Investment Review from the Chief Investment Officer
Rev. James A. Burns, C.S.C., became Notre Dame’s tenth president in 1919 and led its transformation from a combined preparatory school and college to a modern university. Primarily to fund salaries for lay professors, he raised $1 million in the University’s first large fundraising drive and developed a plan for governance and administration of permanent funds of the University. This was the beginning of the Notre Dame Endowment, which grew under the presidency of Rev. Theodore M. Hesburgh, C.S.C., from 1952–1987, and the leadership of Robert K. Wilmouth as Chair of the Investment Committee of the Board of Trustees from 1978–1994. Bob revolutionized the University’s investment management program and assets surged during his tenure from $80 million to nearly $1 billion. He was an adviser and dear friend until his passing in September 2017.
At the end of fiscal year 2017, the market value of the Notre Dame Endowment Pool was $11.79 billion, compared to $10.41 billion at June 30, 2016, with an investment return for the year of 12.6 percent net of investment management fees.
The significant rebound in emerging markets and Europe combined with continued strength domestically led to a strong year for equity markets globally, and the Endowment Pool benefited from these results with public equities from around the world providing the highest returns. Diversification and risk reduction remain hallmarks of our investment management program, and the performance of the Endowment Pool over various time periods and market cycles relative to benchmarks is shown in the chart below.
Notre Dame Endowment Pool returns are net of investment management fees. The Strategic Policy Portfolio is Notre Dame’s internal benchmark consisting of indices representative of the target investment portfolio. The Trust Universe Comparison Service (TUCS) Large Fund Median is a compilation of returns of endowment, pension and foundation investors greater than $1 billion and thus provides a basis for comparison to the performance of large institutional investors generally. The 60/40 mix is an index blend of stocks/bonds as represented by the MSCI All Country World Investable Index and the Barclays Capital U.S. Aggregate Bond Index and thus is a measure of performance compared to a more traditional or retail portfolio.
While year-to-year results of course will fluctuate, long-term market data shows for a variety of reasons that returns are trending lower across asset classes. To be successful in this environment, investors will need to be nimble and opportunistic. Regular readers will note that we streamlined our asset allocation structure since last year’s report. Our traditional anchors in Public Equity and Private Equity remain, as the role of an endowment in providing a stable source of spending to support the institutional mission historically has required, and will continue to require, a substantial weighting in equity investments for long-term growth. At the same time, we consolidated marketable alternatives, real assets and fixed income into a new Multi-Strategy category without specific targets for those areas, allowing us to be more flexible in pursuing attractive valuations in those and other areas that tend to be more cyclical. The Multi-Strategy portfolio enhances diversification in offering returns less correlated to equity markets and includes various credit strategies, real estate, commodities, traditional fixed income assets, and cash.
Spending from the Endowment during the fiscal year was $368 million, an increase of 7.4 percent over the prior year, and funded 26 percent of the University’s expenditures. The largest beneficiary remains student financial aid.
Cumulative spending for all University purposes over the last 20 years depicted in the above chart was $3.9 billion. The growth of the Endowment Pool over the same period net of these spending distributions is a testament to our long-term investment and spending philosophies, which will serve Notre Dame well for years to come.
Scott C. Malpass
Vice President and Chief Investment Officer