Endowment Fund
June 30, 2006
Table of Contents
Introduction…………………………………….………………......….1
Endowment History………………………………........................…3
Endowment Growth…………………........................................4
Increases by Component……………………………….............5
Endowment Performance….…………………………………….7
NACUBO Comparisons…...……………………………………..…..8
Size & Endowment per FTE Student…………………….........9
Investment Performance……………………..…………..…….12
Asset Allocation……………………………………………….…16
Gift Flow Rate……………….…………………………………....18
Endowment Spending Rate..…………………………….....…21
Introduction
An endowment fund for an educational institution provides long-term continuous support for
various programs and services. Lehigh University recognizes the importance of providing
enduring financial support through endowment and desires to enhance its endowment position
through the procurement of new endowment contributions and the prudent management of its
invested funds.
Trustee Responsibilities
The University By-Laws provide that one of the general powers of the Board of Trustees is to
oversee the management of the University's endowment and investments. The Board has
delegated endowment management responsibility to its Finance Committee, which has specific
responsibility for endowment and similar funds as defined in the By-Laws as follows:
1. Establish and monitor investment policies and guidelines.
2. Manage investments through the appointment of managers and/or internal
management.
3. Review at least annually the investment performance.
4. Establish a policy regarding disbursement of income.
Because sound endowment management policy suggests a clear separation between certain
functions such as asset allocation decisions and the determination of endowment spending
policy, the Finance Committee has established an Investment Subcommittee that has particular
responsibilities for the endowment fund.
1
Introduction
Committee Membership
Trustee Finance Committee
F. J. Ingrassia, Chair
R. L. Brown, III
J. H. Glanville
J. R. Perella
R. C. Tschampion, III
M. K. Chrin
W. W. Crouse, III
A. K. Harkness
D. E. Singleton, III
M. D. Zisman
W. F. Hecht
E. J. Sussman
Investment Subcommittee
R. C. Tschampion, III, Chair
K. L. Clayton
P. N. Leitner
M. L. Paley
A. J. Greenwood
J. W. MacMurray
K. R. Parke
M. F. Hoben
J. B. Mc Gowan
Annual Reporting
The Trustee Finance Committee desires to report annually to the Board of Trustees upon the
status of the University's endowment fund. These reports will present the general progress
and stewardship of endowment at Lehigh. This report will give specific attention to:
1. Historical changes,
2. Performance and comparative data with other colleges and universities, and
3. Policies and procedures.
2
Endowment History
The University's Endowment Fund has experienced rapid growth in market
value over the past ten years from approximately $439 million at June 30,
1996, to $939 million at June 30, 2006. The value as of March 31, 2007 was
over $1 billion reflecting the favorable market conditions since June 30,
2006.
The market value increase over the past 10 years can be broken down into
the following components:
Gifts
Realized and Unrealized Gains
Reinvested Earnings
The following three pages highlight the market growth and the components
of that growth over the past 10 years. Lehigh Endowment Fund’s 25-year
performance history is provided on page 7. The endowment fund has
returned an average total annual return of 13.2% over the 25-year period,
which compares favorably to the composite index of 11.6%.
Lehigh University Endowment Fund
Growth History
$1,200
$1,000
Millions
$800
$600
$400
$200
$0
96
97
98
99
00
01
02
03
04
05
06
3/07
June 30
4
Endowment Increase by Components
June 30, 1996 through June 30, 2006
Bequests and Gifts
Investment Performance
Endowment Spending
Net Appreciation
Increase
$160,824,000
29%
398,495,000
71%
$715,925,000
(317,430,000)
$559,319,000 100%
5
Lehigh University Endowment Fund
Increase by Component June 30, 1996 to June 30, 2006
Gifts
29%
Appreciation (net
of spending)
71%
6
Lehigh University Endowment Fund
25 Year Performance History
1999
June 30
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
12.4
2000
2001
2002
2003
2004
2005
2006
Avg. Annual Return
Composite Index (65% Equities/35% Bonds)
Note: Returns for 1986 & after are net of manager fees
Total Return
-0.8
44.5
-1.4
28.9
24.3
20.8
3.3
18.6
8.3
6.1
13.6
15.4
2.1
18.6
16.9
21.4
21.8
19.3
-4.6
-5.7
7.2
16.1
9.5
12.0
12.6%
11.6%
7
NACUBO Comparisons
The NACUBO Endowment Study (NES) is an annual report prepared by
TIAA/CREF under the direction of the National Association of College
and University Business Officers (NACUBO). The report has been a
useful tool for colleges and universities to help evaluate the
effectiveness of their endowment policies and investment performance.
