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

ENDOWMENT FUND

SECTION I. SCOPE.

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

SECTION II. GUIDING PRINCIPLES.

The following principles shall guide the University's management of the endowment:

(a) The University shall seek to maximize financial returns on invested assets while considering an appropriate degree of risk.

 

(b) The University shall consider social responsibility in its investment decisions.

SECTION III. INVESTMENT OBJECTIVES.

Subd. 1. Overall Objectives. The overall objectives for the University endowment shall be to:

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

 

(b) maximize total return (income plus capital appreciation) within acceptable risk parameters and a goal of at least 500 basis points annually above inflation (as measured by the Consumer Price Index) over three- and five-year trailing periods.

Subd. 2. Investment Manager Objectives. The objectives for the investment managers of the endowment shall be to exceed the investment performance of appropriately established benchmarks and rank consistently above the median for investment performance when compared to peers of similarly managed funds over three- and five-year trailing periods.

SECTION IV. ASSET ALLOCATION GUIDELINES.

Subd. 1. Public Equities. The long-term target allocation for publicly traded equities, both domestic and international, shall be 40 percent with a range around this target of 35-45 percent.

Subd. 2. Fixed Income. The long-term target allocation for fixed income shall be 20 percent with a range around this target of 15-25 percent.

Subd. 3. Private Capital. The long-term target allocation for private capital (such as private equity, venture capital, and distressed debt) shall be 20 percent with a range around this target of 15-25 percent.

Subd. 4. Real Assets. The long-term target allocation for real assets (such as real estate partnerships, timberlands, oil and gas partnerships, and other investable commodities) shall be 20 percent with a range around this target of 15-25 percent.

Subd. 5. Futures. The purchase of futures contracts for purposes of obtaining equity markets exposure is permissible. Futures may only be employed on an unleveraged basis. Futures shall not be employed for speculative purposes.

Subd. 6. Options. The use of options shall be limited to the purchase of options for hedging purposes or the sale of covered options. The option exposure in aggregate shall be limited to 10 percent of the value of the endowment.

Subd. 7. Short-Selling of Securities. The aggregate market value of short sales shall not exceed 10 percent of the value of the endowment.

Subd. 8. Management Control. The University shall make no direct investments for the purpose of exercising management control in the underlying companies. Control strategies are permissible in the context of investments in portfolio companies made by approved investment managers.

Subd. 9. Investment Management Firm Limit. A maximum of 25 percent of the endowment may be invested by any one investment management firm. The president or delegate shall make adjustments to a portfolio if an investment management firm exceeds this limit for 12 consecutive months.

Subd. 10. Calculations of Limits. Calculations of all percentage limitations shall be done on a market value basis.

SECTION V. SPENDING GUIDELINES.

Subd. 1. Endowment Distributions. The endowment distribution rate shall be set at a level that is supportive of 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 target distribution rate shall be 4.5 percent of the average of the endowment's trailing month-end market values for the prior 60 months. Effective with the adoption of this policy, both the target distribution rate and the payout calculation shall be phased in as specified in Board resolution.

SECTION VI. REPORTING.

The president or delegate shall report to the Board regarding the status and performance of endowment assets.