienced fewer, less violent price swings than in Q3 and earlier in Q4. S&P 500 volatility, as measured by the VIX, averaged 25 in December compared to averages of 32 to 36.5 in the previous three months and a high of 48 on August 8 th (the first trading day after S&P downgraded US debt). The S&P 500 index ended the month basically where it was one year before, but with reinvested dividends managed to return 1% for the month and 2.1% for the full year. The Dow Jones Industrial Average fared better with total returns of 1.6% in December and 8.4% for the year. Small cap stocks in the Russell 2000 returned 0.7% for the month, while the Russell 2000 Value index gained 1.6% and the Russell 2000 Growth index lost 0.2%. The Russell 2000 Growth component, however, was best small-cap performer for the year losing 2.9% compared to losses of 4.2% and 5.5% for Russell 2000 and Russell 2000 Value, respectively. Large cap and quality stocks, especially in the utility sector, were the best overall performers. Non-US equities continued to suffer and lag the US in December, with the EAFE and ACWI ex-us each losing about 1% as they accumulated annual losses of 12.1% and 13.7%, respectively. The biggest losers, however, were emerging market stocks, which lost another 1.2% in the last month to end the year down 18.4%. Copyright 2012 Mercer LLC. All rights reserved.

5 MARKET UPDATE AS OF DECEMBER 31, 2011 Interest Rates Current Sep-11 Dec-10 Fed Funds Rate Month T-Bill Year Treasury Year Treasury Year TIPS Year TIPS Barclays High Yield OAS Month LIBOR Commodity Prices Current Sep-11 Dec-10 Gold Oil Natural Gas Currencies Current QTD 1 Year Euro, in dollars U.K. Pound, in dollars Yen, per dollar Index Returns Last Week MTD QTD 1 Year DJ U.S. Total Stock Market S&P Dow-Jones Industrial Avg Russell 1000 Growth Russell 1000 Value Russell Russell 2000 Growth Russell 2000 Value MSCI ACWI Index MSCI ACWI ex-us Index MSCI EAFE S&P/Citigroup EMI-EPAC MSCI Emerging Markets Barclays Aggregate Dow-Jones Wilshire REIT DJ-UBS Commodity Index Alerian MLP Index S&P Natural Resources IMPORTANT NOTICES: This contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer s written permission. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. This does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances. Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it. 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6 _ WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 OBJECTIVE: The goal for the portfolio is to achieve 8.0% per year over the long-term. The current portfolio has a long-term expected return 9.1%. Over a ten-year time horizon, the portfolio is expected to return 8.5%. The standard deviation of this portfolio is plus/minus 12.2% over any one year, with the lowest one-year likely return being -19.1%. Sources of Portfolio Growth Last Month Year-To-Date _ Beginning Market Value $313,656,067 $304,318,798 Net Additions/Withdrawals -$3,478,330 -$3,871,320 Investment Earnings -$888,663 $8,841,596 Ending Market Value $309,289,074 $309,289,074 1

7 _ WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Asset Allocation on December 31, 2011 Actual $ Actual % Target % _ US Equity $41,938,290 14% 15% Non-US Equity $54,061,483 17% 20% US Fixed Income $23,859,014 8% 10% Non-US Fixed Income $16,033,584 5% 5% Hedge Funds $59,849,715 19% 20% Real Assets $48,086,963 16% 15% Cash $1,769,822 1% 0% Private Equity $63,690,204 21% 15% Total $309,289,074 Last Month Last Three Months Summary of Cash Flows Year-To-Date One Year Three Years Five Years Inputted Date 7/31/04 Beginning Market Value $313,656,067 $301,655,934 $304,318,798 $304,318,798 $252,376,267 $291,773,217 $205,126,570 - Withdrawals -$4,181,650 -$4,370,917 -$18,366,483 -$18,366,483 -$57,510,269 + Contributions $703,320 $3,185,411 $14,495,162 $14,495,162 $46,834,221 = Net Cash Flow -$3,478,330 -$1,185,506 -$3,871,320 -$3,871,320 -$10,676,048 -$12,061,220 -$3,301,386 + Net Investment Change -$888,663 $8,818,645 $8,841,596 $8,841,596 $67,588,855 $29,577,076 $107,463,890 = Ending Market Value $309,289,074 $309,289,074 $309,289,074 $309,289,074 $309,289,074 $309,289,074 $309,289,074 2

