LONG-TERM INVESTMENTS MANAGEMENT REPORT
Endowment and Other Long-TermInvestments ReportDuquesne University of the Holy SpiritFiscal Year 2016
Table of ContentsManagement of the Endowment and Other Long-Term Investments 3Governance .3Impact .5Uses 6Growth .7Performance 8Asset Class Strategies and Objectives 9Liquidity 11Competitive Benchmarking Analysis. .122
Management of the Endowment and Other Long-Term InvestmentsThe Investment Committee (“the Committee”) of the Board of Directors (“the Board”) of DuquesneUniversity maintains prudent oversight of the University’s endowment and other long-term investments(the “Investments”). The Committee adheres to sound investment principles that, at a minimum, seek topreserve the real value of the investment assets, adjusted for spending, inflation, and fees. TheCommittee also exercises prudence and appropriate care based solely on the interest of the Universityand its investments. Members of the Committee acknowledge they are fiduciaries of the Investments,agree to discharge their duties solely in support of the University’s mission, and must maintainindependence and disclose any potential conflicts of interest.GovernanceBoard of DirectorsThe Board has the ultimate fiduciary responsibility for the Investments and seeks to ensure that policiesare in place and are functioning effectively. The Board delegates authority to the Committee for ongoingmonitoring.Investment CommitteeThe Committee is responsible for adopting and approving the provisions of the Investment PolicyStatement. This responsibility includes approving investment philosophy and asset allocation strategy;hiring and firing of investment managers, investment custodians, and investment consultants; monitoringperformance on a regular basis; and maintaining sufficient knowledge of the Investments and itsmanagers to be reasonably assured of their compliance with the Investment Policy Statement.Vice President for Management and BusinessThe Vice President for Management and Business has daily responsibility for administration of theInvestments and will consult with the Committee and the Investment Consultant on matters relating tofunds within the Investments. The Vice President for Management and Business will serve as the primarycontact for the investment managers, Investment Consultant, and Investment Custodian.Investment ConsultantThe Investment Consultant is responsible for assisting the Committee and Vice President for Managementand Business in all aspects of managing and overseeing the Investments. The Investment Consultant willmonitor the activities of each fund and provide the Committee with performance updates; identify andperform due diligence on prospective managers or funds; and provide investment education andinvestment manager information.Investment CustodianThe Investment Custodian has the daily responsibility for the accurate and timely reporting of managertransactions and valuations.3
Investment CommitteeJohn McGinley, Jr., ChairMember, Eckert Seamans Cherin& Mellott, LLCScott LammieChief Financial Officer,UPMC Health PlanAnthony CarfangPartner, Treasury Strategies, Inc.Brian SullivanRegional Director,Putnam InvestmentsCharles A. KennedyChief Investment Officer,Carnegie Mellon UniversityServing the Investment CommitteeMatthew FristVice President for Managementand Business,Duquesne UniversityWilliam HummelInvestment ConsultantManaging Principal,Fund Evaluation GroupChristopher MerloInvestment CustodianSenior Investment Advisor,PNC Institutional AssetManagement4
ImpactPrimary Investment ObjectiveThe primary objective is to achieve an annualized total return (net of fees and administrative expenses)through appreciation and income, equal to or greater than the rate of inflation (as measured by the HigherEducation Price Index) plus any spending thus, at a minimum, maintaining the purchasing power of theInvestments. The assets are to be managed in a manner that will seek to meet the primary investmentobjective, while at the same time attempting to limit volatility.Investment SpendingDuquesne utilizes a spending policy that allocates a pre-specified percentage of the average market valueof the Investments over the prior 16 quarters. In fiscal year 2016, the Board of Directors approved a 5.0%spending rate, which equated to 11.0 million.The Investments supported 3.9% of the University’s operating budget with 751 unique endowed funds inthe portfolio. Distributions are used to support the intended purposes of the donors. Duquesne strives tocarefully preserve the original gift value so that future generations can be supported at the same level onan inflation-adjusted basis.5
UsesOf the 11.0 million distributed in fiscal year 2016, 3.6 million was used for scholarships, 1.4 million wasused for salaries and benefits, and the remaining 6.0 million was used for general operations.6
GrowthThe graph below illustrates changes in Duquesne’s Investments 1 from 2011 to 2016. During this periodInvestments have grown by 39% or 79.2 million and as of June 30, 2016, were valued at 280 million.As highlighed in the chart below, Investments decreased during fiscal year 2016 owing to poor marketperformance ( 11.4 million) and spending ( 11.0 million), in accordance with University policy, whichoutpaced new gifts.Endowment and Other Long-TermInvestments ActivityDollars in Millions(Fiscal Year Ended June 30, 2016)1New Gifts 5.3Transfer from Operating Surplus0.5Returns Net of al (16.8)Duquesne’s Investments include Endowment and Working Capital Assets7
