Fiscal 2012 Report

Report on Investment Performance for the fiscal year ending June 30, 2012

The market value of the LTIP as of June 30, 2012 was $1.65 billion. Performance for the year was 3.2%, net of all fees and expenses, compared with the benchmark return of -3.5%. Net performance of the LTIP exceeded the benchmark for 1, 3, 5 and 10 year periods. Rochester’s annualized 10 year net return is 7.4%, 1.8% per annum above the benchmark and close to the targeted net average annual return of 8%. Rochester posted a 7% alpha (the difference between benchmark and net return) in fiscal 2012, one of the highest achieved in the past decade and consistent with the pattern of outperformance in weak markets. Approximately 1.4% of fiscal 2012 return was carry-forward gain on private partnerships earned (but not reported to NACUBO) during fiscal 2011.

Asset Allocation and Performance

The chart below shows fiscal 2012 asset allocation targets for the LTIP. The Investment Committee will review asset allocation and risk at its September 2012 meeting and decide on changes to asset allocation at that time.

The LTIP has an allocation of 59% to alternative investments, consisting of hedge funds and partnerships that invest in real assets and equities of private companies. This allocation is near the mean allocation to alternatives of the largest educational endowments. The net average annualized ten year return of 8.9% per annum from the LTIP’s well-diversified alternative program is significantly above the performance of public equities, as shown on the enclosed performance chart. The LTIP’s alternative investments generate attractive returns with low correlation to public equities and also reduce volatility of year-to-year returns.

Performance by asset class is summarized below.

Public Equities

The publicly-traded equity portfolio represented 36% of the total portfolio, slightly below the target allocation of 37%. The publicly-traded equity portfolio returned 17.8% for the fiscal year, in excess of 16.6% for the MSCI All Country World Index (“ACWI”).

The publicly-traded equity portfolio represented 33% of the total portfolio, slightly above the target allocation of 32%. The publicly-traded equity portfolio returned -3.6% for the fiscal year compared to -6.5% for the MSCI All World Country Index.

Domestic equity represented 17% of the LTIP at the end of the fiscal year. Performance was 2.1% compared to 4.0% for the Dow Jones U.S. Total Stock Market benchmark. The group outperformed its benchmark for all longer time periods.

International equity represented 16% of the LTIP at the end of the fiscal year. Performance was -9.6% compared to -14.6% for the benchmark. The group outperformed its benchmark for all longer time periods. Emerging markets represent approximately 34% of the international allocation.

Hedge Funds

The hedge funds allocation was 20% at the end of the fiscal year, below the target allocation of 25%. The hedge fund portfolio returned 3.6% for the fiscal year, above the -3.5% return by the LTIP benchmark. The ten-year net annualized return was 7.5%.

Real Assets

Partnerships investing in real assets (real estate, energy and natural resources) represented 18% of the LTIP at the end of June, slightly above the target allocation. The real assets portfolio returned 5.9% for the fiscal year. The natural resources portfolio returned -5.6% for the year; the ten-year annualized return was 18.1%. The real estate portfolio returned 13.9% for the year; the ten-year net annualized return was 6.2%.

Private Equity

The LTIP’s private equity positions, consisting of partnerships investing in buy-out, venture-stage and distressed companies represented 22% of the LTIP at the end of the fiscal year. These partnerships returned 11.7% for the year. Ten-year net annualized return was 10.6%.

Fixed Income

Fixed income and cash equivalents allocation represented 8% of the LTIP. For the fiscal year, the LTIP’s fixed income and cash investments returned 5.2% compared to 7.5% for the Barclays U.S. Aggregate. Duration remains at approximately one-half the benchmark in order to protect the fixed portfolio from the possibility of rising interest rates. This positioning should protect the fixed income portfolio over the course of the next few years.

Liquidity

The LTIP has very good liquidity, with 60% of assets available within one year. The LTIP continues to receive significant distributions from private equity and real estate investments and has not drawn upon the line of credit to meet commitments.

Investment Reports for Previous Years »