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Hot Topics in Endowment Investing

Hot Topics in Endowment Investing. Allison Thacker Chief Investment Officer, Rice University . The Rice Endowment made Rice the university it is today. . In 1904, William Marsh Rice left $4.6 million to found The Rice Institute. Rice was tuition-free from 1912 to 1965.

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Hot Topics in Endowment Investing

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  1. Hot Topics in Endowment Investing Allison ThackerChief Investment Officer, Rice University

  2. The Rice Endowment made Rice the university it is today. • In 1904, William Marsh Rice left $4.6 million to found The Rice Institute. • Rice was tuition-free from 1912 to 1965. • Today 62% of students receive financial aid and Rice’s tuition is still significantly lower than peers. • Even after building a campus, funding decades of free tuition, financial aid and operating funds, the Rice Endowment remains one of the largest among private universities.

  3. Private Universities Ranked by June 30, 2012 Endowment Market Value

  4. Private Universities Ranked by Endowment Assets per Full-Time Equivalent (FTE) Student – FY 2012

  5. Population: Private Schools with endowment market values > $2.0 B. Notables not reporting: Columbia, Cornell Source: Cambridge Associates (preliminary flash report of FY2012 data) Figures are self reported CONFIDENTIAL

  6. Endowment Spending – Fiscal Year 2012Percent of Operating Budget Funded from Endowment Distribution 38 reporting institutions with endowments > $1 Billion Source: Cambridge Associates Annual Analysis of College and University Investment Pool Returns 2012-12

  7. Endowment Values Compared to Purchasing Power Target

  8. Endowment/Foundation Goals: Achieve Investment Returns in Excess of Spending and Inflation Return - Inflation - Spending > 0 8% - 2.5% - 5.5% > 0

  9. How Have We Been Doing? - Passive portfolios have not kept up with spending and inflation * 35% Russell 3000 / 35% ACWI ex US / 30% Barclays Capital Aggregate Bond Index

  10. Historical Returns Make the 8% Hurdle Seem Reasonable

  11. Forecasted Returns Make Earning 5.5% real or 8% after inflation difficult 11

  12. Modern Portfolio Theory Argues for Adding Uncorrelated Asset Classes To Improve Return or Diminish Risk 12

  13. Rice Has Moved from Stocks and Bonds Towards Alternatives Opportunistic Real Assets Venture Capital & Private Equity Hedge Funds Fixed Income & Cash International Stocks US Stocks

  14. Hedge Funds Are No Longer An “Undiscovered” Asset Class 14

  15. As Hedge Fund AUM Has Grown, Correlation with the S&P Has Risen 15

  16. Private Equity Funds Are Also Proliferating 16

  17. Clearly we live in interesting times…..so what is a long-term investor to do? 17

  18. Equities Outperform Bonds Over Long Time Periods 18

  19. Market Timing Is a Losing Game – Create a Plan and Stick To It 19

  20. Fees Matter To Wealth Creation 20

  21. The Rice Endowment believes a long-term portfolio should be: • Equity-oriented • Diversified • Invested in real assets (real estate/natural resources) • Value focused and valuation sensitive • Fee sensitive • Partnered with managers who have a real investment edge 21

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