Annual Report 2005-06
Assets and investments
In 2006, the market value of endowed funds passed the $1 billion mark for the first time in KU Endowment’s history, with a total of $1.05 billion. This represented an increase of nearly 10 percent over $954.9 million in 2005.
The value of KU Endowment’s total assets, according to audited financial statements, grew to $1.26 billion, an increase of 10.5 percent from $1.14 billion in 2005. This total is the book value of assets plus the unrealized gain or loss on marketable securities. It does not include the unrealized appreciation on real estate and other special holdings. This unrealized appreciation is included in the market value of total assets, which increased to $1.4 billion, up more than 9 percent over $1.27 billion in 2005.
The growth in assets resulted from strong market performance and an increase in outright contributions.
Of KU Endowment’s total assets, 88.3 percent represent marketable securities. The balance of assets is made up primarily of real estate property owned by KU Endowment, loans to KU students and faculty, and outstanding pledges.
Long-term investments
KU Endowment invests its endowed funds and other long-term funds collectively in its Long-term Investment Program, a professionally managed, diversified portfolio. The goal for the program is to provide a consistent level of support for KU, in inflation-adjusted dollars, in perpetuity. The program includes more than 2,700 individual funds. The value of these funds makes up 75 percent of KU Endowment’s total assets.
To provide consistent support for the university, KU Endowment’s long-term investments must increase in value over time. In fiscal year 2006, these investments gained 13.6 percent, compared with a gain of 13.7 percent in 2005 and a gain of 20.3 percent in 2004.
Growth is compared with a benchmark of spending plus inflation. For the long term, KU Endowment continues to outperform its benchmark. Over the 18-year period from June 30, 1988, through June 30, 2006, the total return of long-term funds was 10.6 percent. This exceeds the benchmark of 9.1 percent.
Given this level of performance, a $100,000 endowed fund established in June 1988 would have grown to $235,688 as of June 2006. During that time, it also would have provided $142,219 in support for KU.
Current overall goals for long-term investments include further diversification and enhanced returns. This requires a gradual realignment of the portfolio to reflect the economic and investment opportunities of an increasingly global society. In keeping with these overall goals, the KU Endowment Finance Committee implemented the following asset allocation changes in fiscal year 2006.
- Increased overall allocation to emerging markets stocks from 5 percent to 7.5 percent through the funding of additional managers City of London and Dimensional Fund Advisors.
- Funding of a new 5 percent allocation to private equity and venture capital through Commonfund Capital. It will take several years to achieve the long-term policy target in order to provide funding year (vintage year) diversification; therefore, this change is not reflected in the chart above.
- Further diversification of the inflation protection allocation through the hiring of Wellington Management for investment into their diversified inflation hedges strategy.
The committee also authorized the following changes for implementation in the next fiscal year.
- Continued decrease of the long-term policy allocation for U.S. common stocks from 35 percent to 27.5 percent by increasing the allocation to international developed markets stocks.
- Diversification of the fixed income allocation by reallocating 4 percent to international bonds through a reduction of 3 percent in nominal bonds and 1 percent in TIPS (Treasury Inflation Protection Securities).
