The mission of the University of Chicago’s Office of Investments and the Investment Committee of the Board of Trustees is to provide stewardship of the University’s investment assets. This includes managing the University’s endowment to support the University’s academic programs and ensure that the endowment benefits both current and future generations. The University’s endowment is largely invested in the Total Return Investment Pool (TRIP). The investment objective of TRIP is to achieve a high return consistent with a level of risk that is appropriate for the University. The Office of Investments takes a Total Enterprise Asset Management (TEAM) approach in designing the investment strategy of TRIP. A TEAM approach takes into account the economic risks borne by the University, such as growth objectives and debt ratios, in selecting an appropriate level of risk for TRIP. Our primary measure of risk in the portfolio is the Global Equity Factor (GEF), a metric that is similar in concept to beta. A secondary measure of risk in the portfolio is the amount of private investments that should be targeted.
Through the TEAM approach, the Office of Investments, in consultation with the Investment Committee, has determined that a portfolio with a long-term central tendency GEF of 0.80 is appropriate for the University. TRIP’s GEF may vary within the policy range of 0.7 and 0.9 (see table 1). At the end of fiscal year 2014, the portfolio was positioned at a 0.75 target GEF beta, which was the previously set level. The move to 0.80 will be deliberate and thoughtful, with a 0.77 target for fiscal year 2015.
Additionally, the portfolio seeks to achieve exposure to private assets of approximately 35 percent in normal market environments. The portfolio is currently in line with its private investment target. Going forward, the exposure to private assets may vary widely depending on market conditions. Should there be material changes to the financial conditions of the University or investment markets, the Office of Investments and Investment Committee will revisit these parameters.
TRIP invests in a broad array of assets, including global stocks and bonds, real estate, natural resources, private equities, absolute return strategies, and portfolio protection (tail hedging) strategies. The Office of Investments achieves exposure to these categories by selecting and engaging external managers. The Office of Investments may also make direct investments and co-investments in these asset categories, and may also use exchange traded derivatives to ensure adherence to investment policy and risk parameters. In seeking to maximize returns given these risk parameters, the Office of Investments recommends an annual investment plan of broad asset class ranges and a private investment commitment budget, which is reviewed and approved by the Investment Committee. The annual investment plan is an implementable policy statement of our TEAM-driven risk and liquidity targets.