As of June 30, 2012, the consolidated endowment for William & Mary totaled $644.2 million—another new high watermark! Compared to the previous year’s total of $624.7 million, the endowment increased by $19.5 million, or 3.1 percent. Strong gift flow and substantial increases in the value of assets held in external trusts were main drivers of asset growth. While matching its blended benchmark, investment performance limited overall growth as the William & Mary Investment Trust (“WAMIT”), the largest of the investment portfolios, earned a -1.4 percent rate of return for the fiscal year ending June 30, 2012. This performance reflected the present difficulties of investing in the challenging, at times turbulent, environment of today’s inter-connected global economies.
The composition of WAMIT’s policy benchmark is reflective of the broadly diversified investment opportunity set in which WAMIT invests. As a result, the blended policy benchmark is comprised of a 56 percent weighting to the MSCI All Country World Index, a 24 percent weighting to the Barclays Capital U.S. Aggregate Bond Index, a 2 percent weighting to the Barclays Capital U.S. Credit Index, an 8 percent weighting to the Barclays Capital U.S. High Yield Index, and a 10 percent weighting to the Dow Jones-UBS Commodity Index.
Domestic stocks, representing all cap sizes, make up an approximate19.9 percent weighting in the portfolio—up 1.5 percent from last year’s June 30 weighting of 18.4 percent. WAMIT’s domestic equity managers returned a composite of 4.1 percent for the year, outperforming the broad Russell 3000 Index which returned 3.8 percent. Comparatively, the large cap S&P 500 Index returned 5.5 percent for the fiscal year.
Foreign equity invested in developed regions of Europe, Asia and the Far East had a portfolio representation of approximately 10.3 percent at June 30, reduced slightly from last year’s weighting at 10.5 percent. Despite investment performance of -7.9 percent, our participation in developed foreign markets was significantly better than the -13.8 percent benchmark return of the MSCI EAFE Index. During the course of the year, investments in the emerging markets decreased from about 8 percent to 6.2 percent of the portfolio. Plagued by uncertainties in the global markets and accompanying negative sentiment, the emerging markets felt the brunt of investors’ nervousness and compelling need to decrease risk. WAMIT’s exposure to the emerging markets produced our largest disappointment with a return of -17.1 percent, trailing the benchmark return of the MSCI Emerging Markets Index of -15.7 percent by some 1.4 percent.
WAMIT’s exposure to Marketable Alternatives comes in 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 inflation plus spending (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 or where specific financing can measurably improve asset quality and a company’s balance sheet. Together, Absolute Return and Special Situations comprised approximately 33.1 percent of the WAMIT portfolio as of June 30, 2012, down slightly from a 36.1 percent allocation the year before, and returned -0.9 percent. Individually, managers in our Absolute Return category had a tough year navigating the choppy waters in the alternative space, generating a -2.9 percent return. However the category fared better than the collective aggregate that comprise the benchmark HFR Fund of Funds Composite, which returned -4.4 percent. Managers in Special Situations, predominantly those engaged in credit and restructuring strategies, produced a 2.5 percent return, well exceeding the HFR Distressed Securities benchmark which returned -3.4 percent.
Private Equity constituted approximately 9.3 percent of total assets at June 30, 2012, up from 6.6 percent at the end of the prior year. With WAMIT’s targeted policy allocation at 12 percent, the private equity portion of the portfolio remains conspicuously beneath our preferred exposure level. However some newer commitments are now beginning to call capital and other opportunities continue to be examined with careful due diligence. Private equity had a 3.1 percent return in 2012. The benchmark used for private equity is the Russell 3000 Index, reflecting what we perceive to be the opportunity cost in deviating from the broad public market. This benchmark returned 3.8 percent for the year.
The fixed income portion of the portfolio returned 7 percent for the fiscal year. This compares to the 7.5 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 blended exposures had a combined return of 2.7 percent, outperforming the Dow Jones-UBS Commodity Index of -14.3 percent by an impressive 17 percent. At June 30, 2012, fixed income carried an 8.7 percent weight in the portfolio, real assets a 9.0 percent weight, and cash a 3.3 percent weight with a corresponding amount slightly in excess of $13.6 million.
As of June 30, 2012, the Investments Committee had oversight responsibility of approximately $417 million in investable assets contained within WAMIT. At that time, representative ownership in WAMIT consisted of 87.4 percent belonging to The College of William & Mary Foundation (CWMF), 5.9 percent belonging to the Marshall-Wythe School of Law Foundation, 4.7 percent belonging to the William & Mary School of Business Foundation, and 2 percent belonging to the VIMS Foundation. Collectively, WAMIT investments represent approximately 64.7 percent of the $644.2 million in total endowment resources that benefit William & Mary.
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 Investment Administration staff in making strategic decisions about asset allocation, investments and managers.