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The Endowment

Investment Performance Commentary for the Year Ending June 30, 2006

Rochester's net return for the fiscal year ending June 30, 2006 was approximately 14.0%, substantially above the 8.0% goal contained in the University's financial plan. It is above the benchmark return of 10.9% (comprised of 60% Wilshire 5000, 20% Lehman Aggregate and 20% EAFE).

The endowment value at the end of the fiscal year was approximately $1.52 billion, roughly $135 million above the reported value at the beginning of the year. The change in endowment value was attributable to investment returns of $189 million, gifts and additions of $31 million and spending and withdrawals of $85 million. Rochester's five-year average annual return through June 30, 2006 is 8.5% vs. 5.6% for the benchmark. The ten-year average annual return through June 30, 2005 is 10.9% vs. 7.8% for the benchmark.

Major asset classes generated the following performances in fiscal year 2006:

  • Domestic equity managers returned 7.5% compared to 9.9% for the domestic equity benchmark (Wilshire 5000), a disappointing year.
  • Domestic fixed income returned -0.4%, exceeding the -0.8% return for the benchmark (Lehman Aggregate). Duration on the University's fixed income portfolio decreased slightly to 5.25 years in fiscal 2006, reflecting increased exposure to intermediate term bonds. Inclusion of short-term investments lowered the effective duration to 3.9 years.
  • International equities returned 27.3% compared to 26.6% for the benchmark (EAFE). Active management, similar to the domestic equity program, accounted for the outperformance.
  • The alternative investment program generated a net return of 15.3%. Hedge funds returned 13.5%, private equity returned 24.2% and real assets returned 29.9%.

It is important to note that Rochester's return was generated through the efforts of many talented advisors, investment committee members, consultants and investment office staff. It is the consensus of these groups that, over time, the University of Rochester's target return of 8% per annum is achievable.

Sincerely,

Robert M Osieski signature        Douglas W. Phillips signature
Robert M. Osieski
Trustee, Chairman of the
Investment Committee
       Douglas W. Phillips
Senior Vice President for
Institutional Resources