unc sustainability advisory committee unc investment fund overview february 23, 2015 1
DESCRIPTION
UNC Chapel Hill Foundation Investment Fund, Inc. (CHIF) As of June 30, UNC Chapel Hill Foundation Investment Fund $2.6 Billion Invested in UNC Investment Fund ($4.1 billion) Foundation Unitholders Scholarships Professorships etc. Endowment Unitholders Scholarships Professorships etc. Foundation Unitholders Scholarships Professorships etc. UNC Chapel Hill Statutory Endowment $1.3Billion UNC Chapel Hill Foundation $268.7 Million UNC Chapel Hill Affiliated Foundations & Other $1.1Billion Arts & Sciences FdnBusiness Fdn Educational FdnLaw Fdn Public Health FdnMedical Fdn Others… (23 Total) UNC Chapel Hill Endowment = $1.3 billion ~ 50% of CHIF ($2.6 billion) ~ 30% of UNCIF ($4.1 billion)TRANSCRIPT
UNC Sustainability Advisory CommitteeUNC Investment Fund Overview
February 23, 2015
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Statutory Endowment of
UNC Chapel Hill
Other UNC Chapel Hill
Affiliated Funds
UNC Chapel Hill Foundation Investment
Fund, Inc. (“CHIF”)
UNC Investment FundStructure
UNC Investment Fund, LLC (“UNCIF”)
UNC Management Company, Inc. (“UNCMC”)
Manager
Controlling Member
Other UNC Campuses and
Affiliates
Other Members
UNC Chapel Hill Foundation, Inc.
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UNC Chapel Hill Foundation Investment Fund, Inc. (CHIF)As of June 30, 2014
UNC Chapel Hill Foundation Investment Fund$2.6 Billion
Invested in UNC Investment Fund ($4.1 billion)
• Foundation Unitholders• Scholarships• Professorships etc.
• Endowment Unitholders• Scholarships• Professorships etc.
• Foundation Unitholders• Scholarships• Professorships etc.
UNC Chapel Hill Statutory Endowment
$1.3Billion
UNC Chapel Hill Foundation
$268.7 Million
UNC Chapel HillAffiliated Foundations & Other
$1.1Billion• Arts & Sciences Fdn • Business Fdn
• Educational Fdn • Law Fdn
• Public Health Fdn • Medical Fdn
• Others… (23 Total)
UNC Chapel Hill Endowment = $1.3 billion • ~ 50% of CHIF ($2.6 billion)• ~ 30% of UNCIF ($4.1 billion)
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What is an endowment?The gift that keeps on giving - - in perpetuity
Established by a gift from a donor− Normally with the legal stipulation that the original gift may
never be spent− Almost always designated /restricted to support a specific
program or use
The gift is invested in perpetuity with an annual spending distribution supported by the fund’s investment return
The designated university program or department benefits from the annual spending distribution− Spending distributions from funds designated for a program or
department cannot be used for any other purpose
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UNC Investment FundInvestment Objective
Primary Investment Objective Preserve the inflation-adjusted purchasing power of endowment
funds in perpetuity while providing a predictable and growing stream of spending distributions
To accomplish this objective - - the endowment must earn an annualized total rate of return > ~8% over rolling 10-year (and longer) periods
Managing the return volatility of the endowment helps to stabilize the annual spending distribution - - risk management matters
Investment Return > Spending + Inflation 8%+ > 5.5% + 2.5%
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Socially Responsible Investing by Universities
“In the early 1970’s many university endowments were leaders in the SRI space. However, over the past 40 years, they have fallen well behind the larger SRI community. The current state of university endowments can be characterized as having severely low transparency levels and limited involvement in SRI.” (1)
(1) from “Report on Options For Incorporating Sustainability into Investment Practices” issued in September 2014 by the UNC Sustainability Advisory Committee, Sustainability Investment Options Sub-Committee
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Evolution of Endowment Investing by Large Universities“Endowment Model” Of Investing
Most universities with endowments >$2 bn employ the investment approach referred to as the “Endowment Model” of investing
Pioneered by Yale and other large private universities in the 1980’s
Employs a diversified portfolio utilizing multiple asset classes and investment strategies to enhance long-term returns and manage risk
Significant allocations to “alternative assets” - - venture capital, private equity, hedge funds, etc.
Contrasts to more “traditional” portfolios that have mainly direct holdings of stocks and bonds
Typically implemented utilizing commingled vehicles managed by external investment management firms
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UNC Investment FundInvestment Implementation
UNCIF has a significant allocation to alternative strategies: 30% SIPP allocation target to hedge funds and other “uncorrelated” strategies 33% SIPP allocation target to “private” strategies
UNCIF is highly diversified Over 100 external investment management firms manage a portion of UNCIF
> 90% of UNCIF’s assets are invested in “commingled” funds (invested alongside other investors) the Fund’s external investment managers generally have full discretion over their
respective portfolios
Allocations to “alternative” asset managers limit portfolio transparency UNCIF enters into confidentiality agreements Transparency from some managers is limited and / or delayed
5 Years 10 Years 15 Years 20 Years0%
2%
4%
6%
8%
10%
12%
14%
10.3%9.2% 8.8%
10.3%
12.2%
7.5%
5.6%
7.6%7.6% 7.9% 8.0% 8.0%
UNCIF Global 70/30CPI + 5.5% (L/T Return Objective)
Ann
uali
zed
Per
form
ance
• The Fund has achieved its long-term objective across all periods• For the longer-term - - 10, 15, and 20 year periods - - a more traditional
equity/bond portfolio has fallen short of this target
UNCIF Long-Term PerformanceAs of June 30, 2014
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(1) 70% MSCI ACWI / 30% Barclays Aggregate U.S. Bond
(1)
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UNC Investment FundBoard of Directors: Roles and Responsibilities
UNCIF’s Board is tasked with: Achieving the Fund’s primary investment objective…
- Preserve the inflation-adjusted purchasing power of endowment funds in perpetuity while providing a predictable and growing stream of spending distributions
…to meet the requirements of CHIF members - - foundations across campus UNCIF members - - universities across the UNC System And the 1,000’s of donors who contributed to the endowment to
support University programs
Endowments provide vital support to various University programs
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UNC Chapel Hill BoT Clean Energy ResolutionSeptember 2014
WHEREAS, the Board of Trustees of The University of North Carolina at Chapel Hill (University) recognizes the University’s role in seeking solutions to global issues using the educational, research and financial resources of the University; and
WHEREAS, through the investment of the University’s endowment funds the University can influence the development of environmentally friendly alternative energy sources; and
WHEREAS, investing in the development of environmentally friendly alternative energy sources promotes economic growth, energy independence and environmental and public health.
NOW THEREFORE BE IT RESOLVED, the Board of Trustees of The University of North Carolina at Chapel Hill requests that UNC Management Company, research targeted investments for the University’s endowment assets that advance environmentally friendly clean energy strategies consistent with applicable asset allocation and investment objective policies.
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BoT Clean Energy ResolutionProposed Action Plan
Define Clean Energy• First order: wind, solar, biofuels, hydro, wave and tidal, geothermal• Second order: energy conversion, storage, conservation, efficiency,
materials, pollution control, emerging hydrogen, fuel cells
Assess Current Exposure
Identify Investable Universe
Information Gathering
• Public Portfolio
• Private Portfolio
• Relative to Fund’s investment objectives• Public markets• Private markets
• Peer institutions – what they are doing (or have chosen not to do)• Industry conferences• Investment consultants
Systematic refresh of the steps above