Lehigh has participated in the NES for over three decades. The 2006
Study reports on over 760 participating institutions of higher education.
The following pages compare various aspects of Lehigh's endowment
fund with one or more of: a) the universe of all participating colleges and
universities; b) participating independent schools; and c) participating
institutions of similar endowment size (over $500 million to $1 billion).
The latter, when available, is the most useful standard of comparison for
Lehigh.
8
NACUBO Comparisons
Endowment Size and Endowment per FTE Student
Page 10 indicates the growth of Lehigh's endowment fund from 1996
to 2006. As of June 30, 2006, the University ranks 70th in endowment
size among 765 participating institutions.
Lehigh's $154,189 endowment per FTE student compares favorably to
the $107,372 for independent institutions over $500 million to $1
billion and $126,357 for all independent institutions. Although we
have improved our position compared to these endowment
classifications, Lehigh continues to rank in the lower half of the list
among institutions with which we compete for students (see page
11).
9
NACUBO Comparisons
Endowment Size:
Lehigh
Rank
6/30/96
$438,721,000
59 of 472
Institutions
6/30/06
$939,473,000
70 of 765
Institutions
Endowment per FTE Student:
Lehigh
Rank (Independent Institutions)
Average - All Schools
Independent Institutions:
Over $500 million to $1 billion
All
6/30/96
$79,464
6/30/06
$154,189
92 of 319
95 of 517
$57,966
$49,453
$151,475
$79,089
$107,372
$126,357
10
Endowment per FTE Student
Lehigh vs. Aspirational Peers
June 30, 2006
Market Value
Institution
in 000s
Rice University
$3,986,664
Emory University
4,870,019
University of Notre Dame
4,436,624
Northwestern University
5,140,668
Lafayette College *
648,292
Brown University
2,166,633
Vanderbilt University
2,946,392
University of Pennsylvania
5,313,268
Cornell University
4,321,199
University of Rochester
1,491,275
LEHIGH UNIVERSITY
939,473
Tufts University
1,215,413
Carnegie Mellon University
939,581
Georgetown University
834,497
The George Washington University 963,697
FTE
Students
5,014
11,882
11,307
16,030
2,278
8,080
11,090
21,082
19,447
7,639
6,093
8,814
9,091
12,746
19,509
Endowment
per Student
795,107
409,865
392,379
320,690
284,588
268,148
265,680
252,029
222,204
195,219
154,189
137,896
103,353
65,471
49,398
* Lafayette College is included for informational purposes only.
11
NACUBO Comparisons
Investment Performance
Lehigh's endowment returns for the one, five and ten-year periods
ending June 30, 2006 ranked in the top third of all endowment pools.
Endowment returns for the one, five and ten year time periods meet
or exceed Lehigh’s performance objective of top third performance
vs. all endowment funds. Performance information can be found on
the following three pages.
12
Average Annual Return
Ending June 30, 2006 for Each Period
10 Yrs
5 Yrs
3 Yrs
10.4%
7.6%
12.5%
12.0%
8.8%
72/477
6.3%
130/589
11.9%
263/656
10.7%
236/700
9.8%
13/51
7.4%
20/55
13.8%
43/61
12.8%
40/61
9.0%
6.4%
12.0%
11.1%
12.6%
8.3%
8.1%
2.5%
17.5%
11.2%
16.2%
8.6%
LU Bonds
LB Aggregate
6.5%
6.2%
5.8%
5.0%
3.1%
2.1%
-0.1%
-0.8%
LU Composite Benchmark
7.9%
3.6%
8.0%
5.3%
Added Value over Benchmark
2.5%
4.0%
4.5%
6.7%
Lehigh University
All Endowment Funds
LU Rank
Over $500 million to $1 billion
LU Rank
Independent Institutions
LU Equity
S&P 500
1 Year
13
LU Investment Performance vs.
All Participating Institutions
June 30, 2006
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
-15.0%
LEHIGH
High
1st Q
2nd Q
3rd Q
Low
10 Years
5 Years
3 Years
1 Year
10.4%
17.2%
9.7%
8.7%
7.6%
3.4%
7.6%
14.5%
7.4%
6.2%
5.0%
-3.4%
12.5%
21.5%
13.6%
12.0%
10.2%
-2.3%
12.0%
23.0%
13.0%
10.8%
8.5%
-2.7%
14
LU Investment Performance vs.
