CEF 2023

Investment

Investment

Investment Performance

For the fiscal year ending June 30, 2023 (FY23), the University of Washington's Consolidated Endowment Fund (CEF) returned +6.0% versus +11.3% for the passive benchmark and +6.1% for the public university peer median. Following a dismal FY22, global public equity markets recovered strongly in FY23. Monetary tightening continued throughout the fiscal year and equity markets benefited from rising optimism as inflation moderated. There was significant dispersion between developed and emerging markets this year with U.S. equities leading gains and emerging markets underperforming significantly. While overall relative performance lagged, the CEF had positive absolute and relative performance across most portfolio strategies.

Our focus remains on long-term results, where the CEF has maintained solid relative performance. The chart below shows that the CEF has returned +7.7%, +8.2% and +8.2% for the 5-, 10- and 20-year periods, respectively, and outperforms the passive benchmark for all those periods. UW performance relative to public peers is near median for FY23 but remains above median for the 10- and 20-year periods.

The 20-year perspective highlights remarkable growth for the endowment. The CEF grew from $1.0 billion to $4.9 billion over this period, driven by a mix of investment returns and new gifts. The CEF distributed $2.4 billion of cumulative investment returns primarily to support campus scholarships, professorships, and research over the last 20 years.

Investment Strategy

Asset allocation is critical to balancing the long-term potential return and the risk tolerance appropriate for the University of Washington.

The CEF's $4.9 billion portfolio is diversified across two distinct investment categories: capital appreciation and capital preservation. Capital appreciation investments are growth oriented and support the purchasing power of campus distributions over time. Capital preservation investments are stability oriented and facilitate liquidity. As of June 30, 2023, 75% of the CEF was invested in capital appreciation and 25% in capital preservation. Our long-term strategy is to favor an equity-oriented portfolio. In FY21 we revised our strategic asset allocation policy targets to increase our private equity exposure. This was phased in over three years and was fully implemented as of July 1, 2023. We continue to target ample liquidity within capital preservation to meet the CEF's funding requirements.

Spending Policy

The Board of Regents is vested with the responsibility to set an endowment distribution spending policy that balances the needs of current endowment beneficiaries with the requirement to protect the corpus of the endowment to meet future University needs. On February 14, 2019 the Board of Regents approved an amendment to the Consolidated Endowment Fund Policy to implement a phased reduction from 5.0% to 4.5% by FY2022.

The CEF distributes quarterly to programs based on an annual percentage rate of 3.6%, applied to the five-year rolling average of the CEF's market value. Additionally, the CEF Investment Policy allows for an administrative fee of 0.90% which supports campus-wide fundraising and stewardship activities and offsets the internal cost of managing endowment assets.

Absent a major market correction or prolonged downturn, distributions to campus are projected to increase going forward as FY21 performance (+35.1%) continues to factor into the five-year rolling average spending formula. Additionally, risk-free cash rates have risen significantly to over +4.0%, helping boost our return projection and the ability to meet our total spending hurdle. UWINCO, along with senior administration and the Regents, will continue to monitor spending to ensure alignment with projected longer-term returns and best practices.