Presentation to University of South Florida Board of Trustees November 29, 2012 Alan C. Bomstein Chairman USF Foundation Investment Committee Mark E. Brubaker, CFA Managing Director Wilshire Consulting
Asset Allocation and Investment Performance Review USF Foundation s asset allocation is structured to provide diversified exposure to US and Non US public equities, fixed income, private equity and real assets USF Foundation s investment performance ranks favorably versus peers in all time period returns through FY 2011 Preliminary NACUBO results for FY 2012 indicate continued top quartile rankings NACUBO - FY 2011 Return 1 Year 3 Year 5 Year 10 Year USF Foundation 23.6 % 4.8 % 5.3 % 7.2 % NACUBO Universe Percentile Rank 8 th 18 th 26 th 10 th NACUBO Universe Median 19.2 3.1 4.7 5.5 $100 500 Million Peers Median 19.7 2.6 4.4 5.3 Florida Peer Institutions Median 19.7 3.1 4.5 5.8 2
Performance Summary as of September 30, 2012 As of 9/30/2012 QTR 1 YR 3 YR 5 YR 10 YR Inception Endowment Fund 4.7 % 18.6 % 9.6 % 2.2 % 9.4 % 9.5 % Policy Benchmark 4.7 % 18.6 % 10.2 % 2.3 % 8.7 % 9.2 % +/ Benchmark % % 0.6 % 0.1 % 0.7 % 0.3 % Ranking (Percentile) 38 % 10 % 11 % 36 % 5 % Total Endowment Assets $370 Million Asset Class Alloc % 1 Yr 3 Yr 5 Yr 10 Yr Domestic Equity 37 % 30.6 % 14.9 % 2.2 % 9.7 % Wilshire 5000 Index 35 % 29.9 13.2 1.4 8.7 International Equity 24 % 14.8 2.3 4.3 10.2 MSCI ACWI ex US 25 % 15.0 3.6 3.7 10.3 Fixed Income 20 % 13.4 9.3 8.5 7.2 Barclays Agg/ML HY 20 % 11.9 7.8 7.5 5.8 Public Real Assets* 6 % 14.5 8.8 Custom Benchmark 5 % 15.8 10.4 * Real Asset Performance since 9/30/2009. Non Marketable Alloc % Return Private Real Assets (Real Estate, Natural Rs) 3 % Mult: 0.85x Cambridge Universe 5 % Mult: 1.00x Alternatives 10 % IRR: 6.5 % (Private Eq, Venture Cp) Venture Xpert Top Quartile 10 % IRR: 6.3 % -Private Real Assets Net Multiple as of 6/30/2012 due to valuation lag -IRR for Alternatives as of 6/30/2012 3
Endowment Fund Statistics Endowment Fiscal Year End History Cash flow from new funds (outright gifts, pledge receipts, etc.) has fallen since financial crisis of 2008, primarily due to the suspension of the state gift match program Nearly $140 million in cash dividends paid to the University over the last 10 years on investment income of over $195 million Dividend support has been fairly stable despite the volatile market; this is due to the smoothing effect of the 5 year average spending rate methodology Annual returns for Endowment Pool have outperformed policy benchmark in 9 of the last 10 years 4
Asset Allocation and Spending Policy Development USF Foundation Establishes Asset Allocation and Spending Policies Annually With the Following Objectives Maintain and grow real purchasing power and provide intergenerational equity for endowed funds Provide substantial and stable flow of resources to support University of South Florida Improve position relative to peers Spending Policy Governs Dividends and Administrative Fee Cash dividends support endowed