UNC Sustainability Advisory Committee UNC Investment Fund Overview February 23,

Statutory Endowment of UNC Chapel Hill Other UNC Chapel Hill Affiliated Funds UNC Chapel Hill Foundation Investment Fund, Inc. (“CHIF”) UNC Investment Fund Structure 2 UNC Investment Fund, LLC (“UNCIF”) UNC Management Company, Inc. (“UNCMC”) Manager Controlling Member Other UNC Campuses and Affiliates Other Members UNC Chapel Hill Foundation, Inc.

UNC Chapel Hill Foundation Investment Fund, Inc. (CHIF) As of June 30, UNC Chapel Hill Foundation Investment Fund $2.6 Billion Invested in UNC Investment Fund ($4.1 billion) Foundation Unitholders Scholarships Professorships etc. Endowment Unitholders Scholarships Professorships etc. Foundation Unitholders Scholarships Professorships etc. UNC Chapel Hill Statutory Endowment $1.3Billion UNC Chapel Hill Foundation $268.7 Million UNC Chapel Hill Affiliated Foundations & Other $1.1Billion Arts & Sciences FdnBusiness Fdn Educational FdnLaw Fdn Public Health FdnMedical Fdn Others… (23 Total) UNC Chapel Hill Endowment = $1.3 billion ~ 50% of CHIF ($2.6 billion) ~ 30% of UNCIF ($4.1 billion)

What is an endowment? The gift that keeps on giving - - in perpetuity 4  Established by a gift from a donor −Normally with the legal stipulation that the original gift may never be spent −Almost always designated /restricted to support a specific program or use  The gift is invested in perpetuity with an annual spending distribution supported by the fund’s investment return  The designated university program or department benefits from the annual spending distribution −Spending distributions from funds designated for a program or department cannot be used for any other purpose

UNC Investment Fund Investment Objective 5  Primary Investment Objective  Preserve the inflation-adjusted purchasing power of endowment funds in perpetuity while providing a predictable and growing stream of spending distributions  To accomplish this objective - - the endowment must earn an annualized total rate of return > ~8% over rolling 10-year (and longer) periods  Managing the return volatility of the endowment helps to stabilize the annual spending distribution - - risk management matters Investment Return > Spending + Inflation 8%+ > 5.5% + 2.5%

Socially Responsible Investing by Universities 6 “In the early 1970’s many university endowments were leaders in the SRI space. However, over the past 40 years, they have fallen well behind the larger SRI community. The current state of university endowments can be characterized as having severely low transparency levels and limited involvement in SRI.” (1) (1) from “Report on Options For Incorporating Sustainability into Investment Practices” issued in September 2014 by the UNC Sustainability Advisory Committee, Sustainability Investment Options Sub-Committee

Evolution of Endowment Investing by Large Universities “Endowment Model” Of Investing 7 Most universities with endowments >$2 bn employ the investment approach referred to as the “Endowment Model” of investing  Pioneered by Yale and other large private universities in the 1980’s  Employs a diversified portfolio utilizing multiple asset classes and investment strategies to enhance long-term returns and manage risk  Significant allocations to “alternative assets” - - venture capital, private equity, hedge funds, etc.  Contrasts to more “traditional” portfolios that have mainly direct holdings of stocks and bonds  Typically implemented utilizing commingled vehicles managed by external investment management firms

UNC Investment Fund Investment Implementation 8  UNCIF has a significant allocation to alternative strategies: ­30% SIPP allocation target to hedge funds and other “uncorrelated” strategies ­33% SIPP allocation target to “private” strategies  UNCIF is highly diversified ­Over 100 external investment management firms manage a portion of UNCIF  > 90% of UNCIF’s assets are invested in “commingled” funds (invested alongside other investors) ­the Fund’s external investment managers generally have full discretion over their respective portfolios  Allocations to “alternative” asset managers limit portfolio transparency ­UNCIF enters into confidentiality agreements ­Transparency from some managers is limited and / or delayed

The Fund has achieved its long-term objective across all periods For the longer-term , 15, and 20 year periods - - a more traditional equity/bond portfolio has fallen short of this target UNCIF Long-Term Performance As of June 30, (1)70% MSCI ACWI / 30% Barclays Aggregate U.S. Bond (1)

UNC Investment Fund Board of Directors: Roles and Responsibilities 10  UNCIF’s Board is tasked with:  Achieving the Fund’s primary investment objective… -Preserve the inflation-adjusted purchasing power of endowment funds in perpetuity while providing a predictable and growing stream of spending distributions  …to meet the requirements of  CHIF members - - foundations across campus  UNCIF members - - universities across the UNC System  And the 1,000’s of donors who contributed to the endowment to support University programs Endowments provide vital support to various University programs

UNC Chapel Hill BoT Clean Energy Resolution September WHEREAS, the Board of Trustees of The University of North Carolina at Chapel Hill (University) recognizes the University’s role in seeking solutions to global issues using the educational, research and financial resources of the University; and WHEREAS, through the investment of the University’s endowment funds the University can influence the development of environmentally friendly alternative energy sources; and WHEREAS, investing in the development of environmentally friendly alternative energy sources promotes economic growth, energy independence and environmental and public health. NOW THEREFORE BE IT RESOLVED, the Board of Trustees of The University of North Carolina at Chapel Hill requests that UNC Management Company, research targeted investments for the University’s endowment assets that advance environmentally friendly clean energy strategies consistent with applicable asset allocation and investment objective policies.

BoT Clean Energy Resolution Proposed Action Plan 12 Define Clean Energy First order: wind, solar, biofuels, hydro, wave and tidal, geothermal Second order: energy conversion, storage, conservation, efficiency, materials, pollution control, emerging hydrogen, fuel cells Assess Current Exposure Identify Investable Universe Information Gathering Public Portfolio Private Portfolio Relative to Fund’s investment objectives Public markets Private markets Peer institutions – what they are doing (or have chosen not to do) Industry conferences Investment consultants Systematic refresh of the steps above