2015 ANNUAL REPORT OF THE INVESTMENT COMMITTEE David Cooper Chief Investment Officer Purdue Research Foundation
FY 2015 Market Value Comparison PURDUE MARKET VALUES (IN MILLIONS) $2,473 $2,398 $2,500 $2,182 $2,000 $1,633 $1,917 $1,736 $2,000 $1,457 $1,787 $1,494 $1,341 $1,500 $1,000 $500 $0 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 BIG TEN MARKET VALUES (IN MILLIONS) $10,193 $9,952 10000 8000 6000 $3,636 $3,634 $3,297 4000 $2,465 $2,398 $2,388 $2,275 $1,974 $1,538 $1,263 2000 $1,002 $986 0 2 Source: Market Values as of June 30, 2015 NCSE Study
Financial Market Returns Returns for Selected Indices (in percentages) Asset Class Returns Fiscal Year Ending June 30, 2015 24.9 25.0 13.4 10.6 15.0 8.8 7.4 6.5 4.1 2.3 0.8 5.0 -5.0 -4.8 -5.3 -15.0 -25.0 -23.7 S&P 500 U.S. Large Cap U.S. Large Cap U.S. Small Cap International Emerging Private Equity Venture Real Estate Commodities Treasuries Inv. Grade Value Growth Capital Corpates Since the End of the Fiscal Year……….. Asset Class Returns As of January 31, 2016 10.0 3.0 0.8 0.0 NA NA NA -4.1 -10.0 -4.8 -8.2 -13.5 -20.0 -16.8 -22.6 -30.0 -24.8 S&P 500 U.S. Large Cap U.S. Large Cap U.S. Small Cap International Emerging Private Equity Venture Real Estate Commodities Treasuries Inv. Grade Value Growth Capital Corpates Source: Cambridge Associates Note: Returns are based in U.S. Dollars 3
FY15 NACUBO Endowment Study FOR FISCAL YEARS ENDED JUNE 30 One Year Three Year Five Year Ten Year 2.4 10.4 10.2 6.7 Purdue University Top Decile 7.8 11.7 11.1 7.9 Top Quartile 3.7 10.9 10.6 6.9 All Institutions Median 2.2 9.8 9.5 6.2 Public Endowments 2.5 10.1 9.7 6.5 Over $1.0 Billion 4.3 10.8 10.4 7.2 All Private Colleges and Universities 2.4 9.9 9.8 6.3 Target Benchmark* 0.6 9.2 9.3 5.5 *28 percent R3000 + 13 percent MSCI EAFE + 5 MSCI Emerging markets + 25 percent HFRI Diversified Index + 7 percent Cambridge Private Natural Resources Index + 7 percent MSCI World NR Index + 15 percent Barclays Aggregate Bond Index Source: 2015 NCSE Study 4
Outperformance vs. Target Benchmark Trailing 3-Years Trailing 5-Years 15.0 15.0 Purdue Purdue 10.0 10.0 Return (%) Return (%) Target Target Benchmark Benchmark 5.0 5.0 0.0 0.0 0.0 5.0 10.0 15.0 20.0 0.0 5.0 10.0 15.0 20.0 Annualized Standard Deviation (%) Annualized Standard Deviation (%) Trailing 3-Years Trailing 5-Years Return(%) Vol.(%) Sharpe Beta Return(%) Vol.(%) Sharpe Beta Purdue 10.4 4.9 2.03 0.54 10.2 7.6 1.30 0.54 Target Benchmark 9.2 5.8 1.55 0.65 9.3 8.8 1.04 0.64 Source: Cambridge Associates, Calculations are based on monthly data net of fees 5
FY 15 Asset Allocation Over $1.0 Policy Range Asset Class Policy Targets Purdue Actual Over $1.0 Billion Variance 10-35% U.S. Equity 18.0% 21.1% 13.0% 8.1% 5-20% Non-U.S. Equity 13.0 13.8 11.4 2.4 0-10% Emerging Markets 5.0 6.6 7.6 (1.0) 15-65% Total Equities 36.0 41.5 32.0 9.5 2.5-7.5% Private Equity 5.0 6.6 15.0 (8.4) 2.5-7.5% Venture Capital 5.0 5.6 7.0 (1.4) 10-30% Hedge Funds 25.0 24.6 21.0 3.6 2-10% Real Estate 7.0 5.7 7.0 (1.3) 0-10% Natural Resources 7.0 4.4 7.0 (2.6) 17-65% Total Alternatives 49.0 46.9 57.0 (10.1) 10-20% Fixed Income/Cash 15.0 11.6 11.0 0.6 100.0% 100% 100.0% 0.0% Source: 2013 NCSE Study *Manager counts reflect the current active managers 6
FY16 Performance Update ENDOWMENT RETURNED -7.5% FOR THE FISCAL YEAR-TO-DATE AS OF JANUARY Asset Class 5.0 1.8 0.2 0.0 -5.0 -7.5 -10.0 -8.3 -8.9 -15.0 -14.6 -20.0 -20.8 -25.0 Total Assets U.S. Equity International Emerging Hedge Funds Public Real Fixed Income Estate Contributors: Public Real Estate Fixed Income Detractors: Equities Hedge Funds 7
FY 16 Performance Update FY15 = 2.4% Current FY16 = -7.5% Probabilities Expected returns -13% -3% 7% 17% 27% With an expected long term rate of return of 7% and a standard deviation of 10%: Any given year, approximately 2/3 of the time, the portfolio is expected to return between -3% and +17%. Approximately one in seven years, the portfolio is expected to return between -13% and -3%. Purdue’s fiscal year-to-date performance is -7.5 percent. Given the Endowment’s goal of spending plus inflation, the portfolio needs to take market risks and should be expected to experience volatility at times. 8
PURDUE INVESTMENT POOL - CASH
PIPC Characteristics Fixed income investment portfolio Collects and invests operating funds • • Daily liquidity needs of the University Dollar in dollar out - No risk to the participant • • Student fee and state appropriations PIPC Loan Fund • • restricted to fixed income by state statutes Self liquidity support for variable rate debt General Fund Budget Support • • PIPC Market Value $1,514 $1,750 $1,277 $1,315 $1,500 $1,217 $1,030 $1,110 $1,062 $992 $998 $1,250 $928 $933 $1,000 $750 $500 $250 $0 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY15 For Fiscal Years Ended June 30, Market Value does not include the Quasi Endowment 10
PIPC Investment Results Asset Class (as of June 30, 2015) Policy Range Actual Cash and Cash Equivalents $50M – 100% 29% U.S. Treasury Bills, Notes, Bonds, and Agencies 0 – 100% 30% Corporate Bonds 0 – 50% 26% Mortgage-Backed Securities 0 – 30% 10% Asset-Backed Securities 0 – 25% 5% Funds placed with external managers – FY15 return: 1.32% - Benchmark 1.06%, CY return: 0.63% - Benchmark – 0.47% FYTD return through January 31, 2016: 0.20% - Benchmark 0.88% – $293 million Quasi Endowment – Liquid, short duration and high quality – Continued downward pressure on income based on interest rates – Current yield is 1.69 percent – Offset by gains and size of pool – 11
PIPC Annualized Returns FOR FISCAL YEARS ENDED JUNE 30 1-year 3-Years 5-Years 10-Years 4.5% 3.8% 4.0% 3.2% 3.5% 3.0% 2.3% 2.5% 1.9% 2.0% 1.5% 1.3% 1.5% 1.2% 1.1% 1.0% 0.5% 0.0% PIPC Benchmark 12
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