Investment Performance Commentary for the Year Ending June 30, 2005
Rochester's net return for the fiscal year ending June 30, 2005 was approximately 12.7% (preliminary, un-audited), substantially above the 8.0% goal contained in the University's financial plan. It is above the benchmark return of 9.1% (comprised of 60% Wilshire 5000, 20% Lehman Aggregate and 20% EAFE).
The investment pool value at the end of the fiscal year was approximately $1.37 billion, roughly $132 million above the reported value at the beginning of the year. The change in value was attributable to investment returns of $154 million, gifts and additions of $53 million and spending and withdrawals of $75 million. Rochester's five-year average annual return through June 30, 2005 is 5.9% vs. 0.7% for the benchmark. The ten-year average annual return through June 30, 2004 is 11.2% vs. 8.4% for the benchmark.
Major asset classes generated the following performances in fiscal year 2005:
- Domestic equity managers returned 8.4% compared to 8.2% for the domestic equity benchmark (Wilshire 5000). Selection of active and "index agnostic" investment firms, using fundamental valuation models, continued to help domestic equity performance in 2005, albeit only slightly.
- Domestic fixed income returned 7.4%, exceeding the 6.8% return for the benchmark (Lehman Aggregate). Duration on the University's fixed income portfolio decreased slightly to 4.1 years in fiscal 2005, reflecting increased exposure to intermediate term bonds. Inclusion of short-term investments lowered the effective duration to 3.2 years.
- International equities returned 16.6% compared to 13.7% for the benchmark (EAFE). Active management, similar to the domestic equity program, accounted for the significant outperformance.
- The alternative investment program generated a net return of 18.1%. Hedge funds returned 10.8%, private equity returned 36.2% and real estate, oil & gas and timber returned 34.5%.
The investment office monitors peer endowments and expects that this effort will continue to produce similar asset allocation and investment approaches for Rochester's endowment. Early reports from Rochester's peers suggest that returns achieved by large endowments in fiscal year 2005 will range from low teens to above 20%. It is important to note that Rochester's return was generated through the efforts of many talented advisors, investment committee members, consultants and investment office staff. It is the consensus of these groups that, over time, the University of Rochester's target return of 8% per annum is achievable.
|Robert M. Osieski
Trustee, Chairman of the
|Douglas W. Phillips
Senior Vice President for