1 / 25

Lehigh University Endowment Fund: Growth, Performance, and Management

This report provides an overview of the Lehigh University Endowment Fund, including its history, growth over the past 10 years, investment performance, asset allocation, and NACUBO comparisons. Trustees' responsibilities and committee membership are also discussed.

gleslie
Download Presentation

Lehigh University Endowment Fund: Growth, Performance, and Management

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Endowment Fund June 30, 2005

  2. Introduction…………………………………….……………………….1 Introduction…………………………………….……………………….1 Endowment History……………………………………………………3 Endowment Growth………….…………………………………….4 Increases by Component….……………………………………...5 Endowment Performance….……………………………………..7 NACUBO Comparisons…...…………………………………………..8 Size & Endowment per FTE Student…………………………....9 Investment Performance……………………..……………….….12 Asset Allocation……………………………………………………16 Gift Flow Rate……………….………………………………….…..18 Endowment Spending Rate..……………………………………21 Table of Contents

  3. Introduction An endowment fund for an educational institution provides long-term continuous support for various programs and services. Lehigh University recognizes the importance of providing enduring financial support through endowment and desires to enhance its endowment position through the procurement of new endowment contributions and the prudent management of its invested funds. Trustee Responsibilities The University By-Laws provide that one of the general powers of the Board of Trustees is to oversee the management of the University's endowment and investments. The Board has delegated endowment management responsibility to its Finance Committee, which has specific responsibility for endowment and similar funds as defined in the By-Laws as follows: 1. Establish and monitor investment policies and guidelines. 2. Manage investments through the appointment of managers and/or internal management. 3. Review at least annually the investment performance. 4. Establish a policy regarding disbursement of income. Because sound endowment management policy suggests a clear separation between certain functions such as asset allocation decisions and the determination of endowment spending policy, the Finance Committee has established an Investment Subcommittee that has particularresponsibilities for the endowment fund. 1

  4. Introduction Committee Membership Trustee Finance Committee K. L. Stuckey, Chair R. L. Brown, III M. K. Chrin W. W. Crouse, III J. H. Glanville F. J. Ingrassia J. R. Perella B. E. Scheler D. E. Singleton, III E. J. Sussman R. C. Tschampion, III M. D. Zisman Investment Subcommittee R. C. Tschampion, III, Chair K. L. Clayton A. J. Greenwood M. F. Hoben P. N. Leitner J. W. MacMurray J. B. Mc Gowan M. L. Paley K. R. Parke Annual Reporting The Trustee Finance Committee desires to report annually to the Board of Trustees upon the status of the University's endowment fund. These reports will present the general progress and stewardship of endowment at Lehigh. This report will give specific attention to: 1. Historical changes, 2. Performance and comparative data with other colleges and universities, and 3. Policies and procedures. 2

  5. Endowment History The University's Endowment Fund has experienced rapid growth in market value over the past ten years from approximately $380 million at June 30, 1995, to $845 million at June 30, 2005. The value as of March 31, 2006 was $950 million reflecting the favorable market conditions since June 30, 2005. The market value increase over the past 10 years can be broken down into the following components: Gifts Realized and Unrealized Gains Reinvested Earnings The following three pages highlight the market growth and the components of that growth over the past 10 years. Lehigh's Endowment Fund 25-year performance history is provided on page 7. The endowment fund has returned an average total annual return of 13.0% over the 25-year period, which compares to the composite index of 12.1%. 3

  6. Lehigh University Endowment FundTen Year Growth History 4

  7. Endowment Increase by Components1995 through 2005 Bequests and Gifts $132,789,000 28% Investment Performance $609,737,000 Endowment Spending (278,008,000) Net Appreciation 331,729,00072% Increase $464,518,000 100% 5

  8. Lehigh University Endowment FundIncrease by Component 1995 to 2005 6

  9. June 30Total Return 1981 20.9 1982 0.8 1983 44.5 1984 -1.4 1985 28.9 1986 24.3 1987 20.8 1988 3.3 1989 18.6 1990 8.3 1991 6.1 1992 13.6 1993 15.4 1994 2.1 1995 18.6 1996 16.9 1997 21.4 1998 21.8 1999 12.4 2000 19.3 2001 -4.6 2002 -5.7 2003 7.2 2004 16.1 2005 9.5 Avg. Annual Return 13.0% Composite Index (65% Equities/35% Bonds) 11.7% Note: Returns for 1986 & after are net of manager fees Lehigh University Endowment Fund25 Year Performance History 7