8 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Preformance Name Market Value ($) % of Portfolio 1 Mo 3 Mo Ending December 31, 2011 Inception WASHINGTON STATE UNIVERSITY TOTAL FUND COMPOSITE 309,289, Mar-00 Washington State Policy Index Mar-00 Over/Under US EQUITY 41,938, Mar-00 Dow Jones US Total Stock Index Mar-00 Over/Under GLOBAL EX US EQUITY 54,061, Mar-00 MSCI ACWI ex US (net) Mar-00 Over/Under HEDGE FUND COMPOSITE 59,849, Jun-02 HFR Fund of Funds Jun-02 Over/Under TOTAL FIXED INCOME COMPOSITE 39,892, Mar-00 Barclays Capital Aggregate Mar-00 Over/Under TOTAL CASH COMPOSITE 1,769, Mar Day T-Bills Mar-05 Over/Under LIQUID REAL ASSETS 18,260, Aug-05 S&P North American Natural Resources Sector Index Aug-05 Over/Under ILLIQUID REAL ASSETS 29,826, Aug-05 NCREIF Townsend Blended Index Aug-05 Over/Under TOTAL PRIVATE EQUITY 63,690, May-04 Venture Economics All Private Equity Index May-04 Over/Under XXXXX Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 3

9 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name WASHINGTON STATE UNIVERSITY TOTAL FUND COMPOSITE Market Value ($) % of Portfolio Policy % _ 1 Mo 3 Mo Ending December 31, 2011 Inception Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return 309,289, Mar-00 Washington State Policy Index Mar-00 Over/Under Washington State Broad Policy Index Mar-00 70/30 S&P 500/BC Aggregate Mar-00 WASHINGTON STATE MARKETABLE SECURITIES COMPOSITE* 215,772, Aug-08 Washington State Marketable Securities Policy Aug-08 Over/Under Washington State Broad Marketable Securities Policy Aug-08 TOTAL EQUITY 95,999, Jun-04 US EQUITY 41,938, Mar-00 Dow Jones US Total Stock Index Mar-00 Over/Under US Equity Policy Index Mar-00 CORE US EQUITY 40,775, Mar-00 S&P Mar-00 Over/Under SSgA US Total Market Index SL CTF 10,687, Jan-05 Dow Jones US Total Stock Index Jan-05 Over/Under Cougar Investment Fund 1,382, Aug-01 S&P Aug-01 Over/Under GMO US Quality Equity-III 12,425, Mar-07 S&P Mar-07 Over/Under Since 4

10 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Ending December 31, 2011 Inception Name Market Value ($) % of Portfolio Policy % Vanguard Growth Index Fd 14,588, Jun-09 1 Mo MSCI Prime Market Growth Jun-09 Over/Under LSV Value Equity Fund 1,692, Feb-05 Russell 1000 Value Feb-05 Over/Under SMALL CAP COMPOSITE 1,163, Mar-00 Russell Mar-00 Over/Under LKCM S/C Eq Institutional-In 1,163, Apr-06 Russell Apr-06 Over/Under GLOBAL EX US EQUITY 54,061, Mar-00 MSCI ACWI ex US (net) Mar-00 Over/Under Global ex US Equity Policy Mar-00 Axiom International Equity Fund II 9,932, Jul-08 MSCI ACWI ex USA Jul-08 Over/Under MSCI EAFE Growth Jul-08 Vanguard Institutional Developed Markets Index 8,329, Jul-08 MSCI EAFE Jul-08 Over/Under Silchester International Investors 15,195, Sep-10 MSCI EAFE Sep-10 Over/Under MSCI EAFE Value Sep-10 3 Mo Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 5

