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 strategic target portfolio is biased toward blended returns from equities, fixed income securities, and alternative investments. The Foundation’s Investment Policy establishes a strategic target allocation of 60% to Growth Assets, 30% to Risk Reduction Assets, and 10% to Inflation Protection Assets to achieve a diversified portfolio allocation. The resulting ratio of equity securities to income vehicles is a common investment strategy employed by university foundations. 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.
In addition to its strategic target allocation, the Foundation’s revised Investment Policy establishes tactical ranges around each of the strategic targets. Current tactical ranges are 50 - 70% for Growth Assets, 20 – 40% for Risk Reduction Assets, and 5 – 15% for Inflation Protection Assets. The Investment Committee is responsible for monitoring and rebalancing to the Foundation’s strategic target allocation ranges, and within the tactical ranges, has discretionary authority for setting, monitoring, and making reallocations to the portfolio’s specific underlying assets. Allocation changes which would exceed the established ranges require prior approval from the Foundation’s Board of Directors.
Target Asset Allocation
60% of the portfolio in Growth Assets is split between US Equity and International Equity groupings and Senior Bank Loans.
In the US All-Cap Equity group are the Vanguard Total Stock Market Index (7.2%), Sands Capital Management (5.0%), and Vanguard Value Index (5.0%) positions. The US Large-Cap Quality managers are Vanguard Dividend Appreciation Index Fund (7.8%) and Jensen Large Quality Growth (5.9%).
Representing the International Equity group are Vanguard Developed Markets (11.6%), MFS International Value (3.7%), and Morgan Stanley International Equity (6.4%) in the International Large-Cap and Quality stocks sector. Vanguard Emerging Markets Stock Index (3.4%) and Sands Emerging Markets Growth (2.5%) make up the Emerging Markets sector. The International Emerging Market Debt position is made up of Stone Harbor Local Markets Fund (1.2%).
The Senior Bank Loan position is invested in Oaktree Senior Loan Fund, LP (1.9%)
30% of the policy portfolio in Risk Reduction Assets is divided between US/Global Fixed Income, Absolute Return Funds and Cash
The US/Global Fixed Income section consists of Vanguard Total Bond Market (5.0%), JP Morgan Core Bond Fund (8.1%), and Loomis Sayles Core Plus (6.1%).
Absolute Return Funds include Forester Diversified, Ltd. (4.3%) and Pinehurst Institutional Limited (4.7%).
The portfolio also has a 2.8% cash position.
7% of the policy portfolio serves as Inflation Protection Assets and are invested in Real Assets.
The Real Assets category includes Van Eck Global Hard Assets (5.2%), and Principal Global Real Estate (2.2%).
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 return benchmark consisting of an investment policy-weighted composite of relevant indexes for each of the asset classes in which it is invested (i.e., S&P 500, Russell 1000, MSCI ACWI, MSCI EAFE, MSCI EM, Barclays Aggregate, S&P Natural Resources, FTSE EPRA/NAREIT, HFR Fund of Funds, etc.). Prior to March 2016, the Foundation uses a weighted strategic index of the MSCI All-Country World Index (60%), and the Barclays Capital Agregate Bond Index (40%) as a reference to assess its risk-adjusted returns. Beginning March 1, 2016 the global weighted strategic index was revised to include the Dow Jones U.S. Total Stock Market Index (40%), MSCI All-Country World ex U.S. Index (20%), Barclays Capital Aggregate Bond Index (30%), and the U.S. Consumer Price Index (10%).
The portfolio decreased -5.4% for the quarter ended February 29, 2016, vs. -6.0% for its policy index benchmark, and declined -10.2% for the trailing one-year period vs. a benchmark return of -9.7%. The UNT Foundation's portfolio has performed behind its policy index benchmark during the past year due to results by managers in the domestic equities, real assets and absolute return strategies lagging their benchmarks, partially offset by outperformance from active international equity managers. Absolute returns over the past five years have been dampened due to allocations to international equities which did not keep pace with U.S. equities, and by weakened commodities markets and a stronger U.S. dollar. There are times when U.S. markets outperform global markets, and vice versa. The past five years have been dominated by U.S. markets. History and relative valuations suggest that a shift towards global markets is in order at some point in the future. Graphical comparisons of actual and benchmark performance over multiple time periods, as well as annualized return vs. risk information over a rolling five-year period, are accessible in the chart accompanying the link below.
Monitoring & Rebalancing
The UNT Foundation Investment Committee meets at least quarterly with its 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 for the funds, internal and/or external changes affecting any asset class, and any other changes in the investment process are evaluated.
Since asset allocation is the most critical component of the Foundation's return, the portfolio is rebalanced at least annually, or more frequently as necessary. Due to their more limited liquidity options, alternative investment assets may require a longer period of time to effect rebalancing to achieve the target allocation.
The Foundation’s revised Investment Policy established tactical ranges around each of the strategic target allocations. Current tactical ranges are 50 – 70% for Growth Assets, 20 – 40% for Risk Reduction Assets, and 5 – 15% for Inflation Protection Assets. The Investment Committee is responsible for monitoring and rebalancing to the Foundation’s strategic target allocation ranges, and within the tactical ranges, has discretionary authority for setting, monitoring, and making reallocations to the portfolio’s specific underlying assets. Allocation changes which would exceed the established ranges require prior approval from the Foundation’s Board of Directors.