  10. NACUBO Comparisons The NACUBO Endowment Study (NES) is an annual report prepared by TIAA/CREF under the direction of the National Association of College and University Business Officers (NACUBO). The report has been a useful tool for colleges and universities to help evaluate the effectiveness of their endowment policies and investment performance. Lehigh has participated in the NES for over three decades. The 2005 Study reports on over 700 participating institutions of higher education. The following pages compare various aspects of Lehigh's endowment fund with one or more of: a) the universe of all participating colleges and universities; b) participating independent schools; and c) participating institutions of similar endowment size (over $500 million to $1 billion). The latter, when available, is the most useful standard of comparison for Lehigh. 8

  11. NACUBO Comparisons Endowment Size and Endowment per FTE Student Page 10 indicates the growth of Lehigh's endowment fund from 1995 to 2005. As of June 30, 2005, the University ranks 66th in endowment size among 746 participating institutions. Lehigh's $141,723 endowment per FTE student compares favorably to the $101,335 for independent institutions over $500 million to $1 billion and $111,629 for all independent institutions. Although we have improved our position compared to these endowment classifications, Lehigh continues to rank in the lower half of the list among institutions with which we compete for students (see page 11). 9

  12. NACUBO Comparisons Endowment Size: 6/30/956/30/05 Lehigh $380,154,000 $844,672,000 Rank 57 of 460 66 of 746 Institutions Institutions Endowment per FTE Student: 6/30/956/30/05 Lehigh $66,834 $141,723 Rank N/A 92 of 515 Independent Institutions Average - All Schools $49,739 $43,804 Independent Institutions: Over $500 million to $1 billion N/A $101,335 Over $100 million to $400 million $66,177 N/A All $68,885 $111,629 10

  13. Endowment per FTE StudentLehigh vs. Competing InstitutionsJune 30, 2005 Market Value FTEEndowment Institution in 000s Studentsper Student Princeton $11,206,500 6,739 1,662,932 M.I.T. 6,712,436 10,300 651,693 Dartmouth College 2,714,300 5,704 475,859 University of Richmond 1,207,573 3,951 305,637 University of Notre Dame 3,650,224 11,291 323,286 Duke University 3,826,153 12,159 314,677 Lafayette College 587,418 2,265 259,349 Columbia University 5,190,564 20,635 251,542 University of Pennsylvania 4,369,782 20,612 212,002 Colgate University 508,665 2,811 180,955 Cornell University 3,777,092 19,518 193,518 LEHIGH UNIVERSITY 844,672 6,059 141,723 Bucknell University 472,070 3,553 132,865 Boston College 1,270,303 12,480 101,787 Tufts University 845,389 9,113 92,767 Rensselaer Polytechnic Inst. 624,279 6,185 100,934 Syracuse University 818,258 16,412 49,857 Boston University 776,900 23,718 32,756 11

  14. NACUBO Comparisons Investment Performance Lehigh's endowment returns for the three, five and ten-year periods ending June 30, 2005 ranked in the top third of all endowment pools. Lehigh’s returns for the one-year period ending June 30, 2005 ranked in the top half of all endowment pools listed in the survey. Endowment returns for the three, five and ten year time periods meet or exceed Lehigh’s performance objective of top third performance vs. all endowment funds. Performance information can be found on the following three pages. 12

  15. Average Annual ReturnEnding June 30, 2005 for Each Period 10 Yrs5 Yrs3 Yrs1 Year Lehigh University10.9% 4.2% 10.9% 9.5% All Endowment Funds 9.3% 3.3% 9.1% 9.3% LU Rank 70/463 178/552 115/633 286/678 Over $500 million to $1 billion 10.3% 3.9% 10.4% 11.3% LU Rank 13/44 20/46 14/50 34/51 Independent Institutions 9.5% 3.3% 9.2% 9.4% LU Equity 13.2% 2.4% 12.9% 9.9% S&P 500 9.9% -2.4% 8.3% 6.3% LU Bonds 7.1% 7.9% 8.2% 6.2% LB Aggregate 6.8% 7.4% 5.8% 6.8% LU Composite Benchmark 9.2% 1.3% 7.7% 6.6% Added Value over Benchmark 1.7% 2.9% 3.2% 2.9% 13