11 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % 1 Mo 3 Mo Ending December 31, 2011 Inception Acadian Int'l Small Cap CTF 6,825, Feb-05 S&P EPAC SmallCap Feb-05 Over/Under Mondrian Emerging Markets Equity CTF 7,133, Feb-05 MSCI Emerging Markets Feb-05 Over/Under SSGA MSCI Emerging Mkts Free SL CTF 6,645, Sep-07 MSCI Emerging Markets Sep-07 Over/Under HEDGE FUND COMPOSITE 59,849, Jun-02 HFR Fund of Funds Jun-02 Over/Under Day T-Bill + 4% Jun-02 CORE HEDGE FUND COMPOSITE 16,619, Jun-05 HFR Fund of Funds Jun-05 Over/Under Day T-Bill + 4% Jun-05 Pinehurst Institutional Ltd.Cl C1 Series 1. 6,158, May-06 Silver Creek Low Vol Continuation Fund 5,652, Apr-05 Common Sense Offshore (A) CL A Common Stock 4,808, Jan-05 HFR Fund of Funds Jan-05 Over/Under SATELLITE HEDGE FUND COMPOSITE 43,230, Jun-05 HFR Fund of Funds Jun-05 Over/Under Day T-Bill + 4% Jun-05 Davidson Kempner Inst. Partners L.P. 4,358, Jun-05 Elliott Int'l Ltd. 5,177, Sep-08 Eton Park Overseas Fund Ltd. 4,306, Apr-11 Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 6

12 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % 1 Mo 3 Mo Ending December 31, 2011 Inception Och Ziff Asia Overseas Fund, Ltd. 4,186, Apr-08 Shepherd Investments Int'l Ltd. CL B-2 712, Dec-05 DJCS Multi-Strategy Hedge Dec-05 Over/Under Fir Tree International Value Fund 2,985, Apr-08 DJCS Event Driven Multi-Strategy Hedge Apr-08 Over/Under Anchorage Capital Partners Offshore Ltd. 2,780, Apr-08 King Street Capital Ltd. Series 2 4,004, Jul-07 DJCS Distressed Hedge Jul-07 Over/Under Wexford Offshore Spectrum Fund CL A/C 4,300, Aug-05 DJCS Global Macro Hedge Aug-05 Over/Under JAT Capital Offshore Fund Ltd. 2,853, Apr-11 Southport Energy Plus Offshore Fund Inc. 1,360, Apr-08 Viking Global Equities III Ltd. CL A Series 8E ,187, Dec-05 DJCS Long/ Short Equity Hedge Dec-05 Over/Under Anchorage Short Credit Offshore Fund, Ltd, Cl D 937, Jun Day T-Bill + 4% Jun-07 Over/Under The Canyon Value Realization Fund (Cayman) Ltd. CL A 80, TOTAL FIXED INCOME COMPOSITE 39,892, Mar-00 Barclays Capital Aggregate Mar-00 Over/Under Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 7

13 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % 1 Mo 3 Mo Ending December 31, 2011 Inception US BONDS 14,105, Dec-99 Barclays Capital Aggregate Dec-99 Over/Under Pimco Total Return Fund-Inst 14,105, Jun-09 Barclays Capital Aggregate Jun-09 Over/Under GLOBAL FIXED COMPOSITE 16,033, Jan-06 Citigroup WGBI Jan-06 Over/Under Brandywine Global Fixed Income Portfolio CTF 16,033, Jan-06 Citigroup WGBI Jan-06 Over/Under INFLATION INDEXED BONDS COMPOSITE 9,753, May-00 Barclays Capital US TIPS May-00 Over/Under Inflation Indexed Bonds Policy May-00 SSgA TIPS CTF 9,753, Feb-05 Barclays Capital US TIPS Feb-05 Over/Under TOTAL CASH COMPOSITE 1,769, Mar Day T-Bills Mar-05 Over/Under Cash Account 1,769, Mar Day T-Bills Mar-05 Over/Under Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 8

14 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % 1 Mo 3 Mo Ending December 31, 2011 Inception REAL ASSETS COMPOSITE 48,086, Feb-05 LIQUID REAL ASSETS 18,260, Aug-05 S&P North American Natural Resources Sector Index Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since Aug-05 Over/Under ishares S&P North Amer Natural Resources 3,297, Feb-05 S&P North American Natural Resources Sector Index Feb-05 Over/Under Van Eck Global Assets I 4,671, Mar-10 S&P North American Natural Resources Sector Index Mar-10 Over/Under SSgA TIPS CTF 4,096, Sep-05 Barclays Capital US TIPS Sep-05 Over/Under Vanguard Energy Fund 6,194, Feb-07 S&P North American Natural Resources Sector Index Feb-07 Over/Under ILLIQUID REAL ASSETS 29,826, Aug-05 NCREIF Townsend Blended Index Aug-05 Over/Under Mercer Illiquid Natural Resources Index Aug-05 Commonfund Natural Resources VIII 1,074, Oct-08 Walton Street Real Estate Fund VI 2,718, Apr-09 Beacon Capital Strategic Partners VI 292, Oct-08 Metropolitan Real Estate III 1,726, Mar-05 Timbervest Partners 1,102, Mar-05 Canaan Natural Gas IX 754, Aug-05 9

