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. Each year, 4.5% of the moving average market value of the endowment over the last three years is designated for spending.
As of June 30, 2014, endowment assets totaled approximately $282 million.
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 16 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 are empowered by the Committee to make investment decisions within certain sectors or strategies:
- Hedge Fund Subcommittee
- Private Capital Subcommittee
- Real Asset Subcommittee
Asset Allocation and Diversification
Investment performance is affected primarily through asset allocation and the selection of external investment managers. The endowment assets are diversified among asset classes, and diversified among sectors and industries, quality, market capitalization, and investment strategy within each asset class. The current long-term asset allocation targets are included in the chart below. The actual asset allocation fluctuates with market conditions, and is rebalanced periodically. As of June 30, 2014, there are 76 different investment funds managed by 49 different investment managers across these asset classes.
The University has in infinite time horizon with respect to the investment of endowment assets. Superior investment performance should, over the long term, depending on market conditions, enhance the purchasing power of the endowment so that its income distribution will provide at least as much support for the annual University budget in the future as it does currently. The University compares the performance of its managed endowment against public market benchmarks, a policy benchmark, and other endowments within the higher education industry. The target rate of return for the University’s managed endowment is CPI, plus 4.5%, net of fees. The University’s primary return objective for the managed endowment is to exceed its policy index by .50% over rolling 3 and 5-year time periods. The policy consists of a 60% weighting to the Russell 3000 Index, a 20% weighting to the Barclays US Aggregate Index, and a 20% weighting to the MSCI EAFE Index.
Although these various benchmarks and indexes are used to measure the performance of the University’s managed endowment, these types of comparisons have become exceedingly difficult over the past 5 years, due to the increase in allocations to hedge funds and private capital investments. In addition to the policy benchmark and return target discussed above, USF participates in the NACUBO-Commonfund Study of Endowments each year. This study provides comparative information about asset allocation and performance across the higher education industry. In 2013, 835 institutions participated in the study. The performance of USF’s managed endowment for the year ended June 30, 2013 compared favorably to that of its peers. Its 5-year return was in the top 10% of the institutions that participated in the study. A summary of the 2013 NACUBO-Commonfund Study of Endowments was presented to the Investment Committee in February 2014.