PerformanceThe chart below compares Duquesne’s Investments performance with various benchmarks as of June 30,2016. The University’s returns lag compared with selected benchmarks.Benchmark Comparisons for Endowment andOther Long-Term Investments Returns(As of June 30, chmark #1-Policy PortfolioBenchmark #2-NACUBO 101 Million to 500 MillionBenchmark #3-National Catholic 1Aspirant Benchmark-NACUBO 501 Million to 1 -2.4-2.2Sources: 2016 NACUBO Endowment Study and Fund Evaluation Group1. National Catholic Benchmark includes the 2016 investments returns of the institutions listed on page 128
Asset Class Strategies and ObjectivesAsset allocation will likely be the key determinant of the Investments’ returns over the long-term.Therefore, diversification of investments across multiple markets that are not similarly affected byeconomic, political or social developments is highly desirable. A globally diversified Investments portfolio,with uncorrelated returns from various assets, should reduce the variability of returns across time. Indetermining the appropriate asset allocation, the inclusion or exclusion of asset categories shall be basedon the impact to the Investments, rather than judging asset categories on a stand-alone basis. Target assetallocations should provide an expected total return equal to or greater than the primary objective of theInvestments, while avoiding undue risk concentrations in any single asset class or category, thus reducingrisk at the overall Investments portfolio level.The following chart provides trended asset allocation percentages by asset class from fiscal year 2007 tofiscal year 2016.The increase in alternative investments along with the corresponding decrease in domestic equities isevidence of the University’s strategy to achieve a more diversified Investment portfolio.9
The following graph compares Duquesne’s asset class allocation as of June 30, 2016 to NACUBOBenchmarks and the National Catholic Benchmark.Source: 2015 NACUBO Endowment Study*National Catholic Benchmark includes the 2016 asset allocations of the institutions listed on page 12In fiscal year 2016, Duquesne’s Investments portfolio was more heavily weighted in domestic andinternational equities than both NACUBO Benchmarks and the National Catholic Benchmark. Duquesnebegan executing its rebalancing plan in fiscal year 2015, which shifted assets from equities to alternativestrategies. The allocation to alternative strategies is currently about 29%.10
LiquidityLiquidity is measured by the time it takes to convert an investment to cash. Duquesne’s Investments arehighly liquid with 80.7% of its assets being able to be converted to cash on a daily basis. Of the remainingliquid assets, 3.4% can be converted to cash within a month and 6.2% can be converted on a quarterlybasis, all under normal circumstances. Some of Duquesne’s Investments assets are classified as illiquid,meaning it would take longer than a year to convert these assets to cash. These assets make up 9.7% ofthe total in the Investments.11
Competitive Benchmarking AnalysisThe 2016 NACUBO Commonfund Study of Endowments included the investment market values of 805schools with an overall average market value of 639.9 million as of June 30, 2016. The following tablescompare Duquesne’s Investments against the National Catholic Benchmark, Regional Catholic Benchmark,and Key Competitors. FTE data represents Fall 2015 figures as reported to IPEDS by each institution.The tables are sorted by Investments per FTE student and Investments are reported in thousands.Duquesne vs. National Catholics(As of June 30, 2016)InstitutionUniversity of Notre DameBoston CollegeGeorgetown UniversitySaint Louis UniversityVillanova UniversityCatholic University of AmericaUniversity of San DiegoUniversity of St. Thomas (MN)Marquette UniversityFordham UniversityUniversity of DaytonSt. John's University New YorkLoyola University of ChicagoDuquesne UniversitySeton Hall UniversityUniversity of San FranciscoDePaul ( 000) 80,034242,675300,350420,056InvestmentsFTE Students Per Student12,178 85031,6428,04430,16810,10429,72620,34220,65012
Benchmarking AnalysisDuquesne vs. Regional Catholics(As of June 30, 2016)2016InvestmentsInvestments( 000)InstitutionFTE Students Per StudentFairfield University1 310,2784,521 68,630Mount Saint Mary's University2122,4652,01060,928Le Moyne College3157,5692,99852,558Assumption College493,9372,33740,196Loyola University (MD)5192,8065,08837,894University of Scranton6164,9984,61335,768Canisius College7110,5153,32233,268Saint Joseph's University8202,1816,31432,021Duquesne University9280,0348,85031,642St. Bonaventure University1057,9441,87330,936Manhattan College1179,4313,75621,148Benchmarking AnalysisDuquesne vs. Key Competitors(As of June 30, 2016)InstitutionUniversity of PittsburghPennsylvania State UniversityOhio State UniversityUniversity of DelawareJohn Carroll UniversityUniversity of DaytonSaint Joseph's UniversityDuquesne UniversityDrexel UniversityWest Virginia UniversityGannon UniversityTemple UniversityRobert Morris UniversityIndiana University of PennsylvaniaJames Madison UniversityWest Chester University123456789101112131415162016Investments( 000) 13679,97712,538InvestmentsFTE Students Per Student26,515 44,72620,1013,97914,61085813
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Investments, while avoiding undue risk concentrations in any single asset class or cat egory, thus reducing risk at the overall Investments portfolio level. The following chart provides trended asset alloc
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