UNIVERSITY OF MINNESOTA

Financial

ENDOWMENT FUND
Adopted: September 8, 1989
Amended: May 11, 1990; July 10, 1992; November 10, 1993; January 14, 1994; June 10, 1994; April 9, 1998; November 10, 2000; December 13, 2002; March 12, 2004; February 11, 2005; May 13, 2005; July 12, 2006; May 14, 2010; June 10, 2011

ENDOWMENT FUND

SECTION I. SCOPE.

This policy governs the management of investments in the University of Minnesota (University) endowment fund (endowment).

SECTION II. INVESTMENT OBJECTIVES.

The investment objectives for the University endowment shall be, over the long-term, to:

(a) preserve the inflation adjusted value of the endowment;

 

(b) generate investment returns that meet or exceed the annual payout rate plus direct expenses incurred by the investment program after adjusting for inflation as measured by the Consumer Price Index;

(c) execute the investment program within acceptable risk parameters; and

(d) provide stable distributions for annual spending purposes.

SECTION III. COMPREHENSIVE PROGRAM REVIEW.

Annually, the president or delegate shall present to the Board of Regents (Board) a comprehensive review of the investment program including a discussion of the role of investment strategies employed during the previous year to achieve the investment objectives.

SECTION IV. ASSET ALLOCATION GUIDELINES.

Consistent with Board policies, the Board reserves the authority to approve asset allocation ranges. The president or delegate shall recommend asset allocation ranges and the Board shall act on them by resolution.

SECTION V. REPORTING.

The president or delegate shall make the following reports to the Board at the specified times or frequencies:

(a) quarterly, a report regarding the status of the endowment containing all of the following information:

1. the total market value and investment performance relative to selected benchmarks for each asset class and the total portfolio;
2. an attribution analysis of investment performance;
3. an analysis of investment performance relative to investment objectives;
4. an evaluation and discussion of portfolio risk;
5. deviations from asset allocation ranges, if any; and
6. new managers, manager terminations, and changes in investment allocations to existing managers.

 

(b) at its next regularly-scheduled meeting, any significant change in investment strategy and any internal or external event that has the potential to materially affect the performance of the fund;

(c) annually, a comparison to peer institutions of relative performance and asset allocation and steps taken to provide opportunities to emerging, minority-owned, and woman-owned investment management firms; and

(d) any other information requested by the Board.

SECTION VI. INVESTMENT MANAGEMENT GUIDELINES.

Subd. 1. Use of Investment Managers. Except as provided in Subd. 3 below, endowment funds shall be invested only through investment managers. The president or delegate shall choose investment managers with demonstrated expertise and engage them by written agreement to execute transactions in their discretion within stated parameters and in accordance with applicable policy. No investment manager may manage more than 20 percent of the endowment for a period of more than 12 consecutive months.

Subd. 2. Liquidity. Between 60 and 70 percent of total endowment assets shall be capable of being converted to cash or cash equivalents within 12 months without material loss of market value. The sum of (a) assets that do not meet this liquidity criterion and (b) total unfunded commitments to limited partnerships shall not at any time exceed 55 percent of total endowment assets.

Subd. 3. Rebalancing. The president or delegate shall monitor market value of endowment assets in comparison to the asset allocation ranges approved by the Board. At least quarterly, the president or delegate shall determine whether rebalancing is appropriate and, if necessary, act in a timely and cost-effective manner. In order to achieve rebalancing, the following investment instruments may be employed with the use of an investment manager:

(a) futures contracts, only on a net unleveraged basis;

(b) options contracts for purposes of hedging or the sale of covered options, provided that aggregate option exposure may not exceed ten percent of the value of the endowment; and

(c) investments in exchange-traded funds.

Subd. 4 Limitations.

(a) The use of derivatives for speculative purposes is prohibited;

(b) No individual investment may be made for the purpose of exercising management control in any company. This provision is not intended to prohibit the use by investment managers of control strategies with respect to portfolio companies.

(c) A maximum of ten percent of the endowment may be invested in any single fund or account.

(d) The investment of endowment funds shall comply at all times with the restrictions on investment of amounts comprising the Permanent University Fund that are set forth in Minnesota Statutes Section 11A.24 or its successor.

Subd. 5. Social Responsibility. The University shall consider social responsibility in its investment decisions.

SECTION IVII. PAYOUT RATE.

The endowment payout rate shall be set at a level that supports University operations while enabling the endowment to grow at an inflation- adjusted rate that will provide for future distributions. Distributions shall be made quarterly. The annual payout rate shall be 4.5 percent of the average of the endowment's trailing month-end market values for the prior 60 months.