USF’s endowment is an important part of the University’s overall financial well-being, and provides annual funding to support the mission and strategic objectives of the University. The endowment benefits both current and future generations by being invested in perpetuity and by providing ongoing program support. The accumulation of gifts over time, combined with strong investment performance, contribute to the long-term stability and growth of the University. Annual funding from the endowment helps to provide student scholarships, academic chairs, library resources, and other annual operating expenses designated by donors or the Board of Trustees.
We are pleased to report that for the year ended June 30, 2014, the annual rate of return for the managed endowment was 17.9%, which outperformed its peer benchmark comprised of other endowments and foundations by over 2 percentage points. Over the last 10 years, the annualized rate of return has also exceeded this benchmark, contributing to the long-term growth of the endowment. Most of the University's endowment assets are invested through a managed endowment that consists of a diversified portfolio of both actively-managed and index funds valued at approximately $289 million as of June 30, 2014.
Over the past 10 years, USF's endowment has grown over 80%, from approximately $160 million to $289 million. This significant growth is net of the annual spending requirement, which is calculated as 4.5% of the moving average market value over the previous three years. For example, during the last fiscal year, approximately $9 million was distributed for student scholarships, academic and athletic programs, and library resources. In addition to the cumulative appreciation of the endowment, which is net of these annual distributions, new donor contributions and funds designated by the University's Board of Trustees have contributed significantly to the overall growth of the endowment. The growth in the market value of the endowment over the last 10 years is illustrated below.
Endowment Management and Governance
Most of the assets within the endowment are pooled and invested in one managed endowment portfolio, over which the University has investment discretion. Decisions regarding investment policy, strategy, asset allocation targets, and changes in investments are made by members of the University’s Investment Committee, which is a standing committee of the Board of Trustees. There are 12 members of the Committee, made up of University Trustees, University administrators, alumni, and other investment professionals.
The Investment Committee meets on a quarterly basis each February, May, August, and November, and meets periodically between quarterly meetings to address immediate issues or investment opportunities. The Investment Committee has three subcommittees that review investment opportunities within certain sectors or strategies. These subcommittees then recommend new investments to the full committee for approval.
- Hedge Fund Subcommittee
- Private Capital Subcommittee
- Real Asset Subcommittee
Endowment Asset Allocation
The Investment Committee, with recommendations from an external investment advisor, regularly monitors asset allocation targets, and has constructed a diversified portfolio through the selection of both active investment managers and passive index funds across multiple asset classes. These targets are based on a long-term investment horizon, and are determined based on an ongoing assessment of expected risks, returns, and correlations across asset classes.
Actual allocations may vary slightly from targets, based on an assessment of current market conditions and relative opportunities. As of June 30, 2014, the asset allocation was underweight to Fixed Income and Real Asset investments, with a slight overweight to Cash, Domestic Equities, and International Equities. The actual asset allocation as of June 30, 2014 was as follows:
Endowment Performance Compared to the Return Target and Benchmark
The endowment continues to provide a growing level of financial resources in accordance with donor designations through student financial aid, faculty chairs, strong academic and athletic programs, and library resources. The continued growth in endowment resources through both investment performance and contributions from alumni and friends will not only provide annual spending for purposes designated by donors, but will also strengthen the financial resources of the institution and provide a solid financial base for future generations.
The annual rate of return for the managed endowment for the 12 months ending June 30, 2014 was 17.9%, net of investment fees, compared to the Wilshire Endowments and Foundations benchmark of 15.8% and its long-term return target of Consumer Price Index (CPI) plus 4.5%, and performing within 25 basis points of the S&P 500, with less volatility and risk. The portfolio is designed to produce returns that exceed its long-term target return, each year allowing the endowment to distribute 4.5% of the portfolio's average market value over the last three years, and preserving purchasing power for future generations.
The University reviews the performance of the managed endowment against the Wilshire Endowments and Foundations Benchmark, as well as against a long-term return target of 4.5% over CPI. The cumulative return chart below compares the growth of $1,000 invested in the University's managed endowment, a benchmark comprising other endowments and foundations, and the long-term return target of 4.5% over CPI.