15 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % 1 Mo 3 Mo Ending December 31, 2011 Inception RREEF America REIT III 1,739, Oct-05 TA Realty VIII 2,029, Nov-06 Legacy Partners Realty Fund II 542, May-06 Hancock Timberland VIII 1,924, Nov-06 Commonfund Natural Resources VII 1,486, Mar-07 Colony Realty Partners II 2,376, Mar-07 THOR Urban Property Fund II 967, Nov-07 DRA Growth & Income Fund VI 600, Jun-07 Savanna Real Estate Fund I 1,552, Nov-07 Berkshire Multifamily Value Fund II 3,015, Feb-08 Quinlan Private European Strategic Property Fund 868, Nov-07 Canaan Natural Gas X 566, Aug-08 Quantum Energy Partners V 194, Oct-08 TA Realty IX 1,904, Feb-10 PIP II Real Assets Tax-Exempt Fund 2,388, Feb-11 TOTAL PRIVATE EQUITY 63,690, May-04 Venture Economics All Private Equity Index May-04 Over/Under Charterhouse Capital Partners IX 1,695, Apr-09 Reservoir Capital Investment Partners 4,376, Oct-08 Sentinel Capital Partners IV 852, Jan-09 Lovell Minnick Equity Partners III 1,555, Oct-08 Tucker Anthony/Park Street Private Equity Fund III 2,082, Nov-00 Commonfund International Private Equity Partners IV 2,684, May-01 Commonfund Private Equity Partners V 2,709, Feb-02 Portfolio Advisors Private Equity Fund III 1,700, Jan-05 Park Street Capital Private Equity VI 1,945, Jan-05 Avalon Ventures VII 936, Feb-05 Montauk TriGuard Fund III 510, Jul-05 Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 10

16 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % 1 Mo 3 Mo Ending December 31, 2011 Inception NB Secondary Opportunities Fund 1,650, Nov-05 VantagePoint Venture ,904, Jan-06 Park Street Capital Private Equity Fund VII 1,841, Jan-06 Wexford Fund X 1,760, Apr-06 Goldman Sachs Vintage Fund IV 1,874, Oct-06 Newbury Secondary Fund 3,101, Dec-06 Costella Kirsch V 3,211, Nov-07 Commonfund Private Equity Partners VII 949, Feb-07 Commonfund International Private Equity Partners VI 1,061, Feb-07 Avalon Ventures VIII 9,441, Nov-07 Commonfund Capital Venture Partners VIII 756, Jul-07 Wexford Fund XI 3,791, Sep-07 Montauk TriGuard IV 1,516, Feb-08 NB Secondary Opportunities Fund II 1,681, May-08 Saybrook Corporate Opportunity Fund 2,051, Aug-08 Great Hill Equity Partners IV 2,002, Sep-08 OCM Opportunities Fund VIII 2,007, Dec-09 Avalon Ventures IX 601, Oct-10 PIP II Private Equity Fund 1,436, Feb-11 Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since 11

