Investments

As of June 30, 2011, the consolidated endowment for the College totaled $624.7 million—a new high watermark for those endowments supporting the College’s programs. Compared to the previous year’s total of $539.5 million, the endowment increased by $85.1 million, or 15.8 percent. Most of that gain was attributable to the strong investment performance of the William & Mary Investment Trust (WAMIT), which reported a $54.2 million gain in  its investment operations for fiscal year 2011 and a $27.2 million increase in the value of funds held by others for the benefit of the College. Despite a  challenging economic climate, WAMIT earned a commendable 14.6 percent investment return for fiscal year 2011 (July 1, 2010, to June 30, 2011).  While WAMIT’s fiscal year 2011 return did not fully capture the strong rally in public equities, it is a more defensive portfolio with a diversified complement of investment strategies and structures that continues to deliver solid risk adjusted returns over the long term under varying circumstances.

As of June 30, 2011, the Investments Committee had oversight responsibility through WAMIT of approximately $420 million in investable assets.   Representative ownership in WAMIT consisted of 87.9 percent belonging to The College of William & Mary Foundation (CWMF), 6.1 percent belonging to the Marshall-Wythe School of Law Foundation, 4.2 percent belonging to the William & Mary School of Business Foundation and 1.8 percent belonging to the VIMS Foundation. Collectively, WAMIT investments represent approximately 67 percent of the $624.7 million in total endowment resources that benefit the College.

WAMIT performance is tied to the highly diversified active management structure of the portfolio. Within this structure, domestic stocks, representing all cap sizes, make up 18.4 percent of the portfolio—up 2.2 percent from last year’s June 30 weighting of 16.2 percent. WAMIT’s domestic equity  managers returned a composite of 27.3 percent for the year, underperforming the broad Russell 3000 Index and the larger cap S&P 500 Index, which returned 32.4 percent and 30.7 percent, respectively.

Foreign equity invested in developed regions of Europe, Asia and North America (ex-U.S.) had a portfolio representation of approximately 10.5 percent at June 30, up from last year’s weighting at 9.1 percent. Investment performance was a strong 30.1 percent, right in line with the 30.3 percent return of the MSCI World ex-U.S. Index benchmark. Investments in the emerging markets, now at approximately 8.0 percent of the portfolio, produced a 15.3 percent return, trailing the benchmark MSCI Emerging Markets Index of 28.2 percent by some 12.9 percent. Specific investments in the Asian Pacific markets and India contributed to underperformance against the benchmark.

Marketable Alternatives consist of two component asset classes: Absolute Return and Special Situations. Generally, investments in Absolute Return are those designed to consistently produce a positive return that would at a minimum equate to the yield of the CPI plus 5 percent (typically high single digits). Investments in Special Situations are opportunistic in nature and consequently reflect strategies that seek to maximize returns from situations perceived to be temporary aberrations in market pricing. Each manager in our Absolute Return category is structured as a hedge fund. As a group, these managers delivered 8.4 percent in return in fiscal year 2011. Special Situations is currently populated with managers, seeking to exploit market dislocations in areas such as distressed credit and event arbitrage. Combined, these Special Situation strategies comprised 15 percent of the portfolio and returned 11.8 percent. Together, Absolute Return and Special Situations comprised approximately 36.2 percent of the WAMIT portfolio at June 30. The blended return of these two strategies was 9.7 percent for the year, exceeding the 8.6 percent CPI plus 5 percent benchmark.

Private Equity, consisting of buyouts and venture capital, constituted approximately 6.6 percent of total assets at June 30 against a targeted policy allocation of 8 percent. Private equity had a 17.1 percent return in 2011. Our internal long-term benchmark for private equity is the S&P 500 plus 5 percent, reflecting what we perceive to be the opportunity cost in deviating from the public market. This benchmark returned 35.9 percent for the year.

The fixed income portion of the portfolio returned 4.9 percent for the fiscal year. This compares to the 3.9 percent return of the Barclays Capital U.S. Aggregate Bond Index. In Real Assets, an asset class comprised of investments in commodities, natural resources (oil, gas and timber) and equity real estate, WAMIT’s strategies had a combined return of 9.5 percent, outperforming the CPI plus 5 percent benchmark of 8.6 percent by 0.9 percent. At June 30, fixed income carried an 8.3 percent weight in the portfolio, real assets a 7.8 percent weight, and cash a 3.2 percent weight with a corresponding amount slightly in excess of $13.3 million.

As noted above, participants in WAMIT include The College of William & Mary Foundation, which is responsible for WAMIT’s oversight, as well as foundations supporting the Mason School of Business, William & Mary Law School and the Virginia Institute of Marine Science. All participants in WAMIT have the same exposure and access to asset classes and investment managers, and each is allowed to determine its own spending rate. This year 11 CWMF trustees served on the Investments Committee, all of whom are highly experienced investment management practitioners who volunteer their time and expertise to assist the Investment Administration staff in making strategic decisions about asset allocation, investments and managers.