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Endowment Fund June 30, 2008

Endowment Fund June 30, 2008. Introduction…………………………………….………………......….1 Endowment History………………………………........................…3 Endowment Growth…………………........................................4 Increases by Component……………………………….............5 Endowment Performance….…………………………………….7

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Endowment Fund June 30, 2008

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  1. Endowment Fund June 30, 2008

  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……………….…………………………………....17 Endowment Spending Rate..…………………………….....…20 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 • F. J. Ingrassia, Chair • R. L. Brown, III M. K. Chrin W. W. Crouse, III • J. H. Glanville A. K. Harkness T. J. Healy, Jr. W. F. Hecht M. L. Paley J. R. Perella • D. E. Singleton, III E. J. Sussman R. C. Tschampion, III • M. D. Zisman Lehigh Liasion – Margaret Plympton • Investment Subcommittee • R. C. Tschampion, III, Chair (b) • M. K. Chrin (a) K. L. Clayton (b) A. J. Greenwood • M. F. Hoben (b) J. B. McGowan (b) M. L. Paley • K. R. Parke S. Sethi Lehigh Liasions – Peter Gilbert, Mark Siddoway & Jennifer Sassani • (a) Chair effective 1-1-2009 (b) Term expired 12-31-2008 • 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 $611 million at June 30, 1998, to $1,127 million at June 30, 2008. Since our June 30 fiscal year-end through March 2009, our investment portfolio declined by 23.6% which was better than the broad market equity indices and also our composite benchmark which declined 27.6%, but we take little comfort in that. Other colleges and universities are reporting similar losses. As a perpetual entity, we have the benefit of a long-term time horizon and remain focused on our strategic asset allocation At March 31, 2009 the market value was $850 million. 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 Endowment Fund’s 25-year performance history is provided on page 7. The endowment fund has returned an average total annual return of 11.5% over the 25-year period, which compares favorably to the composite index of 10.2%. 3

  6. Lehigh University Endowment FundGrowth History 4

  7. Endowment Increase by ComponentsJune 30, 1998 through June 30, 2008 Gifts and Bequests $203,388,000 39% Investment Performance $643,696,000 Endowment Spending (331,640,000) Net Appreciation 312,056,00061% Increase $515,444,000 100% 5

  8. Lehigh University Endowment FundIncrease by Component June 30, 1998 to June 30, 2008 6

  9. June 30Total Return 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 2006 12.0 2007 15.7 2008 -2.7 Avg. Annual Return 11.5% Composite Index (65% Equities/35% Bonds) 10.2% 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 is 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 2008 Study reports on 791 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 (greater than $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 1998 to 2008. As of June 30, 2008, the University ranks 65th in endowment size among 791 participating institutions. Lehigh's $184,805 endowment per FTE student compares favorably to the $147,760 for independent institutions over $500 million to $1 billion and $147,770 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). The endowment per FTE student for independent institutions with endowments greater than $1 billion is $434,537. 9

  12. NACUBO Comparisons Endowment Size: 6/30/986/30/08 Lehigh $611,498,000 $1,126,942,000 Rank 62 of 508 65 of 791 Institutions Institutions Endowment per FTE Student: 6/30/986/30/08 Lehigh $108,422 $184,805 Rank (Independent Institutions) 101 of 343 89 of 522 Average - All Schools $90,780 $55,580 Independent Institutions: Over $500 million to $1 billion $195,908$147,760 Over $1 billion n/a $434,537 All $126,310 $147,770 10

  13. Endowment per FTE StudentLehigh vs. Aspirational PeersJune 30, 2008 Market Value FTE Endowment Institution in 000s Studentsper Student Rice University 4,610,164 5,064 910,380 University of Notre Dame 6,225,688 11,657 534,073 Northwestern University$7,243,948 16,856 429,755 Emory University 5,472,528 12,755 429,050 Brown College 2,746,832 7,878 348,671 Vanderbilt University 3,524,338 11,847 297,488 University of Pennsylvania 6,233,281 21,204 293,967 Lafayette College * 682,673 2,349 290,623 Cornell University 5,385,482 19,800 271,994 University of Rochester 1,730,772 8,274 209,182 LEHIGH UNIVERSITY 1,126,942 6,098 184,805 Tufts University 1,445,662 9,355 154,534 Carnegie Mellon University 1,067,728 9,625 110,933 Georgetown University 1,059,075 13,587 77,948 George Washington University 1,256,433 20,108 62,484 * Lafayette College is included for informational purposes only. 11