17 WASHINGTON STATE UNIVERSITY Monthly Report for December 31, 2011 Composite Performance Name Market Value ($) % of Portfolio Policy % XXXXX *One or more accounts have been excluded from the composite for the purposes of performance calculations and market value. _ 1 Mo 3 Mo Ending December 31, 2011 Inception Fiscal 1 Yr 3 Yrs 5 Yrs 10 Yrs Return Since - Washington State Policy Index = 4.1% Dow Jones US Total Stock Index / 4.9% S&P 500 / 2.5% Russell 1000 Growth / 2.5% MSCI Prime Market Growth / 0.5% Russell 1000 Value / 0.5% Russell 2000 / 8.0% MSCI EAFE / 4.0% MSCI ACWI ex US (net) / 3.0% S&P EPAC SmallCap / 5.0% MSCI Emerging Markets / 5.0% Barclays Capital Aggregate / 5.0% Citigroup WGBI / 6.2% Barclays Capital US TIPS / 20.0% HFR Fund of Funds / 4.8% S&P North American Natural Resources Sector Index / 5.4% NCREIF Townsend Blended Index / 3.6% Mercer Illiquid Natural Resources Index / 15.0% Venture Economics All Private Equity Index - Washington State Broad Policy Index = 15.0% Dow Jones US Total Stock Index / 20.0% MSCI ACWI ex US (net) / 10.0% Barclays Capital Aggregate / 6.2% Barclays Capital US TIPS / 20.0% HFR Fund of Funds / 4.8% S&P North American Natural Resources Sector Index / 5.4% NCREIF Townsend Blended Index / 3.6% Mercer Illiquid Natural Resources Index / 15.0% Venture Economics All Private Equity Index - Washington State Marketable Securities Policy = 5.4% Dow Jones US Total Stock Index / 6.5% S&P 500 / 3.3% Russell 1000 Growth / 3.3% MSCI Prime Market Growth / 0.7% Russell 1000 Value / 0.7% Russell 2000 / 10.5% MSCI EAFE / 5.3% MSCI ACWI ex US (net) / 4.0% S&P EPAC SmallCap / 6.6% MSCI Emerging Markets (Gross) / 6.6% Barclays Capital Aggregate / 6.6% Citigroup WGBI / 8.2% Barclays Capital US TIPS / 26.3% HFR Fund of Funds / 6.3% S&P North American Natural Resources Sector Index - Washington State Broad Marketable Securities Policy = 19.7% Dow Jones US Total Stock Index / 26.3% MSCI ACWI ex US (net) / 13.2% Barclays Capital Aggregate / 8.2% Barclays Capital US TIPS / 26.3% HFR Fund of Funds / 6.3% S&P North American Natural Resources Sector Index - US Equity Policy Index = 30.0% Dow Jones US Total Stock Index / 3.5% Russell 1000 Value / 16.5% Russell 1000 Growth / 30.0% S&P 500 / 3.5% Russell 2000 / 16.5% MSCI Prime Market Growth - Global ex US Equity Policy = 25.0% MSCI Emerging Markets / 15.0% S&P EPAC SmallCap / 60.0% MSCI EAFE - 91 Day T-Bill + 4% = (91 Day T-Bills+.3273) - Inflation Indexed Bonds Policy = 100.0% Barclays Capital US TIPS 12