chairs, professorships, scholarships, research, and other USF initiatives Investment Committee has set the dividend rate at 4%, based on the five year average market value Administrative fee is set for 2%; provides support for Foundation operations and fundraising costs Determining Portfolio Expected Return Wilshire Expected Return (Index) Expected Alpha From Active Management Total Expected Return USF Target Asset Class Allocation U.S. Equity 35% 7.5% 0.9% 8.4% International Equity 25% 7.8% 2.0% 9.8% Private Equity 10% 10.3% 3.0% 13.3% Core Fixed Income 10% 2.9% 0.5% 3.4% High Yield 10% 5.5% 1.0% 6.5% Public Real Assets 5% 4.4% 1.5% 5.9% Private Real Assets 5% 7.2% 3.0% 10.2% Total Fund 100% 7.5% 1.5% 8.9% Probability (%) 80% 70% 60% 50% 40% 30% 20% 10% 0% Probability of Maintaining Real Market Value of the Fund Spending Assumption: 4% Dividend, 2% Administrative Total Return Expectation: 8.9% 54.3% 57.1% 60.9% Year5 Year10 Year20 5
Investment Committee: Recent Initiatives Domestic Equity Structure Analysis Wilshire analysis of allocation within US equity, indicating a bias to small cap stocks Current market conditions dictate a market-neutral position in small caps, eliminate growth bias Fixed Inc Endowment Asset Allocation Lg Value Proposed Domestic Equity Allocation Real Assets Alternatives Intl Equity Domestic Equity Lg Core Lg Grow Sm Value Sm Grow Action Taken in Domestic Equity Lg Core Lg Value Lg Grow Notable Changes to Investment Managers September 2010 Replaced GMO with Baillie Gifford and Marathon in Developed Intl Equity November 2011 Hired Barrow Hanley to replace Goldman Sachs for Large Cap Value November 2011 Hired Dimensional Fund Advisors to replace Wellington for Emerging Markets Commitments to Private Capital 2011 Committed $6 million to 2011 vintage year private equity and venture capital partnerships May 2012 Committed $7 million to FLAG Energy & Resource Partners III for private real assets November 2012 Evaluating manager commitment for private real estate Revisions and Enhancements to Investment Policy in Operating Portfolio More efficient cash management strategy in response to low interest rate environment Sm Value Sm Grow 6
Appendix 7
Manager Performance as of 9/30/2012 $'000 Comp Target QTR Cal YTD FYTD 1 Year 3 Years 5 Years 10 Years Inception % Allocation % % % % % % % % Endowment Fund (3/31/90) 370,152 100.0% 100.0% 4.7 12.5 4.7 18.6 9.6 2.2 9.4 9.5 Policy Index -- 4.7 13.3 4.7 18.6 10.2 2.3 8.7 9.2 Domestic Equity Comp. (9/30/95) 135,635 36.6% 35.0% 6.0 16.6 6.0 30.6 14.9 2.2 9.7 9.6 Wilshire 5000 -- 6.2 16.0 6.2 29.9 13.2 1.4 8.7 7.5 Sands Capital Mgmt (6/30/99) 19,328 5.2% 8.2 25.0 8.2 35.7 21.3 7.4 11.9 3.8 Russell 200 Growth -- 6.4 18.0 6.4 30.2 14.9 3.6 7.7 0.1 Barrow Hanley (12/31/11) 27,698 7.5% 6.0 13.5 6.0 -- -- -- -- 13.5 Russell 1000 Value -- 6.5 15.7 6.5 -- -- -- -- 15.7 SSgA Russell 1000 Index (6/30/01) 71,381 19.3% 6.2 16.2 6.2 30.0 13.2 1.2 8.3 3.8 Russell 1000 -- 6.3 16.3 6.3 30.1 13.3 1.2 8.4 3.8 Wasatch Advisors (3/31/99) 8,215 