Strategy & Performance
The Board’s most basic responsibility is to preserve the Foundation’s resources, including the endowment, in perpetuity. The UNT Foundation seeks to maintain “generational neutrality.” In other words, the goal is to ensure that future recipients of endowment distributions receive the same level of direct or indirect support as do current recipients. The UNT Foundation does this through its Investment Committee. Because this committee monitors investment performance, its members must have a high level of financial literacy and be familiar with investment strategies, asset allocations, and spending policies. An additional layer of expertise is achieved through the use of an investment consultant who advises the Committee and implements its policies. The investment consultant for the UNT Foundation is Mercer Investment Consulting. All financial and investment activities of the UNT Foundation are monitored and reviewed by a separate Audit Committee of the Board of Directors.
Investment Objectives
Providing for future spending needs while meeting current spending needs is the objective of the UNT Foundation. The investment objectives are based upon a long-term investment horizon allowing interim fluctuations to be viewed in an appropriate perspective. The overall level of risk in the Foundation’s investment portfolio is primarily mitigated by attention to asset allocation with the focus on overall risk, not risk related to specific asset classes.
Portfolio Allocation
The portfolio is biased toward blended returns from equities, fixed income securities, and alternative investments. The 53% position in Growth Assets combines with 37% in Risk Reduction Assets and 10% in Inflation Protection Assets. The resulting ratio of equity securities to income vehicles is a common investment strategy employed by university foundations today. It is considered an appropriate model for endowment funds and other long-term accounts that desire to meet a specified income distribution rate over normal long-term market cycles.
Target Asset Allocation
53% of the portfolio in Growth Assets is split between US Equity and International Equity groupings.
In the US Equity group are the Northern Trust Russell 3000 Index (5%), and Vanguard Total Stock Market Index (9%) — two US All-Cap Stock managers. The US Large-Cap Quality managers are Vanguard Dividend Appreciation Index Fund (5%), and Jensen Large Quality Growth (5%). Sands Capital Management (4%) manages the US Large-Cap Growth position.
Representing the International Equity group are Vanguard Developed Markets (8%), Scout International (4%), and Morgan Stanley International Equity (6%) in the International Large-Cap and Quality stocks sector. Vanguard Emerging Markets Stock Index (5%) and Stone Harbor Local Markets Institutional (2%) make up the Emerging Market sector.
37% of the portfolio in Risk Reduction Assets is divided between US/Global Fixed Income, Hedge Funds and Cash.
The US/Global Fixed Income section consists of the PIMCO Total Return Institutional Fund (10%), JP Morgan Core Bond Fund (5%), Loomis Sayles Core Plus (5%), and the Brandywine Global Fixed Income Portfolio (4%).
Hedge Funds include PIMCO All Asset Fund (8%), Pinehurst Institutional Limited (2%), and Common Sense Offshore Limited (2%).
The portfolio also targets a 1% cash position.
10% of the portfolio serves as Inflation Protection Assets and are invested in Real Assets.
The Real Assets category includes EII Global Property Institutional (2%), Van Eck Global Hard Assets (8%), and BlackRock Diamond Property Fund (<1%).
While the equity-weighted position likely will track the direction of the equity market, the portfolio is structured to be less volatile than the overall equity market due to the portfolio's broad diversification into alternatives and the bond market.
Performance
The Foundation's Investment Committee has chosen a benchmark that is a weighted composite of the S&P 500 Index (40%), MSCI All-Country World Index, excluding the US (30%), and the Barclays Capital Aggregate Bond Index (30%). A comparison of actual and benchmark performance is presented in the accompanying chart as of September 30, 2012.
The portfolio returned 15.2% for the trailing 1-year period relative to benchmark return of 17.9%. The UNT Foundation's portfolio has performed in line with its policy index and benchmark for all trailing periods. Since its December 1999 inception, the portfolio has gained 3.3% after investment fees, relative to 3.8% gross return for its benchmark.
As of September 30, 2012, 82% of the portfolio’s managers' returns rank in the top half of their respective universe over a 5-year period. There are no managers in the fourth quartile for the 3 and 5-year time periods.
Additionally, over the 5-year period ending September 30, 2012, the Foundation’s investment management process has produced an investment return 13% greater than that of its benchmark with 12% lower risk, as measured by the portfolio’s standard deviation.
Monitoring & Rebalancing
The UNT Foundation Investment Committee meets at least quarterly with its Institutional Investment Consultant to review the portfolio's performance and to address any issues or concerns. National and international economic trends and the anticipated performance of markets in future periods are discussed thoroughly. Actual individual and composite results for the portfolio are compared to the policy benchmark returns. In addition, changes in key management in the funds, internal and/or external changes affecting any asset class, and any changes in the investment process are evaluated.
Since asset allocation is the most critical component of the Foundation's return, the portfolio will be rebalanced at least annually.
In addition, the portfolio will be rebalanced in the event any asset class allocation differs from policy by more than 20% of the target weight, but with a 2% minimum deviation threshold (before rebalancing is required). Alternative asset classes may require a longer period of time to achieve target allocation.