18 Washington State University December 31, 2011 Fund Inception Commitment Capital Called Remaining Commitment Distributions Capital Account Balance Last Capital Account Statement Capital Account Plus Distributions Multiple of Invested Capital Net IRR Avalon Ventures VII ,350,000 1,357,500-1,000, ,627 9/30/2011 1,937, % VantagePoint Venture Partners ,000,000 2,010, ,000 94,320 1,904,050 9/30/2011 1,998, % Wexford Fund X ,000,000 2,000,000-1,052,492 1,760,269 9/30/2011 2,812, % Costella Kirsch V ,000,000 3,000, ,000 3,211,187 9/30/2011 3,601, % Avalon Ventures VIII ,000,000 2,295, ,000 1,805,137 9,441,409 9/30/ ,246, % Wexford Fund XI ,000,000 3,000, ,791,408 9/30/2011 3,791, % Lovell Minnick Equity Partners III ,000,000 2,182,883 2,168, ,727 1,555,205 9/30/2011 1,987, % Saybrook Corporate Opportunity Fund ,000,000 3,914,414 85,586 2,444,133 2,051,428 9/30/2011 4,495, % Great Hill Equity Partners IV ,000,000 2,270,000 1,730, ,000 2,002,465 9/30/2011 2,836, % Charterhouse Capital Partners IX ,000,000 1,612,983 2,387,017-1,695,543 9/30/2011 1,695, % Reservoir Capital Investment Partners (2008) ,000,000 4,000, ,376,737 9/30/2011 4,376, % Sentinel Capital Partners IV ,000, ,368 1,216, , ,032 9/30/2011 1,008, % OCM Opportunities Fund VIII ,000,000 2,000,000-15,315 2,007,014 9/30/2011 2,022, % Avalon Ventures IX ,000, ,000 1,340, ,626 9/30/ , % Washington State University Direct Private Equity 41,350,000 31,086,148 10,622,422 8,224,952 36,187,000 44,411, % Tucker Anthony/Park Street Private Equity Fund III ,500,000 7,012, ,500 6,581,240 2,082,797 9/30/2011 8,664, % Commonfund International Private Equity Partners IV ,750,000 3,590, ,375 3,130,200 2,684,494 9/30/2011 5,814, % Commonfund Private Equity Partners V ,750,000 3,421, ,125 2,352,967 2,709,834 9/30/2011 5,062, % Portfolio Advisors Private Equity Fund III ,500,000 2,262, ,500 1,061,301 1,700,575 9/30/2011 2,761, % Park Street Private Equity Fund VI ,500,000 2,350, , ,477 1,945,728 9/30/2011 2,833, % Park Street Private Equity Fund VII ,500,000 2,168, , ,982 1,841,635 9/30/2011 2,291, % Commonfund Private Equity Partners VII ,000, ,000 1,093, ,834 9/30/ , % Commonfund International Private Equity Partners VI ,000,000 1,050, , ,061,695 9/30/2011 1,062, % Commonfund Capital Venture Partners VIII ,000, , ,000 7, ,152 9/30/ , % PIP II Private Equity Fund ,000,000 1,500,000 13,500,000-1,436,169 9/30/2011 1,436, % Washington State University Private Equity Fund of Funds 42,500,000 24,893,250 17,606,750 14,471,171 17,168,913 31,640, % Montauk TriGuard Fund III ,350,000 1,188, , , ,204 9/30/2011 1,409, % NB Secondary Opportunities Fund ,000,000 2,775, ,874 1,784,710 1,650,471 9/30/2011 3,435, % Goldman Sachs Vintage Fund IV ,500,000 2,255, , ,115 1,874,170 9/30/2011 2,721, % Newbury Secondary Fund ,000,000 3,320, ,000 1,300,350 3,101,696 9/30/2011 4,402, % Montauk TriGuard Fund IV ,500,000 1,425,000 1,075, ,264 1,516,746 9/30/2011 2,090, % NB Secondary Opportunities Fund II ,500,000 1,845, , ,131 1,681,004 9/30/2011 2,334, % Washington State University Secondaries 15,850,000 12,808,395 3,255,087 6,057,458 10,334,291 16,391, % Total Private Equity 99,700,000 68,787,793 31,484,259 28,753,581 63,690,204 92,443, % 13

19 Washington State University December 31, 2011 Fund Inception Commitment Capital Called Remaining Commitment Distributions Capital Account Balance Last Capital Account Statement Capital Account Plus Distributions Multiple of Invested Capital Net IRR RREEF America REIT III ,700,000 3,700, ,739,828 12/31/2011 1,739, % TA Realty VIII ,000,000 3,000, ,527 2,029,604 9/30/2011 2,158, % Legacy Partners Realty Fund II ,000,000 3,000, ,530 9/30/ , % Colony Realty Partners II ,000,000 4,284, ,222 2,376,400 9/30/2011 2,509, % THOR Urban Property Fund II ,000,000 2,027,780 1,373, , ,182 9/30/2011 1,546, % DRA Growth and Income Fund VI ,000, , ,006 96, ,085 9/30/ , % Savanna Real Estate Fund I ,000,000 2,029, , ,455 1,552,536 9/30/2011 1,897, % Berkshire Multifamily Value Fund II ,000,000 2,758, ,317 25,482 3,015,225 9/30/2011 3,040, % Quinlan Private European Strategic Property Fund ,000,000 2,801, , ,569 9/30/ , % Walton Street Real Estate Fund VI ,000,000 2,982,393 2,017, ,016 2,718,807 9/30/2011 3,209, % Beacon Capital Strategic Partners VI ,000, ,000 2,580,000 11, ,105 9/30/ , % TA Realty IX ,000,000 1,840, , ,005 1,904,620 9/30/2011 2,035, % Washington State University Direct Real Estate 35,700,000 29,442,313 7,120,224 1,942,991 18,607,491 20,550, % Metropolitan Real Estate III ,600,000 2,535,000 65, ,419 1,726,941 9/30/2011 2,079, % PIP II Real Assets Tax-Exempt Fund ,000,000 2,500,000 7,500,000-2,388,761 9/30/2011 2,388, % Washington State University Real Estate Fund of Funds 12,600,000 5,035,000 7,565, ,419 4,115,702 4,468, % Canaan Natural Gas IX ,324,202 1,019, , , ,308 12/31/2010 1,064, % Canaan Natural Gas X ,000, ,000 2,220,000 31, ,460 12/31/ , % Quantum Energy Partners V ,000, ,903 2,669, ,462 9/30/ , % Washington State University Energy 7,324,202 2,130,355 5,193, ,234 1,515,230 1,857, % Commonfund Natural Resources VII ,000,000 1,443, ,000 96,932 1,486,697 9/30/2011 1,583, % Commonfund Natural Resources VIII ,000, ,500 2,092,500 39,918 1,074,692 9/30/2011 1,114, % Washington State University Natural Resources 5,000,000 2,350,500 2,649, ,850 2,561,389 2,698, % Timbervest Partners ,000,000 1,000,000-40,000 1,102,289 9/30/2011 1,142, % Hancock Timberland VIII ,000,000 3,000, ,800 1,924,749 9/30/2011 2,043, % Washington State University Timber 4,000,000 4,000, ,800 3,027,038 3,185, % Total Real Assets 64,624,202 42,958,168 22,528,571 2,933,294 29,826,850 32,760, % Total 164,324, ,745,961 54,012,830 31,686,875 93,517, ,203, % Capital Account Balance reflects capital account balance from last capital account statement adjusted for interim capital calls and distributions. Capital Account Balance does not reflect interest resulting from multiple fund closings. The Net IRR, however, accounts for all cash flows -- including interest. Valuation of non-public securities is performed by the General Partner (GP) given current market and company conditions. Thus the Capital Account Balance, and consequently IRR, reflects GP valuation. There can be no guarantee that such valuations accurately reflect the market value of such securities. 14