Large Endowments
June 30, 2006
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
LEHIGH
High
1st Q
2nd Q
3rd Q
Low
10 Years
5 Years
3 Years
1 Year
10.4%
13.1%
10.4%
9.5%
8.6%
6.9%
7.6%
11.8%
7.9%
6.9%
6.2%
4.4%
12.5%
18.7%
15.0%
13.4%
12.0%
8.1%
12.0%
20.0%
14.0%
13.0%
11.0%
5.6%
15
NACUBO Comparisons
Asset Allocation
The asset allocation of Lehigh's endowment fund at June 30, 2006
tends to reflect the average of all participating institutions with
exception of under weightings in domestic equities and cash and
over weightings in non-U.S. equities and fixed income. The following
page indicates asset allocation data as of June 30, 1996 and 2006.
16
Asset Allocation
June 30, 2006
6/30/96
LU
Average
Equity – U.S.
6/30/06
LU
Average
45.0%
51.6%
37.1%
42.5%
-
2.1%
21.4%
15.2%
Fixed Income
32.7%
28.0%
17.5%
20.2%
Cash
19.8%
10.7%
1.5%
3.4%
1.8%
1.1%
2.7%
2.8%
Hedge Funds
-
-
10.8%
9.5%
Natural Resources
-
-
Real Estate
0.4%
4.0%
0.1%
3.5%
Other
0.3%
2.5%
8.9%
1.4%
100.0%
100.0%
Equity – Global/Foreign
Private Equity/Venture Capital
TOTAL
-
1.5%
100.0% 100.0%
17
NACUBO Comparisons
Endowment Gift Flow Rate
The endowment gift flow rate measures the percent of the market
value increase at June 30 related to gifts received during the year. The
percentage can fluctuate significantly depending on the gift activity,
such as endowment campaign gifts and large bequests received, in a
particular year. The year by year gift flow rate is charted on the
following page.
Fiscal year 1996
Fiscal year 2006
Lehigh University
1.8%
3.1%
Average - All Institutions
5.4%
3.3%
Over $1 billion
Over $500 million to $1 billion
Over $100 million to $400 million
N/A
N/A
4.9%
2.7%
3.5%
N/A
Independent Institutions
3.7%
2.6%
18
Gift Flow Rate
Fiscal Year 1996-2006
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
96
97
98
99
00
Lehigh
01
02
03
04
05
06
Large Endowments
19
NACUBO Comparisons
Endowment Growth and Gifts
Year to year endowment growth is influenced by gifts and investment performance.
The university has experienced a period of exceptional investment performance over
the past 10 years. This has added to the value of the endowment fund resulting in
additional income for the university’s educational mission. While we are pleased with
the success of the investment results, we recognize that future returns are forecasted
to be modest. For example, long term rates of return in the 8% range are expected to be
the norm in the coming years. With the endowment spending of roughly 5% annually,
the remaining 3% will help keep pace with the inflation rate and hopefully maintain the
purchasing power of the endowment fund.
If we are to meet the challenge of endowment growth relative to our peers, gifts to
endowment will be the key. A significant portion (60%) of Shine Forever: The Campaign
for Lehigh, our current comprehensive campaign, is focused on endowment,
particularly for endowed scholarships and endowed chairs. While Lehigh maintains a
strong planned giving program to encourage testamentary gifts to endowment, the
campaign provides an opportunity to emphasize current gifts to endowment from
alumni and friends. These gifts will be the cornerstone to future growth of the
endowment fund.
20
NACUBO Comparisons
Endowment Spending Rate
Below are details of Lehigh's spending as a percentage of the current
year’s average market value.
Lehigh’s spending rate in 2006 was
below the NACUBO average for all endowments, the average for
endowments over $500 million to $1 billion, and the independent
institution average. Further information regarding Lehigh’s spending
policy and historic spending rates can be found on following two
pages.
FISCAL YEAR
1996
2006
Lehigh University
4.7%
4.4%
Average - All Institutions
4.4%
4.6%
Over $500 million to $1 billion
Over $100 million to $400 million
N/A
4.3%
4.5%
4.6%
Independent Institutions
4.5%
4.8%
21
Endowment Spending Rate
1997 - 2006
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
96
97
98
99
00
Lehigh
01
02
03
04
05
06
Large Endowments
22
NACUBO Comparisons
Endowment Fund Spending Policy
In fiscal year 1990-91, the University implemented a market value
based spending policy that was adopted by the Finance Committee
and the Board of Trustees at its April 1989 meeting. This policy
provided for annual spending based on 5% of a three-year moving
average market value (using quarterly market values) with a minimum
increase of 3% per year and a maximum increase of 6% per year over
prior year’s spending rate. The policy minimum and maximum
increases were changed to 0% and 10%, respectively, in fiscal year
2001.
23