he investment committee of the Fund's board of directors is responsible for the effective and prudent investment of the endowment, a task essential to assuring a stable source of funds for programs and the foundation's perpetuity. The committee determines the allocation of the endowment among asset classes and hires external managers, who do the actual investing. Day-to-day responsibility for the management of the endowment rests with the Fund's executive vice president and COO/treasurer, who with the assistance of Cambridge Associates consultants, is also responsible for researching policy questions to be addressed by the committee. The committee meets at least twice a year with the Fund's principal external investment managers, at which time it also deliberates investment issues affecting the management of the endowment and considers new undertakings.
The value of the endowment rose from $498.3 million on June 30, 2003, to $571.2 million on June 30, 2004, reflecting a return of 20.6 percent on the investment portfolio during the year combined with total spending (including programs, administration, investment management fees, and taxes) of $27.98 million. In that 12-month period, the return of the Wilshire 5000 index of U.S. stocks was 21.2 percent; the return of the Lehman Aggregate Bond index was .3 percent; and the return of a benchmark portfolio weighting these two broad market indexes according to the Fund's target allocations of stocks and bonds during the year was 16.0 percent. The Fund's overall investment performance exceeded not only that of the weighted market benchmarks, but also the 13.0 percent produced by the median U.S. balanced manager during the fiscal year.
The Fund's team of marketable equity (U.S. and international) managers produced a combined 12-month return of 23.5 percent, well above the Wilshire 5000's 21.2 percent and the median U.S. equity manager's 21.6 percent. In a period of pronounced volatility in marketable equity markets, almost all of the foundation's equity managers produced very strong returns compared with their market benchmarks. The Fund's bond manager outperformed the Lehman Aggregate bond index (3.8 percent versus .3 percent), reflecting the ultimate payoff on an early bet on U.S. economic recovery. The foundation's private equities and real estate portfolios had particularly strong returns during the year, and its oil and gas portfolio benefited from the sale of Intrepid Energy North Sea, Ltd.—a holding which produced an average annual return of 20 percent over a seven-year investment period.
The Fund's investment returns in 2003-04 continued to benefit from the significant restructuring of the management of the endowment that the foundation's investment committee began in early 2000. The restructuring has been aimed at reducing the risk of performance significantly divergent from that of the overall market or peer institutions and at streamlining the management structure. The investment committee undertook further changes in the allocation of the endowment among asset classes during the year, principally by decreasing the U.S. marketable equities allocation from 35 percent to 30 percent, increasing the energy allocation to 5 percent of the endowment, and establishing a commodities allocation of 3 percent of the endowment.
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