  14. NACUBO Comparisons Investment Performance Lehigh's endowment returns for the one, three and five year periods ending June 30, 2008 ranked in the top half. Return for the ten year period ending June 30, 2008 ranked in the top quarter performance vs. all endowment funds. Performance information can be found on the following two pages. 12

  15. Average Annual ReturnEnding June 30, 2008 for Each Period 10 Yrs5 Yrs3 Yrs1 Year Lehigh University7.6% 9.9% 8.0% -2.7% All Endowment Funds 6.5% 9.7% 8.0% -3.0% LU Rank 120/494 304/652 323/699 317/728 Greater than $1 billion9.5% 13.3% 12.0% 0.6% LU Rank 49/74 72/78 71/78 61/78 $500 million - $1 billion 7.6% 11.4% 9.6% -1.9% Independent Institutions 6.8% 9.9% 8.2% -2.8% LU Equity N/A 12.1% 8.7% -5.8% MSCI World (net) N/A 12.0% 8.9% -10.7% LU Bonds N/A 2.8% 2.2% 1.0% LB Govt Intermed N/A 3.6% 4.8% 9.2% LU Composite Benchmark 5.7% 9.5% 7.0% -6.1% Added Value over Benchmark 1.9% 0.4% 1.0% 3.4% 13

  16. LU Investment Performance vs. All Participating Institutions June 30, 2008 14

  17. NACUBO Comparisons Asset Allocation The asset allocation of Lehigh's endowment fund at June 30, 2008 tends to reflect the average of all participating institutions with exception of under weightings in domestic equities, fixed income and real estate and over weightings in non-U.S. equities, private equity/venture capital and cash. The following page indicates asset allocation data as of June 30, 1998 and 2008. 15

  18. Asset AllocationJune 30, 2008 6/30/986/30/08 LU Average LU Average Equity – U.S. 48.2% 52.4% 27.0% 34.9% Equity – Global/Foreign 10.6% 11.0% 21.8% 17.0% Fixed Income 31.0% 24.9% 12.6% 19.2% Cash 4.1% 4.1% 9.7% 3.8% Private Equity/Venture Capital 2.1% 1.9% 7.4% 4.3% Hedge Funds 0.2% 2.2% 10.0% 12.8% Natural Resources - - 7.2% 2.3% Real Estate 0.3% 2.2% 1.4% 4.2% Other 3.5% 1.3% 2.9% 1.5% TOTAL 100.0%100.0%100.0%100.0% 16

  19. 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 year by year gift flow rate is charted on the following page. Fiscal year 1998Fiscal year 2008 Lehigh University 1.7% 5.4% Average - All Institutions 4.7% 3.1% Over $1 billion 2.6% 2.7% Over $500 million to $1 billion 3.9% 2.9% Independent Institutions 3.6% 2.4% 17

  20. Gift Flow RateFiscal Year 1998-2008 18

  21. 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 strong investment performance over the past 10 years with the exception of the recent market decline. 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. 19

  22. 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 2008 was below the NACUBO average for all endowments, the average for endowments over $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. FISCAL YEAR 19982008 Lehigh University 3.8% 4.5% Average - All Institutions 4.0% 4.6% Over $1 billion N/A 4.3% Over $500 million to $1 billion 4.0% 4.4% Independent Institutions 4.0% 4.6% 20

  23. Endowment Spending Rate1998 - 2008 21

  24. NACUBO Comparisons Endowment Fund Spending Policy The Endowment will transfer to the University's Operating Fund annually 5% of the three year moving average market value of the Endowment. On a per unit basis, the transfer will result in a minimum increase of 0% and a maximum increase of 10% over the prior year's payout. For fiscal year 2010 the spending amount per share will be reduced by 5% of computed amount. 22

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