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Asset Management Committee: August 17, 2015

Chairman Kevin Lockett presided at the regularly scheduled meeting on August 17, 2015. The following actions were taken:
Meeting minutes for the June 25, 2015 Asset Management Committee were approved.
Staff began by reviewing the breakdown of participants in the endowment pool. Staff noted that the current distribution formula is currently capped at 4.5 percent of purpose and that the total distribution for Fiscal Year 2016 (FY16) is at 5.9 percent given the 1.40 percent management fee charged to the Endowment pool for the operating budget. Staff was clear to state that it’s expected that the management will be lower for FY16 given the policy allowing a part of the operating surplus for FY15 to be used to reduce the management fee.
Staff discussed the cash flow summary to demonstrate how an increase in ending market value was reached despite negative investment returns over FY16. Staff commented that that energy and emerging markets are the primary contributors to unrealized losses in FY16.
Staff introduced the topical discussion for October and stated that it will be focused on the risk overlay and volatility cap strategies.
Staff provided an overview of the asset allocation of the endowment pool and highlighted the current underweight positioning in inflation-sensitive assets and overweight in the growth equity assets, which are both within rebalancing ranges. Staff told the committee that a total of 48 managers are currently being used in the endowment pool, which staff aims to decrease over time. Liquidity of the endowment pool was also discussed and is currently within its liquidity target with uncalled capital and other illiquid investments representing 31 percent of the endowment pool’s end of quarter market value.
Staff reviewed performance of the endowment pool, which performed in-line with its benchmark in the fourth quarter of FY15. Staff also noted that the endowment pool outperformed the benchmark for the second year in a row.
Staff proceeded to review performance for the quarter. The growth engine, which makes up the largest part of the endowment pool, outperformed its internal benchmark. The inflation sensitive allocation trailed its internal benchmark during the quarter. Staff noted that this is only the second quarter over the last 11 that this portion of the endowment pool has underperformed. The diversifiers allocation trailed its internal benchmark. Fixed income outperformed for the quarter. Relative to the Cambridge peer group, performance landed in the second quartile among 66 peer institutions reporting at the time of the meeting.
Staff then reviewed risk and return data along with peer group performance for each allocation within the endowment pool. Staff then discussed risk analysis of the endowment pool in aggregate, which is run internally.
Staff discussed the Watch-List and commented on new additions and upcoming changes pending on-site visits conducted in the near term.
Staff reviewed the Expendable Funds Pool and updated the committee on the market value and policy balance at the end of the quarter. Staff commented that the Expendable Funds Pool underperformed its internal benchmark over the quarter and last year.

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