Investment Review
Scott C. Malpass
We will continue to adhere to the diligent and sound process that has led to these results for the benefit of the Notre Dame family.
Investors had much to think about, and very few clear answers, during the fiscal year ended June 30, 2014. Significant geopolitical tensions, unstable and conflicting signals about economic growth and labor market trends, and the varied effects of aggressive central bank stimulus globally contributed to uncertainty, even as complacency often took hold in the markets.
This extraordinary period of ambiguity once again affirmed the value of the University’s long-standing investment philosophy, which we speak of often. It is anchored in three core principles: diversification, partnering with the highest quality managers in each asset class, and liquidity. This approach resulted in a fiscal year return for the Notre Dame Endowment Pool of 19.7 percent net of investment management fees, with the market value of the Pool increasing from $8.32 billion to $9.81 billion at the end of the year.
All asset classes produced strong returns, with performance led by the venture capital portfolio and emerging markets public equities managers. While both are volatile areas, we have not attempted to time these markets but entered them early and have remained committed to our strategy. These are areas where the benefit of partnering with the top managers clearly evidences itself, as the ability to identify opportunities and inefficiencies with some consistency can lead to substantial outperformance compared to benchmarks and to other asset classes. Asset allocation compared to internal Strategic Policy Portfolio targets at the end of the fiscal year is shown in the accompanying chart.
Multi-year performance of course is paramount for an endowment with an infinite time horizon, and trailing period returns up to 15 years for the Endowment Pool compared to various benchmarks are detailed below.
Endowment Pool Investment Performance (Periods ended June 30, 2014)
| 1 Year | 5 Years | 10 Years | 15 Years | |
|---|---|---|---|---|
| Notre Dame Endowment Pool (%) | 19.7 | 13.2 | 10.8 | 10.7 |
| Strategic Policy Portfolio (%) | 13.0 | 9.1 | 7.0 | 5.9 |
| TUCS Large Fund Median (%) | 16.5 | 12.8 | 7.6 | 6.4 |
| 60/40 Index Blend (%) | 15.5 | 11.0 | 7.0 | 5.6 |
Notre Dame Endowment Pool returns are net of investment management fees. The Strategic Policy Portfolio (SPP) 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.
Endowment Pool spending in fiscal 2014 in support of University activities was $300 million, funding 25 percent of the University’s expenditures during the year. Of this amount, 32 percent was directed to scholarships and fellowships for students. Over the 15 years shown on the accompanying spending chart, more than $2.7 billion was distributed from the Endowment Pool in furtherance of the University’s mission.
Achievement of the investment performance described above on a steady basis over lengthy periods of time despite market cycles or extraordinary situations like those that arose during the fiscal year, and the concurrent ability to increase spending from the Endowment Pool, demonstrates the effectiveness of our core investment philosophy. The challenge of course is in the implementation, and we will continue to adhere to the diligent and sound process that has led to these results for the benefit of the Notre Dame family.
Scott C. Malpass, Vice President and Chief Investment Officer