The long-term policy benchmark reflects the target allocation set by the committee in broad terms, but does not reflect specific market views. Benchmark indices are limited exclusively to domestic stocks (85% Russell 3000 Index) and bonds (15% Lehman Long-Term Treasury Index). This benchmark is in effect the "default" position of the portfolio, which should not change much over time.
The strategic policy benchmark incorporates more detailed market views and fine-tunes the equity and bond investments into narrower asset classes (e.g., Developed International Markets, Emerging International Markets, and Real Assets). Asset allocation weights reflect the market views towards expected returns, as well as risk and the correlation matrices.Portfolio performance versus this benchmark performance reflects the combined impact of three factors: (1) The ability to invest in the right sectors, (2) Tactical asset allocation bets in variance to the strategic policy, and (3) Skill in selecting securities, managers and partnerships. The greater the percentage of the portfolio that is invested in opportunistic positions, the more likely will the performance deviate from the strategic policy benchmark.
The tactical policy benchmark captures the actual implementation of strategic and opportunistic decisions by fine tuning the benchmarks even further and applying asset class index targets to the actual allocation rather than to the policy allocation. This benchmark will measure management skill in selecting securities, managers, and partnerships. This benchmark need never be explicitly reconstituted since performance will be derived automatically as a function of portfolio exposures.
The Cambridge College & University Index is composed of the investment pools of approximately 139 U.S. colleges and universities. The median investment pool size was $432.1 million as of June 30, 2001. The index's total return, which will be used to measure overall fund performance, is calculated as the mean total return of the participating investment pools. The current quarter's return is estimated as the TRIP return for annualized calculations.
II. TRIP ASSET CLASS BENCHMARKS
Custom weighted blend of Russell 1000, 1000 Value, 2000, and 2000 Value Indices
MSCI World Ex-US Index
The Morgan Stanley Capital International (MSCI) World Ex-US Index comprises the entire developed world less the United States. The designation of a country as developed arises primarily as a measurement of GDP per capita. There are 21 countries within this index.
MSCI World Ex-US Small Cap
The MSCI World Ex-US Small Cap Index is the small cap component of the MSCI World Ex-US Standard Index. Securities selected represent 40% of the small cap asset class in each developed market on a capitalization-weighted basis.
MSCI Emerging Free Index
The MSCI Emerging Free Index includes emerging opportunities available to a non-domestic investor. Inclusion into the emerging market benchmarks is also primarily based upon GDP per capita. There are 26 countries included in this index.
Weighted Cambridge Mean
The Weighted Cambridge Mean is comprised of buyout and venture capital partnership returns compiled by Cambridge Associates. This return is time weighted and approximates our venture capital and buyout concentrations for each time period. This benchmark is compiled on a one-quarter lag basis.
Custom weighted blend of MSCI Hedge Fund Sub-Indices.
Inflation
Inflation, as measured by the all-urban consumer price index (CPI), is the basis for the Strategic Policy benchmark for each of the asset classes listed above.
Timberland = CPI + 5%
Oil & Gas = CPI +5%
NCREIF Core Index
The National Council of Real Estate Investment Fiduciaries (NCREIF) calculates a number of real estate related benchmarks. NCREIF Core Index is comprised of return series for various properties in each region of the U.S. The index comprises properties
by type and subtype by region and division. The return series analyzes appreciation, income, market value, and total return. This benchmark is compiled on a one-quarter lag basis.
Lehman Long-Term Treasury Index
The Lehman Long-Term Treasury Index is comprised of all Treasury issues
with maturities of ten years or greater, and has outstanding par values
of $100 Million or more. Treasury Strips and TIPS are excluded from
the index.
90-Day T-Bill
The compilation of the actual 90-day T-Bill rate as calculated by Merrill Lynch will be used as a benchmark for the University's cash investments.