4.0% 2.2 15.0 2.2 30.2 14.4 1.0 11.0 15.4 Russell 2000 Growth -- 4.8 14.1 4.8 31.2 14.2 3.0 10.6 4.5 Wilshire Micro Cap -- 7.3 23.8 7.3 35.9 10.3 0.7 11.0 9.7 Wellington Small Cap Value 9,014 2.4% 4.3 11.2 4.3 30.8 -- -- -- 13.6 Russell 2000 Value -- 5.7 14.4 5.7 32.6 -- -- -- 11.4 Fixed Composite (6/30/95) 74,543 20.1% 20.0% 3.8 9.5 3.8 13.4 9.3 8.5 7.2 7.0 Custom Policy -- 3.1 8.0 3.1 11.9 7.8 7.5 5.8 6.6 The C.F. High Quality (6/30/95) 37,138 10.0% 2.8 6.6 2.8 7.8 7.9 7.8 6.3 7.2 Barclays Capital - U.S. Aggregate -- 1.6 4.0 1.6 5.2 6.2 6.5 5.3 6.3 Oaktree Capital (9/30/07) 18,753 5.1% 3.9 10.5 3.9 18.3 11.5 8.2 -- 8.2 ML High Yield Master II -- 4.6 12.0 4.6 18.9 12.6 9.1 -- 9.1 Alliance Bernstein High Inc 18,651 5.0% 5.9 14.2 5.9 20.6 -- -- -- 11.1 Custom Benchmark -- 5.8 10.9 5.8 15.1 -- -- -- 11.0 International Equity Comp. (6/30/95) 90,087 24.3% 25.0% 6.9 11.7 6.9 14.8 2.3-4.3 10.2 6.4 MSCI ACWI ex. US (G) 7.5 10.9 7.5 15.0 3.6-3.7 10.3 5.6 Developed International Composite -- 6.9 11.6 6.9 16.0 2.5-5.2 -- 3.1 Baillie Gifford Intl Growth 33,885 9.2% 7.0 11.1 7.0 17.6 -- -- -- 2.5 Marathon Intl Value 35,173 9.5% 6.8 12.0 6.8 14.4 -- -- -- 3.6 MSCI EAFE Index (N) -- 6.9 10.1 6.9 13.8 -- -- -- 1.5 DFA Emerging Markets (12/31/11) 21,028 5.7% 6.9 12.4 6.9 -- -- -- -- 12.4 MSCI EMF Index (N) -- 7.7 12.0 7.7 -- -- -- -- 12.0 Public Real Assets (9/30/09) 21,037 5.7% 5.0% 3.8 9.7 3.8 14.5 -- -- -- 8.8 Custom Policy -- 4.8 11.2 4.8 15.8 -- -- -- 10.4 Wilmington (9/30/09) 21,037 5.7% 3.8 9.7 3.8 14.5 -- -- -- 8.8 Private Real Assets (3/31/97) 9,845 2.7% 5.0% Calculated Net Investment Multiple: 0.9x Cash Composite (6/30/95) 1,325 0.4% 0.0% 0.0 0.0 0.0 0.0 0.3 0.8 2.0 3.3 Alternative Invest. Comp. (12/31/98) 37,681 10.2% 10.0% Calculated Internal Rate of Return: 6.5% Calculated Net Investment Multiple: 1.2x Source: Wilshire Associates
2012 Asset Class Assumptions Wilshire s asset class return, risk and correlation assumptions are developed based on 10-year forward looking expected rates of return and historical (1926-present) risk and correlation, adjusted to incorporate recent trends Return forecasts reflect market (beta) returns and do not incorporate expected excess returns from active management (alpha) Equity Fixed Income Real Assets Hedge Funds Inflation Non US Core Fixed Public Real Private Real Hedge Funds Hedge Funds US Equities Equities Private Equity Income High Yield Assets Assets Diversified Long/Short Inflation Return 7.50 7.80 10.25 2.85 5.45 4.35 7.20 5.55 7.10 2.00 Risk 17.00 18.50 27.50 5.00 10.00 6.80 10.00 6.25 11.00 1.75 US Equities 1.00 Non US Equities 0.83 1.00 Private Equity 0.75 0.69 1.00 Core Fixed Income 0.29 0.09 0.32 1.00 High Yield 0.55 0.46 0.34 0.24 1.00 Public Real Assets 0.27 0.40 0.31 0.18 0.38 1.00 Private Real Assets 0.30 0.32 0.30 0.18 0.46 0.69 1.00 Hedge Funds Diversified 0.62 0.69 0.42 0.05 0.56 0.27 0.32 1.00 Hedge Funds Long/Short 0.65 0.72 0.43 0.00 0.00 0.27 0.32 0.96 1.00 Inflation 0.10 0.15 0.10 0.12 0.08 0.15 0.10 0.09 0.10 1.00 9