Endowment Fund Report June 30, 2010.

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Presentation transcript:

Endowment Fund Report June 30, 2010

Table of Contents Introduction…………………………………….………………......….1 Endowment History………………………………........................…3 Endowment Growth…………………........................................4 Increases by Component……………………………….............5 Endowment Performance….…………………………………….7 NCSE………………………...…………………………………………..8 Size & Endowment per FTE Student……………………..........9 Investment Performance……………………..……………..….12 Asset Allocation……………………………………………….…15 Gift Flow Rate……………….…………………………………....16 Endowment Spending Rate..…………………………….....…19

Introduction An endowment fund for an educational institution provides long-term continuous support for various programs and services. Lehigh University recognizes the importance of providing enduring financial support through endowment and desires to enhance its endowment position through the procurement of new endowment contributions and the prudent management of its invested funds. Responsibilities The University By-Laws provide that one of the general powers of the Board of Trustees is to oversee the management of the University's endowment and investments. The Board has delegated endowment management responsibility to its Finance Committee. The Finance Committee is responsible for approving and recommending to the Board general guidelines for the management of the University’s endowment and investments. Because sound endowment management policy suggests a clear separation between certain functions such as asset allocation decisions and the determination of endowment spending policy, the Finance Committee has established an Investment Subcommittee that has particular responsibilities for the endowment fund as follows: 1. Fiduciary oversight of the Investment Office. 2. Recommend investment policy guidelines for the endowment and monitor conformance. 3. Recommend asset allocation targets and ranges, and monitor conformance. Due to the increased size, complexity and sophistication of the investment portfolio, the Subcommittee has established an Investment Office with the delegated responsibility to manage the day-to-day operations of the investment program. 1

Trustee Finance Committee Investment Subcommittee Introduction Committee Membership Trustee Finance Committee F. J. Ingrassia, Chair R. L. Brown III M. L. Chrin K. L. Clayton T. J. Healy, Jr. W. F. Hecht M. L. Paley J. R. Perella J. S. Ryan D. E. Singleton III E. J. Sussman M. D. Zisman Lehigh Liaison – Margaret Plympton FFPOC – H. L. Coulmba-Piervallo Investment Subcommittee M. L. Chrin K. L. Clayton J. D. Enslin A. J. Greenwood S. K. Kreider M. L. Paley S. Sethi Lehigh Liaisons – Peter Gilbert, Jennifer Sassani & Mark Siddoway Annual Reporting The Trustee Finance Committee desires to report annually to the Board of Trustees upon the status of the University's endowment fund. These reports will present the general progress and stewardship of endowment at Lehigh. This report will give specific attention to: 1. Historical changes, 2. Performance and comparative data with other colleges and universities, and 3. Policies and procedures. 2

Realized and Unrealized Gains Endowment History The University's Endowment Fund has grown in market value from approximately $791 million at June 30, 2000, to $940 million at June 30, 2010. The value as of March 31, 2011 was $1.07 billion. The market value increase over the past 10 years can be broken down into the following components: Gifts Realized and Unrealized Gains Reinvested Earnings The following three pages highlight the market growth and the components of that growth over the past 10 years. Lehigh Endowment Fund’s 25-year performance history is provided on page 7. The Endowment Fund has returned an average total annual return of 9.9% over the 25-year period, which compares favorably to the composite index of 8.9%. 3

Lehigh University Endowment Fund Growth History 4

Endowment Increase by Components June 30, 2000 through June 30, 2010 Gifts and Other Additions $244,781,000 Investment Performance 323,979,000 Endowment Spending (419,520,000) Increase $149,240,000 5

Lehigh University Endowment Fund Increase by Component June 30, 2000 to June 30, 2010 (in millions) 6

