Rice Management Company

The Rice Endowment made Rice the university it is today. 2 In 1904, William Marsh Rice left $4.6 million to found The Rice Institute. Rice was tuition-free from 1912 to Today 62% of students receive financial aid and Rice’s tuition is still significantly lower than peers. Even after building a campus, funding decades of free tuition, financial aid and operating funds, the Rice Endowment remains one of the largest among private universities.

Rice Management Company Private Universities Ranked by June 30, 2012 Endowment Market Value 3 $Billions 1Harvard30.4 2Yale19.3 3Stanford17.0 4Princeton17.0 5MIT10.1 6Columbia7.7 7Northwestern7.1 8Pennsylvania 6.8 9Chicago6.6 10Notre Dame6.3 11Duke5.6 12Emory5.5 13Washington5.2 14Cornell4.9 15Rice4.4 16USC3.5 17Dartmouth3.5 18Vanderbilt3.4 19New York2.8 20Johns Hopkins2.6

Rice Management Company 4 RankInstitution Number of FTE Students Endowment Assets ($) per FTE Student 1Princeton7,770$ 2,181,998 2Yale11,7851,641,563 3Harvard20,1611,509,616 4Stanford15,1551,124,105 5MIT10,762943,093 6Rice6,001736,310 7Dartmouth6,179564,231 8Notre Dame11,867533,401 9Washington12,694411,690 10Northwestern18,030394,819 Private Universities Ranked by Endowment Assets per Full-Time Equivalent (FTE) Student – FY 2012

Rice Management Company CONFIDENTIAL Population: Private Schools with endowment market values > $2.0 B. Notables not reporting: Columbia, Cornell 5 Source: Cambridge Associates (preliminary flash report of FY2012 data) Figures are self reported

Rice Management Company Endowment Spending – Fiscal Year 2012 Percent of Operating Budget Funded from Endowment Distribution 38 reporting institutions with endowments > $1 Billion Source: Cambridge Associates Annual Analysis of College and University Investment Pool Returns

Rice Management Company Endowment Values Compared to Purchasing Power Target 7

Rice Management Company Endowment/Foundation Goals: Achieve Investment Returns in Excess of Spending and Inflation 8 Return - Inflation - Spending > 0 8% - 2.5% - 5.5% > 0

Rice Management Company * 35% Russell 3000 / 35% ACWI ex US / 30% Barclays Capital Aggregate Bond Index How Have We Been Doing? - Passive portfolios have not kept up with spending and inflation 9

Rice Management Company 10 Historical Returns Make the 8% Hurdle Seem Reasonable

Rice Management Company Forecasted Returns Make Earning 5.5% real or 8% after inflation difficult 11

Rice Management Company Modern Portfolio Theory Argues for Adding Uncorrelated Asset Classes To Improve Return or Diminish Risk 12

Rice Management Company Rice Has Moved from Stocks and Bonds Towards Alternatives 13 US Stocks International Stocks Fixed Income & Cash Hedge Funds Venture Capital & Private Equity Real Assets Opportunistic

Rice Management Company Hedge Funds Are No Longer An “Undiscovered” Asset Class 14

Rice Management Company As Hedge Fund AUM Has Grown, Correlation with the S&P Has Risen 15

Rice Management Company Private Equity Funds Are Also Proliferating 16

Rice Management Company Clearly we live in interesting times…..so what is a long-term investor to do? 17

Rice Management Company Equities Outperform Bonds Over Long Time Periods 18

Rice Management Company Market Timing Is a Losing Game – Create a Plan and Stick To It 19

Rice Management Company Fees Matter To Wealth Creation 20

Rice Management Company The Rice Endowment believes a long-term portfolio should be: Equity-oriented Diversified Invested in real assets (real estate/natural resources) Value focused and valuation sensitive Fee sensitive Partnered with managers who have a real investment edge 21

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