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Asset management committee: August 18, 2016

Chairman Stephen Lacy presided at the regularly scheduled teleconference meeting on August 18, 2016. The following actions were taken:

Meeting minutes for the June 19, 2016 Asset Management Committee meeting were approved.

Staff began by presenting the Investment Transaction and Valuation report, which provides the year-over-year change in assets to which the Committee has fiduciary responsibility.

Staff than reviewed the breakdown of participants in the Endowment Pool (EP). Staff noted that the current distribution formula is currently capped at 4.5% of purpose and that the total distribution for Fiscal Year 2017 (FY17) will be 5.9% given the 1.40% management fee charged to the Endowment Pool for the operating budget. Furthermore, Staff provided the EP Fiscal YTD Cash Flow summary, which itemized the year-over-year change in balance, and noted that distributions outpaced the cash contributions coming into the pool in FY16.  

Staff provided an overview of the asset allocation of the Endowment Pool and highlighted the current underweight positioning in Deflation Hedge and Inflation Hedge assets and an overweight in the Diversifiers assets. Staff discussed target allocations versus actual allocations for the Endowment Pool and Staff’s views on rebalancing the portfolio in the current market environment. Staff highlighted the three return objectives of the EP, including the absolute, relative, and comparative objectives. The EP trails the absolute and relative objective over the 10 year period. The EP slightly underperformed the relative objective for the quarter.  However, over the 1-year, 3-year, and 5-year time periods, the EP has achieved outperformance on a relative basis.  Staff also compared returns to other university endowments with data provided by Cambridge Associates. Performance ranks in the first quartile over the last one year. Performance ranks in the second quartile over the last three and five years. Performance ranks in the third quartile over the last 10 years.

Staff proceeded to review performance for the quarter. The EP was up 1.96% in the fourth quarter of the 2016 fiscal year and underperformed the Endowment Pool Benchmark (EPB) by -0.70%. The EPB was up 2.66%. Exposure to Venture Capital, Managed Futures, Private Energy, and Real Estate (Public and Private) were the main contributors to relative results during Q4. 

Staff then reviewed risk and return data along with peer group performance for each allocation within the Endowment Pool. Staff discussed the Watch-List and commented on new additions and removals. Staff also discussed upcoming changes pending on-site visits with investment managers being 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 provided an overview of new revenue business plan and discussion followed.

Chairman Lacy concluded the meeting with a discussion regarding the format of September Asset Management Committee meeting. Staff explained that the Committee will spend a bulk of the time in September reviewing the distribution model as it stands today and alternative models to consider.