Lehigh University Endowment Fund 25 Year Performance History June 30 Total Return 1986 24.3 1987 20.8 1988 3.3 1989 18.6 1990 8.3 1991 6.1 1992 13.6 1993 15.4 1994 2.1 1995 1996 16.9 1997 21.4 1998 21.8 1999 12.4 2000 19.3 2001 -4.6 2002 -5.7 2003 7.2 2004 16.1 2005 9.5 2006 12.0 2007 15.7 2008 -2.7 2009 -18.3 2010 8.8 9.9% Avg. Annual Return 8.9% Composite Index (65% Equities/35% Bonds) 7

NCSE Comparisons The National Association of College and University Business Officers (NACUBO) and Commonfund have published the NACUBO-Commonfund Study of Endowments® (NCSE). This report is a useful tool for colleges and universities to help evaluate the effectiveness of their endowment policies and investment performance. Lehigh has participated in the NACUBO sponsored Endowment Studies for over three decades. The 2010 Study reports on 850 participating institutions of higher education. The following pages compare various aspects of Lehigh's Endowment Fund with one or more of: a) the universe of all participating colleges and universities; b) participating independent schools; and c) participating institutions of similar endowment size of $500 million to $1 billion and greater than $1 billion. 8

Endowment Size and Endowment per FTE Student NCSE Comparisons Endowment Size and Endowment per FTE Student Page 10 indicates the growth of Lehigh's Endowment Fund from 2000 to 2010. As of June 30, 2010, the University ranks 67th in endowment size among 850 participating institutions. Lehigh's $148,920 endowment per FTE student does not compare favorably to the $252,807 for independent institutions over $500 million to $1 billion but does compare favorably to $114,155 for all independent institutions. Lehigh continues to rank in the lower half of the list among institutions with which we compete for students (see page 11). The endowment per FTE student for independent institutions with endowments greater than $1 billion is $701,451. 9

NCSE Comparisons 10 Endowment Size: 6/30/2000 6/30/2010 6/30/2000 6/30/2010 Lehigh $791,190,000 $940,430,000 Rank 65 of 568 67 of 850 Institutions Institutions Endowment per FTE Student: 6/30/2000 6/30/2010 Lehigh $137,407 $148,920 Rank (Independent Institutions) 85 of 372 80 of 504 Average - All Schools $44,100 $77,097 Independent Institutions: Over $500 million to $1 billion $106,000 $252,807 Over $1 billion N/A $701,451 All $127,000 $114,155 10

Endowment Dollars per FTE Student Lehigh vs Endowment Dollars per FTE Student Lehigh vs. Aspirational Peers June 30, 2010 Market Value FTE Endowment Institution in 000s Students per Student Rice University 3,786,548 5,475 691,607 University of Notre Dame 5,234,841 11,738 445,974 Emory University 4,694,260 12,930 363,052 Northwestern University 5,945,277 17,272 344,215 Brown University 2,155,330 8,209 262,557 University of Pennsylvania 5,668,937 21,962 258,125 Lafayette College * 580,740 2,379 244,111 Vanderbilt University 3,044,000 12,854 236,813 Cornell University 4,379,000 20,939 209,131 University of Rochester 1,367,878 8,872 154,179 LEHIGH UNIVERSITY 940,430 6,315 148,920 Tufts University 1,213,585 9,531 127,330 Carnegie Mellon University 815,099 10,261 79,437 Georgetown University 1,009,736 15,095 66,892 George Washington University 1,143,582 20,504 55,774 * Lafayette College is included for informational purposes only. 11

Investment Performance NCSE Comparisons Investment Performance Lehigh's endowment return for the ten year period ending June 30, 2010 ranked in the top half performance vs. all endowment funds. Returns for the three and five year periods ending June 30, 2010 ranked in third quarter of all endowments. Performance information can be found on the following two pages. 12

