Finance and Administration - Board of Trustees - The University of ...

Finance and Administration Committee - III. Minutes of Last Meeting1He then showed the Fund’s performance versus inflation and spending. Thelong-term objective is a 9% total return. The average distributions over a tenyearperiod have been 6%. Inflation as measured by the CIP. is 2.4%, and thePool generated 4.9% over that period. Since 1983, the Pool has averagedcloser to 10.4% and inflation over that same time period, combined with a 6%expense ratio, is about 8.9%. Over the long haul, the Pool is stilloutperforming but over the recent ten-year period, not surprisingly, it isbehind. We would expect over time for that to catch up and hopefully passthe inflation and expense ratios combined together.The year-by-year cash distributions from the Pool to support the Universityshow the lagging effects of the recession and credit cycle that we have beenthrough recently. In 2001-02, there was not only a recession but there wasalso a bursting of the tech bubble. There was also a credit cycle that is typicalin a recessionary environment. Then in 2008-09 there was a credit crisis (eventhough he would argue that the credit crisis began in ’07), with a laggingaffect in 2010-11 on distributions. It is important to note that thesedistributions are determined using a three-year rolling average of the endingcalendar year market value of the Pool. Fiscal year 2011 was determined off2009, 2008 and 2007 calendar year-ends. There were two very negativeperiods which helped determine the most recent distributions. This stands incontrast to the performance metrics that were shown earlier, where the lasttwo fiscal-year performance numbers were positive 13.3% and 20.6%. This isnot surprising given the fact that there is a six-month lag between fiscal andcalendar year-end, and a rolling average is used. The next few periodsshould see a pick-up again (in the level of annual distributions).The $32 million in support that the Pool gives to the University may not seemlike a massive amount compared to a $1.3 billion operating budget but itroughly covers 10% of tuition and fees. It is by no means immaterial.Next, he showed relative measurements for the Asset Class and MarketIndices. These are very broad indices, and one should not get too hung up ona direct comparison to the Pool. The performance of the composite of thePool over a five-year period is 3.1%. The benchmark of inflation plus theexpense ratio of 5.5% we are trailing, and it is 3.1% versus 7.7%. Globalequity for the University includes public and private and returned at 6.1% vs.an index that covers global public equities, at 6.6%. That performance isactually closer than expected given the illiquidity in the marketplace with thecredit crisis. It is considered roughly in-line, and again these are not apples toapples but a very good comparison against the rough and broad asset classesthat are available to the marketplace. For the University the Global FixedIncome category performed roughly in-line with the Barclays Aggregate,57