Investment Management

Pooled Investment Asset Allocation (As of December 31, 2010)	Asset Growth (As of June 30, 2011)

 

 

For the Year Ended December 31, 2010

	Net total return	Risk (volatility)	Return per unit of risk taken (Sharpe)
Portfolio	9.4%	6.9%	1.4%
Policy Fund Benchmark (1)	13.7%	14.7%	0.9%
Portfolio Objectives Benchmark (2)	10.9%	14.3%	0.8%

(1)    The Portfolio Fund Benchmark is comprised of indexes specifically related to the individual investment strategies held in the portfolio

(2)    The Portfolio Objectives Benchmark is comprised of public benchmarks closely related to the objectives of Growth (MSCI All World Equities Index), Inflation hedging (CPI+2%), and Risk minimizing (Barclays Global Aggregate Bond Index)

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Quarterly Brief (as of 12/31/10)

The 4th quarter of calendar 2010 continued the blistering ramp up of stocks seen in September. Equities rocketed based on the realization that the Gulf oil spill was not going to create the economic or ecologic problem first feared, and that the sovereign debt situation in Greece and elsewhere in Europe was being handled well by the European Union dampening the fear of contagion throughout the developed world. The mitigation of these two risks plus the Federal Reserve Open Markets Committee decision to institute another round of quantitative easing whereby treasury bond yields would be maintained at very low levels drove investors into equities. The Federal Reserve’s plan was to make treasury’s less attractive and move investors into stocks, which in turn would increase stock prices with the demand and hopefully create a feeling of wealth in the American consumer. The thought is that this wealth effect would drive consumers to the mall and local auto dealerships.

For the quarter, global equities advanced 8.8% (on top of a 14.5% return for the previous quarter). This led to equities dominating the returns of the benchmarks, and outperformance of the benchmarks compared to the various lower risk and private equity investments in the portfolio. Real estate related publicly traded securities (REITS) also performed very well, as did liquid commodity based investments. Within the portfolio’s growth objective strategies, global public equities were the best performing area returning 9.7% and outperforming the global equities index benchmark by 0.9%. Strategies related to protecting against inflation were split with publicly traded strategies keeping pace with CPI and very strong commodities indexes (+15.8%), while private investments in natural resources lagged. Investments designed to reduce overall risk to the portfolio were slightly positive for the quarter but outperformed the global bond index, which was slightly negative for the quarter.

2010 review

The equities surge in the 4th quarter brought global equities into double digit territory for calendar 2010, which was a story of two halves. The year began with uncertainty due to continuing high unemployment and underemployment in the developed world, along with concerns over the ability of Greece, Spain, Ireland, and Portugal to meet their sovereign debt obligations. The “flash crash” of May 6th and Gulf oil disaster made markets much more uncertain about the current state of the global economy and the ability of injured economies to withstand additional headwinds. These issues led to another flight to safety driving Treasury yields downward and the US dollar upward. US equity markets were down 6%, international markets down 11%, commodities lost 10%, and bonds were flat. During that first half of 2010 the portfolio was down slightly and provided strong outperformance compared to the policy fund and portfolio objectives benchmarks. The outperformance came from the private and hedged investments as well as domestic bonds.

The second half of 2010 saw tremendous recovery in confidence regarding the global recovery as strong economic news (e.g. leading economic indicators) came in on top of coordinated plans to bail out several European sovereign debt problems. This activity led to the strongest US equity market in September and October since the depression. Global equity markets rose 24.5%, public real estate 28.3%, commodities rocketed 27.6%, and global bonds came back 5.9%. In this environment the portfolio posted double digit gains, but underperformed the policy fund and portfolio objectives benchmarks. The investments that had outperformed quite strongly in the first half of the year significantly lagged in the second half. So overall for the year the portfolio slightly underperformed both benchmarks while demonstrating much less volatility and providing protection when markets were dropping. It is our expectation that the portfolio will lag when equity markets take off, but more importantly provide downside protection when markets dive. We witnessed both of these characteristics in 2010.

Sincerely,

Kevin A. Edwards, CPA/CFA
Vice President of Finance and Chief Investment Officer
860.486.1203
kedwards@foundation.uconn.edu

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INVESTMENT STAFF

Kevin Edwards, Vice President of Finance and Chief Investment Officer  860-486-1203
Assistant: Hallie Wilson, Assistant to the Vice President of Finance and Chief Investment Officer  860-486-2965

Tim Nguyen, Director of Investments  860-486-4386
Shahid Farooqi, Investment Analyst  860-486-2912

Investment Interns

• Bingyu Ye
• Li-Chung Chang
• Qindong (Bruce) Liu