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The Endowment

Report on Calendar Year 2012 Performance

February 2013

The market value of the Long Term Investment Pool (LTIP) as of December 31, 2012 was $1.72 billion.  Performance for the calendar year was 12.0%, net of all fees and expenses, compared with the benchmark return of 13.8%.  Performance exceeded the benchmark by 1% or more, net annualized, for 3, 5, and 10 year periods.

Asset Allocation and Performance

The chart below shows asset allocation targets for the LTIP and actual allocations at calendar year end.


University of Rochester
Long Term Investment Pool Asset Allocation (in %)*
As of 12/31/2012

 
Policy Portfolio
Actual
+ / -
Range
Traditional Investments
Consisting of:
Total, Publicly-traded long equities
37
38
1
34 - 37
Fixed Income
4
5
1
4 - 6
Cash (not held by managers)
3
3
(0)
(3) - 5
Total, Traditional Investments
44
45
1
35 - 48
   
 
 
 
Alternative Investments
Consisting of:
 
 
 
 
Hedge Funds
18
19
1
17 - 20
Private Equity / Distressed
19
20
1
18 - 23
Real Assets
19
16
(3)
17 - 22
Total, Alternative Investments
56
55
(1)
52 - 65
 
TOTAL
100
100
(0)
100

*committee approval in September 2012

The LTIP’s alternative allocation consists of hedge funds and partnerships that invest in real assets and equities of private companies.  The 55% actual allocation is 5% below the previous target and reflects growing concern over growth in assets managed by alternative investment firms.  The LTIP’s alternative allocation remains near the mean allocation to alternatives by large educational endowments but below the level of certain Ivy League endowments.

Public Equities: 
At year end, the global publicly-traded equity portfolio represented 37.7% of the LTIP, slightly above the target allocation of 37%.  The portfolio returned 17.2% (net) for the year compared to 16.1% (gross) for the equity benchmark.  The portfolio outperformed the benchmark for all longer periods.

While public equities are managed under and measured against a global benchmark, performance is reported in two manager groups: domestic, reflecting firms with an emphasis on companies domiciled in the US, and, international, reflecting those firms with an emphasis (but not a limitation) on companies located outside the U.S.  The allocations and performance of these components are shown below.  

  • Domestic equity represented 20% of the LTIP at the end of the year.  Performance was 18.9% compared to 16.4% for the Dow Jones U.S. Total Stock Market benchmark.  The portfolio outperformed its benchmark for all longer time periods.
  • International equity represented 18% of the LTIP at the end of the year.  Performance was 15.1% compared to 16.8% for the benchmark. The portfolio outperformed its benchmark for all longer time periods.  Emerging markets represent approximately 35% of the international allocation.

Hedge Funds:
The LTIP’s hedge fund allocation was 19% at the end of the year, slightly above the target allocation of 18%.  The hedge fund portfolio returned 12.1% for the year. The ten-year net annualized return was 7.9% compared to 7.3% from the LTIP benchmark, with volatility of approximately half the LTIP benchmark.   

Real Assets:
Partnerships investing in real assets (real estate, energy and natural resources) represented 16% of the LTIP at the end of December, below the target allocation of 19%.  The real assets portfolio net return was 3.5% for the calendar year and 10.9% net per annum for ten years, with only a small fraction of the portfolio valued at year end.  The ten year return for real assets is approximately 3.6% above the LTIP benchmark, annualized.  The natural resources portfolio return was -0.2% for the year; the ten-year annualized return was 18.4%.  The real estate portfolio return was 5.5% for the year; the ten-year net annualized return was 4.8%. 

Private Equity:
The LTIP’s private equity positions, consisting of partnerships investing in buy-out, venture-stage and distressed companies represented 20% of the LTIP at the end of the year, slightly above the target allocation of 19%.  The net return on private equity partnerships was 13.9% for the year.  The ten-year net annualized return was 11.4%, approximately 4% per annum above the LTIP’s benchmark. 

Fixed Income:
Bonds and cash equivalents (“fixed income”) represented 7% of the LTIP at year end.  For the year, the LTIP’s fixed income program returned 7.0% (including cash) compared to 4.2% for the Barclays U.S. Aggregate (which does not include cash).  The program exceeded its benchmark for 1, 3 and 10 years, and underperformed by 0.2% annualized for five years due to its defensive (cash) positioning and underperformance by a manager.  The LTIP’s fixed income duration is approximately one-half the benchmark in order to protect the fixed income portfolio from the possibility of rising interest rates.

Liquidity

The LTIP has very good liquidity, with 63% of its investments convertible to cash within one year.  Liquidity has increased since 2008.  In 2012, the LTIP received distributions from private equity and real asset partnerships above the levels forecasted by the Investment Office.  There have been no draws on the LTIP’s $50 million line of credit for several years.