20 Important Notices 2012 Mercer LLC. All rights reserved. Please note that this report has been prepared using information provided by third parties, derived by third parties or derived from third party data and/or data that may have been categorized or otherwise reported based upon client direction. Mercer has not independently verified the accuracy or completeness of any information provided by third parties regarding transactions and market values of underlying portfolio holdings. Mercer assumes no responsibility for the accuracy, timeliness or completeness of such information provided by third parties. Performance is reported net of fees unless otherwise noted. The information contained in this report should not be relied upon as the sole basis for investment decisions, and Mercer assumes no responsibility for the consequences of investment decisions made solely in reliance on this information. Historical information should not be relied upon as a predictor of future performance. This report and the information provided in this report (including any recommendations made by Mercer) are confidential and are provided solely for use by Mercer s client. Information contained in this report may not be distributed or disclosed to any third party without the express written consent of Mercer or as required by law or any regulatory authority. If you have questions regarding third party data or direction as it relates to this report, please contact your consultant. Hedge fund market values presented in this report are provided by the fund s manager. In the event that the current period s value is unavailable prior to distribution of the monthly performance report, an estimated market value may be calculated using the prior month end market value and the current month s performance estimate, which are also provided by the fund s manager. Historical index returns not otherwise provided in this report may be provided to the client upon request. Historical Data prior to 9/30/03 provided by Cambridge Associates on a net of fee basis. Data prior to 03/31/00 available on a quarterly basis only. For information on the Capital Account balance and valuation of private equity and real asset investments, please refer to the footnote on the Capital Account Summary. The valuation method for Canaan Natural Gas Parallel Fund IX, LP was changed from Cost to Capital Account valuation on April 1, Returns for the Real Assets Composite are time weighted. A portion of this composite is allocated to Illiquid Real Assets. Mercer s standard practice, as well as the generally accepted industry standard, is to calculate an IRR for these investments, due to the nature in which they are funded and the frequency in which they are valued. See Capital Account Summary for IRR calculations. Inflation Indexed Bonds Policy consists of Citigroup Inflation Index through February 28, As of March 1, 2009 it is changed to Barclays Capital US TIPS. Unless otherwise noted, the portfolio values presented in this report include any interest accrued as of the last trading date of the month reported herein. Values presented in this report for Washington State University s private equity investments equal the sum or difference of the NAV reported by the custodian plus or minus calls and distributions as of the end of the reporting period. These values are estimates and may differ materially from the investment s actual value as of the end of the reporting period. The Cougar Investment Fund s market value has been carried over from July due to the fact that there were no transactions and therefore E-Trade did not produce a statement or market value for August. 15