Treasurer’s Town Hall J. Michael Gower Executive Vice President, University Finance and Administration University Treasurer January 7, 2019 Rutgers Business School – Newark Rutgers Business School – New Brunswick
Today’s Agenda • Welcome Mike Gower • Endowment Office Jason MacDonald • Finance Data Analytics and Reporting Ernie DiSandro 2
Jason MacDonald: Chief Investment Officer • Implement university’s Investment Policy under direction of Joint Committee on Investments of the Board of Governors and Board of Trustees, and Executive Vice President for Finance and Administration and University Treasurer • Administer endowment’s activities consistent with Investment Policy and best practices for public universities and the investment industry • Recommend to the Joint Committee strategies and investment opportunities that will meet allocation strategies for the endowment • Support university’s missions by collaborating with RU Foundation and university community to increase understanding of the endowment’s mission and work
Jason MacDonald Chief Investment Officer
RU Endowment Office: Who? What? Why? How? Responsible for investment management of all endowment assets. RU Foundation transfers endowment funds raised to our office. Governed by Who? Joint Committee on Investments, which reports to and consists of members from the Board of Trustees and Board of Governors. Endowment, or long-term investment pool (LTIP), is 2,500 (approx.) individual endowment funds created by donors to pay for scholarships, What? endowed chairs, etc. to support a variety of causes. The endowment pays out 4% of its market value annually to support these funds. In an environment where state support is dwindling, the value of higher education is questioned, and pressure on revenue increases; long-term Why? growth and health of endowment assets are key. Larger endowment larger annual payout lower financial pressure 1. Exceptional fundraising How? 2. Solid returns 3. Downside protection
Our Culture: Collaborative, Hungry, Transparent Create an Endowment Office that is part of the fabric of the University • Create a culture focused on superior investment returns and promote creativity • Establish buy-in on strategy, acceptable levels of risk, time horizon, investment targets, etc. • Maintain an environment where values are observed with as much discipline as the investment approach: o Integrity – Ethical, accountable, and fair in all dealings o Flexibility – The commitment to change is a fundamental part of individual and organizational development o Humility – An open, feedback driven organizational culture that promotes teamwork, personal expression, self-awareness and freedom
University Impact A healthy endowment and superior fundraising lead to… • Fulfillment of institutional mission • Support of specific programs, projects, priorities that advance strategic plan • Enhancement of educational experiences and students’ professional prospects • Acceleration of research into some of society’s most pressing needs and humanity’s most perplexing problems • Strengthening of economic, social and cultural development of the State The Endowment Office’s impact on the university • Intern program • Increased transparency and collaboration – “Taking Down Silos” • Active management
Governance Structure Function Governing Body / Individual Role Committee Joint Committee on Investments Committee Chair Tilak Lal, Board of Trustees Member Consultant FEG Staff Jason MacDonald, Chief Investment Officer Lou Kish, Investment Operations Manager Board of Governors Board of Trustees Joint Committee on Investments Endowment Office
Endowment Mechanics Long-Term Investment Pool (LTIP) is unitized and operated like a mutual fund with shares owned by individual endowments • Endowments “buy shares” of the LTIP when Rutgers receives those specific funds • Shares are purchased at current market value of the LTIP • Spending from Endowments is calculated using a rolling 13-quarter average market value in order to smooth volatility Types of Endowment Pools Classification Definition Long Term LTIP, or Pooled Endowment Fund, consists of true endowed funds, term endowed funds, and quasi-endowed funds. Incorporates the long-term fund Investment Pool for the Board of Governor’s and the Board of Trustee’s. Other funds that are (LTIP) separately-invested as required by donors. True Endowment Funds received from donors, organizations, or other external sources that are held in perpetuity. The income (real income, realized gains, unrealized gains) is available to the university to be spent as directed by the donor. Term Endowment Similar to above, except funds are held for a specified period of time. Quasi Endowment Funds designated by the University to be treated like a true endowment; no donor restrictions and the principal may be invaded.
New Gifts and Pledges Fiscal Years 1995 - 2018 $400 $350 $300 $250 $113.6M Millions $200 $150 $100 $50 $0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Fiscal Year In Campaign
Endowment Values and Performance Fiscal Year 3-Year 5-Year 10-Year Rutgers University - LTIP as of 6/30/18 9.3% 7.1% 8.0% 6.2% Target Weighted Benchmark 9.0% 6.6% 7.7% 5.5% 60/40 Benchmark 7.2% 6.2% 6.2% 4.6% NACUBO > $1 billion 9.5% 6.6% 7.9% 5.9% NACUBO Average 8.2% 6.2% 7.4% 5.8% Endowment $ per FTE Student $1,500 $24,000 $22,000 Endowment $ per FTE Student $1,300 $20,000 $1,100 $18,000 Endowment Market Value $16,000 $900 $14,000 $700 $12,000 $10,000 $500 $8,000 $300 $6,000 $100 $4,000 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Market Value Endowment $ per FTE Student
Historic Endowment Spending $50 $45 $40 $35 $30 $25 $20 $15 $10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 As the Endowment has grown, our annual spend has a much more meaningful impact on the University, now accounting for 1% of the operating budget
Endowment at-a-Glance The Endowment’s primary purpose is to achieve a total return averaging at least the spending rate of 4%, plus inflation and costs. Returns experienced in excess of this provide for the long-term growth of the Endowment. The time horizon is considered infinite with a focus on long-term performance. Asset Allocation Asset Allocation 6/30/2017 6/30/2018 Long-Term Growth Assets 56.6% 56.7% 66% Public Equities 43.6% 42.3% 38% US Stocks 22.2% 19.9% 15% International Developed 17.4% 14.8% 8% Components of Return Need Emerging Stocks 4.0% 4.1% 5% Global Stocks 0.0% 3.5% 10% Spending Rate 4.00% Private Equity 9.6% 11.1% 20% Inflation Rate 2.20% Opportunistic Fixed Income 3.4% 3.3% 8% Endowment Expenses 0.15% Risk Reduction Assets 28.6% 29.0% 19% Foundation Administrative Fee 0.95% Cash 2.0% 4.6% 0% Long-Term Return Need (net of fees) 7.30% Traditional Fixed Income 8.1% 7.5% 9% Absolute Return Hedge Funds 18.5% 16.9% 10% Real Return 15.0% 14.2% 15% Real Estate 5.0% 6.2% 10% Real Assets (Other) 10.0% 8.0% 5% Total 100% 100% 100% 13
Enhancing the Future of Rutgers University Investment Strategy – Preservation and Growth • Focus on long-term performance and partner with the best investment managers in the world • Understand portfolio and know what you own - continual review and measurement of results and exposures • Drive fees down where possible • Create an investment mindset focused on the following: o Capital Preservation o Flexibility o Open-Mindedness o Intellectual Curiosity o Long-Term Thinking
Importance of Asset Allocation The primary contributor to investment success • Asset allocation is most important decision for investor ’ s ability to reach their goals • Decisions are long-term and impact long-term success • Allocations are reviewed annually; changes are made when goals change or markets change considerably Contributions to Return Variation 15
Chart of Shame: Sticking to the Asset Allocation Plan “ The road to fresh stock market highs is littered with these awful correction call s” Marketwatch.com 8/28/2018 16
Importance of Process • Investors are best served by building a strong investment process focused on long-term investing and a strong decision-making structure • Investors cannot control market ebbs and flows, but they can control their investment process • Investors who are aware of common shortcomings in focus, decision-making, and committee structure have a better opportunity for a good process and deserved success Source: Russo and Schoemaker 17
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