Average Annual Return Ending June 30, 2010 for Each Period 10 Yrs 5 Yrs 3 Yrs 1 Year Lehigh University 3.2% 2.1% - 5.1% 8.8% All Endowment Funds 3.4% 3.0% -4.2% 11.9% LU Rank 222/445 453/650 500/702 691/794 Greater than $1 billion 5.0% 4.7% -3.5% 12.2% LU Rank 43/48 48/51 45/51 49/53 $500 million - $1 billion 3.6% 3.6% -3.9% 11.9% LU Rank 33/57 52/62 48/63 57/65 Independent Institutions 3.4% 3.0% -4.3% 11.8% LU Global Equity N/A 0.6% -8.8% 11.8% MSCI World (net) N/A 0.1% -11.5% 10.2% LU Bonds N/A 2.9% 2.9% 6.8% BC Treas Int N/A 5.3% 7.2% 5.8% LU Composite Benchmark 2.3% 2.2% -5.1% 10.4% Added Value over Benchmark 0.9% -0.1% 0.0% -1.6% 13

LU Investment Performance vs LU Investment Performance vs. All Participating Institutions June 30, 2010 When doing graph if the low point is a positive number you must subtract the high from the low and put the net in the high cell and the low in the low cell. Then format the low cell on the graph to have no fill. LU objective to be in top third over long run. In top quartile in 3, 5 and 10 years – objective achieved and exceeded. Ivy’s handout 10 Years 5 Years 3 Years 1 Year LEHIGH 3.2% 2.1% -5.1% 8.8% High 10.5% 25.4% 17.9% 36.2% 1st Q 4.4% 3.8% -2.7% 13.7% Median 2.8% -4.1% 12.1% 3rd Q 2.4% 1.9% -5.6% 10.2% Low -4.9% -20.0% -34.3% -5.8% 14

Asset Allocation June 30, 2010 15 6/30/00 6/30/10 6/30/00 6/30/10 Equal Equal Equal Equal Weighted Weighted Weighted Weighted LU All Institutions LU All Institutions $500mm - $1billion > $1billion Global Equity 67.0% 62.1% 34.7% 46.0% 35.0% 26.0% Fixed Income 28.9% 23.2% 12.9% 21.0% 14.0% 10.0% Alternative Strategies 3.1% 8.8% 45.5% 26.0% 45.0% 60.0% ST Securities/Cash/Other 1.0% 5.9% 6.9% 7.0% 6.0% 4.0% TOTAL 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 15

Endowment Gift Flow Rate NCSE Comparisons Endowment Gift Flow Rate The endowment gift flow rate measures the percent of the market value increase at June 30 related to gifts received during the year. The percentage can fluctuate significantly depending on the gift activity, such as endowment campaign gifts and large bequests received, in a particular year. The year by year gift flow rate is charted on the following page. Fiscal year 2000 Fiscal year 2010 Lehigh University 2.0% 1.7% Average - All Institutions 4.0% 1.5% Over $1 billion N/A% 1.1% Over $500 million to $1 billion 3.8% 2.1% Independent Institutions 3.2% 1.1% 16

Gift Flow Rate Fiscal Year 2000-2010 17

Endowment Spending Rate NCSE Comparisons Endowment Spending Rate Below are details of Lehigh's spending as a percentage of the current year’s average market value. Lehigh’s spending rate in 2010 was above the NCSE average for all endowments, the average for endowments over $1 billion, and the independent institution average. Further information regarding Lehigh’s spending policy and historic spending rates can be found on the following two pages. FISCAL YEAR 2000 2010 Lehigh University 3.6% 6.2% Average - All Institutions 4.5% 4.5% Over $1 billion 4.2% 5.6% Over $500 million to $1 billion 4.5% 5.7% Independent Institutions 4.6% 4.8% 18

Endowment Spending Rate 2000 - 2010 19

Endowment Fund Spending Policy The Endowment will transfer to the University's Operating Fund annually 5% of the three year moving average market value of the Endowment. On a per unit basis, the transfer will result in a minimum increase of 0% and a maximum increase of 10% over the prior year's payout. For fiscal years 2010 and 2011 the spending amount per share was reduced by 5% and 3%, respectively, of the computed amount in order to minimize the impact on the endowment corpus as a result of the recently challenging economic environment. 20