2011 ANNUAL REPORT OF THE INVESTMENT COMMITTEE

Transcription

1 2011 ANNUAL REPORT OF THE INVESTMENT COMMITTEE

2 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 $1,457 $1,633 $2,002 $1,000 $500 $

3 PUBLIC BIG-10 & PEERS MARKET VALUES AS OF JUNE 30, 2011 Rank Public Big-Ten Universities Assets Rank Aspirational Peers Assets 1) University of Michigan $7,835 1) University of Texas System $17,149 2) University of Minnesota 2,503 2) University of Michigan 7,835 3) Ohio State University 2,121 3) Texas A&M System 6,999 4) Purdue University $2,002 4) Purdue University $2,002 5) University of Wisconsin 1,873 5) University of Wisconsin 1,873 6) Penn State University 1,725 6) Penn State University 1,725 7) Michigan State University 1,718 7) Georgia Tech 1,620 8) University of Illinois 1,601 8) University of Illinois 1,601 9) Indiana University 1,575 9) University of California-Berkeley 1,055 10) University of Nebraska 1,242 11) University of Iowa 1,044 3 Source: 2011 NCSE Study

4 INVESTMENT POLICY GOAL PERFORMANCE BETTER THAN INFLATION PLUS SPENDING OF 5.0 PERCENT 25.0% 1-year 3-Years 5-Years 10-Years 20-Years 23.7% 20.0% 15.0% 10.0% 5.0% 7.0% 4.7% 4.6% 5.5% 5.8% 4.1% 4.6% 9.7% 7.7% 0.0% Inflation Plus Spending Purdue 4 For Fiscal Years Ended June 30

5 NACUBO ENDOWMENT STUDY FOR FISCAL YEARS ENDED JUNE 30 One Year Three Year Five Year Ten Year Purdue University 23.7% 4.1% 5.5% 5.8% Top Quartile Performance 23.5% 3.9% 4.9% 5.8% All Institutions Median Public Endowments Over $1.0 Billion $501 Million to $1.0 Billion $101 Million to $500 Million S&P 500 Index rd Fastest-Growing University Endowment 5 Source: 2011 NCSE Study

6 PERFORMANCE ATTRIBUTION FISCAL YEAR Purdue s 23.7 percent return outperformed the NCSE Over $1 Billion Mean by 360 bps. Value Added: Overweight U.S. Equity relative to Peers, High Quality Disciplined Rebalancing Underweight Hedge Fund Relative to Policy Value Detracted: Overweight Fixed Income Underweight Natural Resources 6

7 PURDUE ENDOWMENT HISTORY Assets Placed with External Managers First 5% Hedge Fund, Private Equity Venture Investments Direct Investments begin to replace Fund of Funds New Consultant Hired Increased Hedge Funds to 15% Repositioned International Investments Natural Resources Allocation Full Time Office Of Investments Established Increased Real Estate & Natural Resources to 7% Increased Distressed Exposure Rebalanced to Policy Targets No Liquidity Issues 3% High Yield Investment Increased Hedge Fund Exposure to 25% Increased Emerging Markets and Decreased Fixed Income % 75% 50% 25% 0% U.S. Equity International Emerging Hedge Funds Natural Resources Private Equity/Venture Capital Real Estate Fixed Income 7

8 ASSET ALLOCATION AS OF JUNE 30, 2011 Investment Pool Assets Policy Targets Purdue Actual Over $1.0 Billion Over $1.0 Variance Equity (7) 18.0% 21.9% 12.0% 9.9 Non-U.S. Equity (4) Emerging Markets (2) (0.5) Total Equities (13) Hedge Funds (23) Private Equity and Venture Capital (37) (13.2) Real Estate (8) (3.5) Natural Resources (11) (1.2) Total Alternatives (79) (16.0) Fixed Income, High Yield and Cash (4) % 100% 100.0% 8 Source: 2011 NCSE Study

9 CURRENT POSITIONING 1. Reduced the Fixed Income allocation to 12 percent from the policy target of 15 percent 2. Shortened the duration of the Fixed Income to below 3 years by adding active managers 3. Increased the Emerging Market allocation to 7 percent from the policy target of 5 percent in late November Increased the exposure to private Real Estate investments 5. Underweight Hedge Funds to the Policy Target 9

10 2011 DUE DILIGENCE MANAGER CONTACT CHARACTERISTICS Traditional Assets Private Real Estate Natural Resources Hedge Funds Private Equity and Venture Private Equity and Venture Capital 37% Tradational Assets 21% Conference Call 62% Annual Meeting 9% Hedge Funds 18% Natural Resources 12% Private Real Estate 12% At Purdue 11% Manager Location 18% 10

11 ENDOWMENT DISTRIBUTIONS $ $75.00 $50.00 $51.1 $47.9 $48.5 $53.0 $60.9 $73.6 $82.2 $83.7 $86.0 $90.4 $25.00 $ Percent of a 12 Quarter Average Distributed $677.3 Million in the Last 10 Years 11

12 DISTRIBUTION $90.4 MILLION Instruction and Research 43% Loans and Student Awards 13% Construction 7% Cash Management Investment Pool 10% Fellowships 8% Scholarships 19% 12

13 PROPOSED POLICY CHANGES 1. A single manager or affiliated groups of managers will not represent more than 10 percent of the total Endowment s market value. 2. The master trustee/custodian shall handle the voting of proxies and tendering of shares in a manner consistent with the objectives contained in the Investment Policies and in the best interest of the University, reserving the right for the Investment Committee to provide specific directions as it deems appropriate. 13

14 BENCHMARK UPDATE Asset Class Policy Target Benchmark Tracking Error Correlation Hedge Funds 25% CPI U Plus 5% Old Hedge Fund of Fund Diversified Index New Real Estate 7% FTSE NAREIT All Equity REITs Old FTSE EPRA/NAREIT Developed REITs New Natural Resources 7% CPI U Plus 5% Old MSCI World Natural Resources Index New % Combined Endowment Benchmark Old New FY11 Benchmark Variance Old 23.7% 19.0% 4.8% New 23.7% 21.9% 1.8% 14

15 CMIP CHARACTERISTICS Fixed Income Investment Portfolio Daily Liquidity Needs of the University Self Liquidity Support for Variable Rate Debt Collects and Invests Operating Funds Dollar In Dollar Out - No Risk To the Participants Internal Loan Program to Match Revenue and Expenditures CMIP Market Value $1,250 $1,000 $750 $751 $788 $926 $906 $928 $933 $998 $1,062 $992 $1,030 $1,110 $500 $250 $

16 CMIP CURRENT RESULTS Asset Class (as of December 31, 2011) Policy Range Actual Cash and Cash Equivalents $50M 100% 24% U.S. Treasury Bills, Notes, Bonds, and Agencies 0 100% 25% Corporate Bonds 0 50% 25% Mortgage-Backed Securities 0 30% 20% Asset-Backed Securities 0 25% 3% High Yield Bonds, Including Bank Loans 0 5% 3% 16 Calendar Year 2011 Return: 3.5 Percent - Benchmark 3.62 Percent Liquid, Short Duration and High Quality Continued Downward Pressure on Income Based on Interest Rates Current Yield is Below 3 Percent Offset by Gain and Size of Pool Hedged 20 Percent of Annual Income with $200M Quasi-Endowment $16.5M General Fund Budget Increasing to $20.5M in FY13