September 11, 2008 MEMORANDUM TO: Board of Trustees, University of - - PDF document

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September 11, 2008 MEMORANDUM TO: Board of Trustees, University of South Florida FROM: Les Muma, Chair, University of South Florida Foundation RE: USF Foundation Presentation at September 11, 2008 Board Meeting On behalf of the trustees of the USF Foundation, I am pleased at the opportunity to share the attached presentation with you on our endowment investment portfolio. Our endowment is the centerpiece of

• ur Foundation with a total value of $380 million as of June 30, 2008. Our Investment Committee does

a fine job overseeing our portfolio with support from the Foundation’s staff and consultant, Wilshire Associates. We take pride in the Foundation’s returns and the resulting support it provides to USF. In the last nine years, the Foundation’s investment portfolio has provided over $180 million in investment gains while paying out over $106 million in support of USF. Despite the recent downturn in the markets, our endowment remains strong from the gains we have enjoyed in the past. Our short and long term results continue to exceed our benchmarks and rank highly among our peers. The attached presentation shares the objectives and goals of our endowment investments with summaries of our recent performance. We also highlight our asset allocation and risk exposure across sectors and with certain types of investments. I welcome any questions you have on this presentation or any other matter. If there is anything the Foundation can do to help further the mission of USF, please do not hesitate to ask. Go Bulls!

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1

Investment and Spending Policy Objectives

• The USF Foundation has established asset allocation and spending

policies designed to achieve the following objectives

Maintain or grow real purchasing power to provide intergenerational equity Provide substantial and stable flow of resources to support academic, research

and fundraising operations

Improve position relative to peers

• The spending policy governs the dividends and administrative fee

Dividends support chairs, professorships, scholarships, research and other

initiatives at USF

Dividends for fiscal year 2009 will be 4.6% of the 5-year average market value

• f the endowment

The administrative fee supports the Foundation’s fundraising and operating

expenses and is 2.0% of the endowment’s 5-year average market value

• The Foundation’s investment policy is in compliance with USF’s investment

policy

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Investment Results

• The USF Endowment’s long-term performance has been strong, relative to benchmarks and peers
• Since beginning FY 2000 with $187 million in assets, the Endowment has generated $182 million

in investment gains and $106 million in spending

• Endowment assets as of June 30, 2008 = $381 million

9-Year Totals 2008 2007 2006 2005 2004 2003 2002 2001 2000 USF Endowment Return (%)

• 6.0

19.8 12.6 13.0 19.8 4.1

• 2.6

2.5 13.7 Policy Index Return (%)

• 6.6

18.3 11.3 11.0 18.4 3.3

• 7.0
• 7.2

6.7 Investment Gain/Loss ($ mm) 181.5 $ (25.9) $ 65.0 $ 36.5 $ 32.5 $ 42.8 $ 6.9 $ (6.4) $ 6.4 $ 23.7 $ Dividends Distributed ($ mm) 106.1 $ 14.2 $ 12.3 $ 12.1 $ 12.8 $ 12.2 $ 12.5 $ 11.6 $ 10.3 $ 8.2 $ 1 year 3 Years 5 Years 10 Years USF Endowment Return (%)

• 6.0

8.2 11.4 8.1 Policy Index Return (%)

• 6.6

7.1 10.1 6.0 Wilshire E&F Percentile Rank 64th 32nd 14th 10th 1 year 3 Years 5 Years 10 Years USF Endowment Return (%) 19.8 15.1 13.7 10.6 NACUBO Top Quartile 19.0 14.0 12.4 9.5 Source: Wilshire and 2007 NACUBO Endowment Study. NACUBO is the National Association of College and University Business Officers representing 785 higher education institutions with over $411.2 billion in endowed assets. The 2007 study is the most recent report available; the 2008 report will be shared when available. Fiscal Year Ending June 30 Periods Ending June 30, 2008 Periods Ending June 30, 2007

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10-Year Return/Risk

• The USF Endowment has generated attractive risk-adjusted returns over the

past 10 year period:

2.00 2.30 2.60 2.90 3.20 3.50 3.80 4.10 4.40 4.70 5.00 5.30 5.60 5.90 6.20 6.50 6.80 7.10 7.40 7.70 8.00 8.30 8.60 8.90 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00

Return (Net of Fees)

Risk/Return Risk/Return June 30, 1998 to June 30, 2008 June 30, 1998 to June 30, 2008

Risk (Standard Deviation)

Median Line Median Line

* Quarterly Data

USF Endowment S&P 500 Lehman Aggregate T-Bills

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Managing Portfolio Risk: Asset Allocation Policy

• The asset allocation policy of the USF Endowment is expected to generate a

long-term return comparable to that of U.S. Equity, but at a lower level of expected risk

Efficient Frontier 1

5.00 5.20 5.40 5.60 5.80 6.00 6.20 6.40 6.60 6.80 7.00 7.20 7.40 7.60 7.80 8.00 8.20 8.40 8.60 8.80 9.00 9.20 9.40 9.60 9.80 10.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00

Return

Efficient Frontier Efficient Frontier

Risk

*Compound Annual Return

Class Target U.S. Equity 40.0% Non-U.S. Equity (Developed) 15.0% Non-U.S. Equity (Emerging) 5.0% Real Estate 5.0% Private Equity 10.0% Total Equity 75.0% Fixed Income (Core) 21.3% Fixed Income (High Yield) 3.8% Total Fixed Income 25.0% Return 8.2% Risk 12.3% Asset Allocation USF Asset Allocation US Equity US Fixed Income

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Managing Portfolio Risk: Peer Comparison

• The USF Foundation Asset Allocation policy is generally more conservative

than the average endowment

• No allocation has been made to hedge funds due to the lack of

transparency, failure risk and high fees

Dollar Weighted Average Allocation: USF Foundation Endowment Policy vs. 2007 NACUBO ($500 mm - $1 bn)

50.5 13.3 5.3 17.7 7.7 2.4 3.1 47.0 11.2 5.0 20.5 10.4 3.6 2.2 60.0 25.0 5.0 0.0 10.0 0.0 0.0 0.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 Equity Fixed Income Real Estate Hedge Funds Private Markets Natural Resources Cash and Other NACUBO $500 mm - $1 bn NACUBO > $1 bn USF

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Managing Portfolio Risk: Diversification

• Equity Portfolio:
• The US and non-US equity portfolios are broadly diversified by manager, style (growth

and value) and market capitalization (i.e. large and small cap stocks)

• The non-US equity portfolio is also diversified across developed and emerging markets
• Fixed Income Portfolio:
• The fixed income portfolio includes allocations to investment grade (80%) and below

investment grade (20%) bonds

• Exposures to the following categories are as follows:

Mortgages:

• Subprime:

0.2% ($0.7 million) of total endowment assets

• Alt-A:

1.2% ($4.5 million) of total endowment assets (most were purchased recently after dramatic price declines) Subrime represents borrowers with a FICO score of less than 660, Alt-A represents borrowers with a FICO score between 660 and 720 and Prime represents borrowers with a FICO score greater than 720

Auction Rate Securities: No exposure

Sector Allocation: Energy Materials Industrials Consumer Discretionary Consumer Staples Healthcare Financials Information Tech Telecom Utilities USF US Equity 15 4 10 10 6 14 16 18 4 3 Wilshire 5000 16 4 12 9 9 12 15 16 3 4 USF Non-US Equity 14 12 12 10 7 6 18 6 9 6 MSCI EAFE 9 11 12 10 8 7 25 5 6 6

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USF Endowment: Manager Returns (as of June 30, 2008)

$'000 Comp QTR YTD 1 Year 3 Years 5 Years Inception % % % % % % %

Endowment Fund (3/31/90)

