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Asset Management Committee: December 13, 2012

The Asset Management Committee met on Dec. 13, 2012. Chairman Richard Myers presided. The theme of this meeting was policy review and updating. In addition to the regular performance monitoring reports reviewed in the November 16 teleconference, the following are a few of the reports received and actions taken at the regular meeting:

 

  • The committee received from staff a final report of the asset allocation study conducted by consultant Cambridge Associates (CA). Staff reviewed the key risk factors to the portfolio that were specifically analyzed during the study. The four recommendations CA made were:

    1. Continue the planned reductions of the distributions to the deans and foundation operations to increase the sustainability of the endowment. Modeling showed the endowment portfolio as currently constructed, and with the planned reduction to total distributions, has a reasonable probability of maintaining intergenerational equity.
    2. The CA stress tests of the impact of extreme market downturns indicated the percent of the portfolio represented by illiquid private-capital investments could rise to uncomfortable levels. CA recommended continuing to reduce the current elevated level of private-capital exposure. (The current level is above the strategic allocation as a result of both the market downturn of 2009 and the implementation of a risk-overlay strategy to reduce the impact to the portfolio during a market drawdown. Staff began scaling back new commitments to private capital in 2009 and will continue to do so.)
    3. Changing of the long/short strategies and inflation-hedge benchmarks was recommended to more accurately monitor relative performance.
    4. A reduction of the potential impact of increased market exposure through operations of one of the two overlay strategies was recommended. (Staff will evaluate ways to address this concern and present recommendations to the committee.)

  • Staff presented the annual hedge-fund manager review in which operational issues unique to hedge funds are presented along with some of the important exposures and relative performance of the individual manager and strategy groupings.

  • As a result of 2012 audit recommendations, the valuation cutoff date was changed from 25 days after quarter-end to 60 days to allow more of the managers to report updated market values. After continuing discussions with the auditor, concurrence was reached on reverting to the 25-day valuation cutoff, with an annual audit reconciliation report based on a 90-day valuation. A recommendation for approval was forwarded to the foundation board of directors.

  • Staff reviewed with the committee the management policies and procedures used in managing the Expendable Funds Pool.

  • The investment policy statement was reviewed and updates proposed; the most important change was inclusion of the considerations required by Kansas statutes for investment management decision making by institutions, the UPMIFA Statute requirements. A recommendation for approval was forwarded to the board of directors.

  • The real estate and trust management policies were presented with no updates.

  • A report was presented regarding the quality ratings of the banks utilized by the foundation in excess of the insured deposit limit.

  • The KSU Charitable Real Estate Foundation Board reported the results of its Oct. 29 meeting; no actions were required.

  • Endowment pool annualized returns for the periods ending 9/30/2012 were 12.39 percent, 7.47 percent, 0.93 percent and 8.20 percent for the one-, three-, five- and 10-year periods respectively.

 

If you are interested in learning more about the status of the endowment and the policies and procedures utilized in managing all KSU Foundation assets, please click here: http://www.found.k-state.edu/financials/investments/