WFU endowment achieves 17 percent investment return

By Kevin Cox
October 15, 2004

The Wake Forest University endowment achieved a 17 percent investment return for the 12-month period that ended June 30, 2004. (See endowment chart.)

The endowment's total market value was $812.2 million at the end of the 2003-2004 fiscal year. In the past 10 years, the endowment has grown from $407 million to $812 million, taking into account market returns, additions and withdrawals.

"The fiscal year that ended June 30 was a very challenging period, as the first six months in which the market moved up were followed by a period of slow growth that resulted from the influence of rising interest rates, higher oil prices, fear of inflation and Middle East tensions," said Lou Morrell, vice president for investments and treasurer at Wake Forest.

The S&P 500 gained 15.1 percent for the first six months of the fiscal year, compared with 3.4 percent for the remainder of the year, resulting in a total return of 19.1 percent. In contrast, the portion of Wake Forest's endowment invested in global equities gained 24.3 percent.

The one-year total return of 17 percent placed the Wake Forest endowment in the 15th percentile among a large pool of institutional investment funds tracked by Aon Consulting indicating that Wake Forest's endowment outperformed 85 percent of the institutions in the pool. The 17 percent return for Wake Forest's portfolio stands in comparison to a benchmark return of 11.4 percent for a large pool of institutional portfolios tracked by Aon Consulting. During the past 10 years, Wake Forest has experienced an average annual return of 11.4 percent, placing it in the 4th percentile in terms of performance (exceeding the performance of 96 percent of the pool) among the same peer group tracked by Aon.

"It was good to see a recovery in the capital markets during the past fiscal year in which our excellent relative performance allowed the endowment to achieve a total return of $109.7 million," Morrell said. "Wake Forest takes a long-term view and has a very highly diversified asset mix, positioned globally. This should provide an opportunity for further future gains, as well as good capital preservation protection in the event of a negative investment environment."

Under the university's operating practices, an annual withdrawal was made from the endowment to support the operations of the institution. During the 2003-2004 fiscal year, $47.4 million was withdrawn from the endowment pool.

The assets in the endowment are highly diversified, set by a strategic asset allocation policy, according to Morrell. Using a blend of expected return, expected risk and expected correlation among asset classes, the university's investment policy committee has set the asset mix detailed on the chart accompanying this news release.

Investment performance varies across asset classes during capital market cycles which generally last, on average, a period of six years. Wake Forest evaluates its investment performance within asset classes through the use of a comparison between the return of the particular asset class and an appropriate benchmark.

The university also makes a performance evaluation of the overall portfolio through a comparison of its return with a benchmark that is based on a blend of the benchmark returns weighted by the various asset classes.

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