380,792 100.0% 100.0%

• 0.9
• 7.8
• 6.0

8.2 11.4 10.6 3/31/1990

Policy Index

• 1.5
• 7.3
• 6.6

7.1 10.1 10.1

Domestic Equity Comp. (9/30/95) 163,909 43.0% 40.0%

• 1.4
• 12.0
• 14.4

3.7 8.9 10.6 9/30/1995

DJ Wilshire 5000

• 1.6
• 10.9
• 12.5

5.0 8.7 8.2

Sands Capital Mgmt (6/30/99) 21,957 5.8% 4.7

• 11.2
• 1.0

3.9 8.6 0.3 6/30/1999

Russell 200 Growth

• 0.3
• 10.1
• 5.7

5.1 5.8

• 3.1

OFI Institutional (6/30/99) 19,229 5.0%

• 6.1
• 14.1
• 19.6

2.2 8.6 3.9 6/30/1999

Russell 1000 Value

• 5.3
• 13.6
• 18.8

3.5 8.9 3.7

SSgA Russell 1000 Index (6/30/01) 85,380 22.4%

• 1.9
• 11.2
• 12.3

4.8 8.2 3.0 6/30/2001

Russell 1000

• 1.9
• 11.2
• 12.4

4.8 8.2 3.0

Wasatch Advisors (3/31/99) 19,444 5.1%

• 0.4
• 15.8
• 22.3

2.5 9.4 19.6 3/31/1999

Russell 2000 Growth

• 4.5
• 8.9
• 10.8

6.1 10.4 3.7

Mellon Equity (6/30/00) 17,898 4.7%

• 1.7
• 10.1
• 22.5
• 0.2

9.7 10.2 6/30/2000

Russell 2000 Value

• 3.6
• 9.8
• 21.6

1.4 10.0 10.4

Fixed Composite (6/30/95) 94,255 24.8% 25.0%

• 0.4

0.9 5.5 4.6 4.7 6.2 6/30/1995

Lehman Aggregate

• 1.0

1.1 7.1 4.1 3.9 6.2

The C.F. High Quality (6/30/95) 79,081 20.8%

• 0.7

1.2 6.7 4.2 4.1 6.8 630/1995

Lehman Aggregate

• 1.0

1.1 7.1 4.1 3.9 6.2

Oaktree Capital (9/30/07) 15,174 4.0% 1.6

• 0.7
• 1.2

9/30/2007

ML High Yield Master II 1.8

• 1.3
• 2.4

International Equity Comp. (6/30/95) 90,382 23.7% 20.0%

• 0.6
• 10.9
• 5.1

17.5 19.9 9.5 6/30/1995

MSCI ACWI ex. US (G)

• 0.9
• 9.8
• 6.2

16.2 19.4 8.1

GMO Foreign Fund (3/31/05) 58,812 15.4%

• 2.1
• 11.2
• 11.5

13.0

• 11.6

3/31/2005

MSCI EAFE Index (N)

• 2.3
• 11.0
• 10.6

12.8

• 11.4

Wellington CFT Emg Mkts (3/31/05) 31,569 8.3% 2.4

• 10.2

9.5 28.6

• 28.2

3/31/2005

MSCI EMF Index (N)

• 0.9
• 11.8

4.6 27.1

• 26.4

Real Estate Composite (3/31/97) 2,994 0.8% 5.0%

• 8.2
• 8.2
• 11.0

5.2 14.2 10.4 3/31/1997

DJ Wilshire Real Est. Secs

• 5.4
• 3.4
• 15.4

4.8 14.9 10.8

Metropolitan Real Estate (12/31/07) 2,994 0.8%

• 8.2
• 8.2
• 8.2

12/31/2007

DJ Wilshire Real Est. Secs

• 5.4
• 3.4
• 16.6

Cash Composite (6/30/95) 3,722 1.0% 0.0% 0.4 1.2 3.5 4.3 3.4 4.3 6/30/1995

91 Day T-Bill Index

• 0.3

1.2 3.6 4.3 3.2 4.0

Alternative Invest. Comp. (12/31/98) 25,531 6.7% 10.0% 12/31/1998 *Internal rates of return reported elsewhere in this executive summary Target Allocation Inception date