  16. LU Investment Performance vs. All Participating Institutions June 30, 2005 14

  17. LU Investment Performance vs. Large Endowments June 30, 2005 15

  18. NACUBO Comparisons Asset Allocation The asset allocation of Lehigh's endowment fund at June 30, 2005 tends to reflect the average of all participating institutions with exception of under weightings in domestic equities and cash and over weightings in non-U.S. equities and fixed income. The following page indicates asset allocation data as of June 30, 1995 and 2005. 16

  19. Asset AllocationJune 30, 2005 6/30/956/30/05 LU Average LU Average Equity – U.S. 50.2% 49.2% 39.3% 45.9% Equity – Global/Foreign 1.7% 7.8% 19.7% 12.6% Fixed Income 33.4% 30.1% 20.6% 21.5% Cash 9.4% 6.5% 1.3% 3.5% Private Equity/Venture Capital 0.2% 1.0% 1.8% 2.4% Hedge Funds - - 10.1% 8.7% Natural Resources - 0.3% - 0.9% Real Estate - 1.8% - 3.0% Other 5.1% 3.3% 7.2% 1.4% TOTAL 100.0%100.0%100.0%100.0% 17

  20. NACUBO Comparisons Endowment Gift Flow Rate The endowment gift flow rate measures the percent of the market value increase at June 30 related to gifts received during the year. The percentage can fluctuate significantly depending on the gift activity, such as endowment campaign gifts and large bequests received, in a particular year. The ten year gift flow rate is charted on the following page. 6/30/956/30/05 Lehigh University 2.1% 2.0% Average - All Institutions 4.8% 3.2% Over $1 billion N/A 2.9% Over $500 million to $1 billion N/A 3.2% Over $100 million to $400 million 4.3% N/A Independent Institutions 3.4% 2.2% 18

  21. Gift Flow Rate1995 - 2005 19

  22. NACUBO Comparisons Endowment Growth and Gifts Year to year endowment growth is influenced by gifts and investment performance. The university has experienced a period of exceptional investment performance over the past 10 years. This has added to the value of the endowment fund resulting in additional income for the university’s educational mission. While we are pleased with the success of the investment results, we recognize that future returns are forecasted to be modest. For example, long term rates of return in the 8% range are expected to be the norm in the coming years. With the endowment spending of roughly 5% annually, the remaining 3% will help keep pace with the inflation rate and hopefully maintain the purchasing power of the endowment fund. If we are to meet the challenge of endowment growth relative to our peers, gifts to endowment will be the key. A significant portion (60%) of Shine Forever: The Campaign for Lehigh, our current comprehensive campaign, is focused on endowment, particularly for endowed scholarships and endowed chairs. While Lehigh maintains a strong planned giving program to encourage testamentary gifts to endowment, the campaign provides an opportunity to emphasize current gifts to endowment from alumni and friends. These gifts will be the cornerstone to future growth of the endowment fund. 20

  23. NACUBO Comparisons Endowment Spending Rate Below are details of Lehigh's spending as a percentage of the current year’s average market value. Lehigh’s spending rate in 2005 was consistent with the NACUBO average for all endowments, but below the average for endowments over $500 million to $1 billion, and the independent institution average. Further information regarding Lehigh’s spending policy and historic spending rates can be found on following two pages. 6/30/956/30/05 Lehigh University 4.7% 4.7% Average - All Institutions 4.7% 4.7% Over $500 million to $1 billion N/A 4.9% Over $100 million to $400 million 4.5% N/A Independent Institutions 4.7% 4.9% 21

  24. Endowment Spending Rate1995 - 2005 22

  25. NACUBO Comparisons Endowment Fund Spending Policy In fiscal year 1990-91, the University implemented a market value based spending policy that was adopted by the Finance Committee and the Board of Trustees at its April 1989 meeting. This policy provided for annual spending based on 5% of a three-year moving average market value (using quarterly market values) with a minimum increase of 3% per year and a maximum increase of 6% per year over prior year’s spending rate. The policy minimum and maximum increases were changed to 0% and 10%, respectively, in fiscal year 2001. 23

More Related