September 11, 2008 MEMORANDUM TO: Board of Trustees, University of - PDF document

September 11, 2008 MEMORANDUM TO: Board of Trustees, University of South Florida FROM: Les Muma, Chair, University of South Florida Foundation RE: USF Foundation Presentation at September 11, 2008 Board Meeting On behalf of the trustees of the USF Foundation, I am pleased at the opportunity to share the attached presentation with you on our endowment investment portfolio. Our endowment is the centerpiece of our Foundation with a total value of $380 million as of June 30, 2008. Our Investment Committee does a fine job overseeing our portfolio with support from the Foundation’s staff and consultant, Wilshire Associates. We take pride in the Foundation’s returns and the resulting support it provides to USF. In the last nine years, the Foundation’s investment portfolio has provided over $180 million in investment gains while paying out over $106 million in support of USF. Despite the recent downturn in the markets, our endowment remains strong from the gains we have enjoyed in the past. Our short and long term results continue to exceed our benchmarks and rank highly among our peers. The attached presentation shares the objectives and goals of our endowment investments with summaries of our recent performance. We also highlight our asset allocation and risk exposure across sectors and with certain types of investments. I welcome any questions you have on this presentation or any other matter. If there is anything the Foundation can do to help further the mission of USF, please do not hesitate to ask. Go Bulls!

Investment and Spending Policy Objectives • The USF Foundation has established asset allocation and spending policies designed to achieve the following objectives � Maintain or grow real purchasing power to provide intergenerational equity � Provide substantial and stable flow of resources to support academic, research and fundraising operations � Improve position relative to peers • The spending policy governs the dividends and administrative fee � Dividends support chairs, professorships, scholarships, research and other initiatives at USF � Dividends for fiscal year 2009 will be 4.6% of the 5-year average market value of the endowment � The administrative fee supports the Foundation’s fundraising and operating expenses and is 2.0% of the endowment’s 5-year average market value • The Foundation’s investment policy is in compliance with USF’s investment policy 1

Investment Results The USF Endowment’s long-term performance has been strong, relative to benchmarks and peers • Since beginning FY 2000 with $187 million in assets, the Endowment has generated $182 million • in investment gains and $106 million in spending Endowment assets as of June 30, 2008 = $381 million • 9-Year Fiscal Year Ending June 30 Totals 2008 2007 2006 2005 2004 2003 2002 2001 2000 USF Endowment Return (%) -6.0 19.8 12.6 13.0 19.8 4.1 -2.6 2.5 13.7 Policy Index Return (%) -6.6 18.3 11.3 11.0 18.4 3.3 -7.0 -7.2 6.7 Investment Gain/Loss ($ mm) $ 181.5 $ (25.9) $ 65.0 $ 36.5 $ 32.5 $ 42.8 $ 6.9 $ (6.4) $ 6.4 $ 23.7 Dividends Distributed ($ mm) $ 106.1 $ 14.2 $ 12.3 $ 12.1 $ 12.8 $ 12.2 $ 12.5 $ 11.6 $ 10.3 $ 8.2 Periods Ending June 30, 2008 1 year 3 Years 5 Years 10 Years USF Endowment Return (%) -6.0 8.2 11.4 8.1 Policy Index Return (%) -6.6 7.1 10.1 6.0 Wilshire E&F Percentile Rank 64th 32nd 14th 10th Periods Ending June 30, 2007 1 year 3 Years 5 Years 10 Years USF Endowment Return (%) 19.8 15.1 13.7 10.6 NACUBO Top Quartile 19.0 14.0 12.4 9.5 Source: Wilshire and 2007 NACUBO Endowment Study. NACUBO is the National Association of College and University Business Officers representing 785 higher education institutions with over $411.2 billion in endowed assets. The 2007 study is the most recent report available; the 2008 report will be shared when available. 2

10-Year Return/Risk • The USF Endowment has generated attractive risk-adjusted returns over the past 10 year period: Risk/Return Risk/Return June 30, 1998 to June 30, 2008 June 30, 1998 to June 30, 2008 8.90 8.60 USF Endowment 8.30 8.00 7.70 7.40 7.10 6.80 Return (Net of Fees) 6.50 Lehman Aggregate 6.20 5.90 5.60 5.30 5.00 Median Line 4.70 4.40 T-Bills 4.10 3.80 S&P 500 3.50 3.20 Median Line 2.90 2.60 2.30 2.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 * Quarterly Data Risk (Standard Deviation) 3

Managing Portfolio Risk: Asset Allocation Policy • The asset allocation policy of the USF Endowment is expected to generate a long-term return comparable to that of U.S. Equity, but at a lower level of expected risk Efficient Frontier Efficient Frontier 10.00 9.80 Asset Allocation 9.60 9.40 Class Target 9.20 9.00 U.S. Equity 40.0% 8.80 Non-U.S. Equity (Developed) 15.0% 8.60 USF Asset Allocation US Equity 8.40 Non-U.S. Equity (Emerging) 5.0% 8.20 8.00 Real Estate 5.0% 7.80 Private Equity 10.0% Return 7.60 7.40 Total Equity 75.0% 7.20 7.00 Fixed Income (Core) 21.3% 6.80 Fixed Income (High Yield) 3.8% 6.60 6.40 Total Fixed Income 25.0% 6.20 6.00 Return 8.2% 5.80 Risk 12.3% 5.60 5.40 US Fixed Income 5.20 5.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 *Compound Annual Return Risk Efficient Frontier 1 4

Managing Portfolio Risk: Peer Comparison • The USF Foundation Asset Allocation policy is generally more conservative than the average endowment • No allocation has been made to hedge funds due to the lack of transparency, failure risk and high fees Dollar Weighted Average Allocation: USF Foundation Endowment Policy vs. 2007 NACUBO ($500 mm - $1 bn) 70.00 60.0 60.00 50.5 50.00 47.0 40.00 30.00 25.0 20.5 20.00 17.7 13.3 11.2 10.4 10.0 10.00 7.7 5.3 5.0 5.0 3.6 3.1 2.4 2.2 0.0 0.0 0.0 0.00 Equity Fixed Income Real Estate Hedge Funds Private Markets Natural Resources Cash and Other NACUBO $500 mm - $1 bn NACUBO > $1 bn USF 5

Managing Portfolio Risk: Diversification Equity Portfolio: • � The US and non-US equity portfolios are broadly diversified by manager, style (growth and value) and market capitalization (i.e. large and small cap stocks) � The non-US equity portfolio is also diversified across developed and emerging markets Sector Allocation: Consumer Consumer Information Energy Materials Industrials Discretionary Staples Healthcare Financials Tech Telecom Utilities USF US Equity 15 4 10 10 6 14 16 18 4 3 Wilshire 5000 16 4 12 9 9 12 15 16 3 4 USF Non-US Equity 14 12 12 10 7 6 18 6 9 6 MSCI EAFE 9 11 12 10 8 7 25 5 6 6 Fixed Income Portfolio: • � The fixed income portfolio includes allocations to investment grade (80%) and below investment grade (20%) bonds � Exposures to the following categories are as follows: � Mortgages: � Subprime: 0.2% ($0.7 million) of total endowment assets � Alt-A: 1.2% ($4.5 million) of total endowment assets (most were purchased recently after dramatic price declines) Subrime represents borrowers with a FICO score of less than 660, Alt-A represents borrowers with a FICO score between 660 and 720 and Prime represents borrowers with a FICO score greater than 720 � Auction Rate Securities: No exposure 6