Investment Plan

Objective

The UNT Foundation Investment Portfolio is structured to provide a consistent level of inflation-adjusted returns within acceptable long-term risk levels. It consists of an allocation of assets among well-diversified equity, fixed income and alternative investments with a ratio of fifty eight percent (58%) Growth Assets, twenty nine percent (29%) Risk Reduction Assets, and thirteen percent (13%) Inflation Protection Assets. Managers in each of these classes are benchmarked against the appropriate style median for each.

The portfolio’s long-term compound expected return is eight percent (8%). To achieve these goals, the Foundation utilizes a select group of money managers that have a consistent performance track record versus their benchmark, a sound investment process, and experienced investment consultation.

National Investment Consultants Hammond Associates consults to over $18 billion in total assets. Founded in 1985, their 74 staff members provide consulting services to 44 higher education institutions, 30 Foundations, 14 pension plans, and 10 health care institutions. Superior service, a focus on research, education, and analysis allows Hammond to remain in the top tier of investment consultants nationwide.

Investment Portfolio Growth Assets (GA), Risk Reduction Assets (RRA), Inflation Protection Assets (IPA)
	Allocation
Equities	58%
US All-Cap Stocks (GA)	23%
US Large-Cap Quality Stocks (GA)	7%
International Large-Cap Stocks (GA)	19%
International Small-Cap Stocks (GA)	3%
Emerging Market Stocks (GA)	6%
Bonds	22%
US/Global Fixed Income (RRA)	19%
US Inflation-Protected Bonds (IPA)	3%
Alternatives	20%
Hedge Funds (RRA)	10%
Real Assets (IPA)	10%

The portfolio is biased toward blended returns from equities, fixed income securities, and alternative investments. The 58% position in Growth Assets combines with 29% in Risk Reduction Assets and 13% in Inflation Protection Assets. The resulting 75/25 ratio of equity securities to income vehicles is a common investment strategy employed by university foundations today. It is considered an appropriate model for Endowment funds and other long-term accounts that desire to meet a specified income distribution rate over normal long-term market cycles.

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Asset Allocation

58% of the portfolio in Growth Assets is split between US Equity and International Equity groupings

In the US Equity group are the Northern Trust Russell 3000 Index (15%), NWQ Large Cap Value Equity (4%), and Sands Capital Management (4%); three US All-Cap Stock managers. The US Large-Cap Quality manager is Vanguard Dividend Appreciation Index Fund (7%).

Representing the International Equity group are Barclays Global Investors International Alpha Tilts (19%) in the International Large-Cap stocks sector, Laudus International Small-Cap (3%) in the International Small-Cap sector, and Vanguard Emerging Markets Stock Index (6%) for the Emerging Market sector.

29% of the portfolio in Risk Reduction Assets is divided between US / Global Fixed Income and Hedge Funds

The US / Global Fixed Income section consists of the PIMCO Total Return Institutional Fund (14%), and the Brandywine Asset Management Global Bond Strategy (5%).

The Hedge Funds area consists of the Corbin Capital Partners, LP, Pinehurst Institutional Limited (5%), and Common Sense Investment Management, LLC Common Sense Offshore Limited (5%).

13% of the portfolio in Inflation Protection Assets includes Inflation-Protected Bonds (TIPS) and Real Assets

In the Inflation-Protected Bonds area is the Northern Trust TIPs Index (3%).

The Real Assets category includes the StreetTracks Wilshire REIT Index (2%), the BlackRock Diamond Property Fund, Inc. (4%) and the iShares GS Natural Resources Index (4%).

While the equity-weighted position likely will track the direction of the equity market, the portfolio is structured to be less volatile than the overall equity market due to the portfolio’s broad diversification to alternatives and the bond market.

Performance

Investment Pool Performance Periods Ending December 31, 2008*
	Actual (*HA Portfolio implemented 1/1/06)	Benchmark (75/25 S&P500/Lehman Aggregate)	10-Year Return Goal
Five Years	2.5%	-0.4%	7.9%
Three Years	-3.3%	-4.8%	7.9%
One Year	-27.6%	-28.0%	7.9%
Quarter	-14.8%	-15.7%	2.0%

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Manager Information

Northern Trust Russell 3000 Index’s primary objective is to approximate the risk and return characteristics of the Russell 3000 Index. This Index is commonly used to represent the broad U.S. equity market. To achieve its objective, the Fund employs a replication technique which generally seeks to hold each index constituent in its proportional index weight. The Fund may make limited use of futures and/or options for the purpose of maintaining equity exposure.

NWQ Large Cap Value Equity invests in undervalued companies which possess catalysts to improve profitability and/or unlock value. They capitalize on opportunities created by investor over-reaction, misperception, and short-term focus. Founded in 1982, NWQ is managed by an extensive team of thirteen portfolio managers and analysts.

Sands Capital Management manages a concentrated stock portfolio of large, well established companies it believes have the potential for further growth. These companies are deemed to be good prospects by possessing (1) a leadership position in the market, (2) financial strength, and (3) recognition as good value companies compared to their industry peers. Founded in 1990, Sands Capital is managed by Frank Sands, Sr., CFA and William Johnson.

Vanguard Dividend Appreciation Index Fund (VDAIX) tracks the performance of the Dividend Achievers Select index, a subset of the Broad Dividend Achievers Index, administered exclusively for Vanguard by Mergent. The index includes only those stocks with a history of at least 10 consecutive years of dividend increases and at least $500,000 in average daily trading volume. The index also filters the universe to eliminate certain segments such as REITs, thus adding a growth tilt in the process.

Barclays Global Investors (BGI), International Alpha Tilts is a quantitative, active strategy that attempts to systematically exploit market inefficiencies. BGI believes that markets are not perfectly efficient and, therefore, stocks can become over- or under-valued. At the heart of the strategy is a stock selection model which allows management to identify strong, profitable companies with quality earnings selling at attractive valuations. BGI applies the model to a large universe of stocks, taking many active positions.

Laudus International Small-Cap is a quantitatively enhanced fundamental investment product built on the belief that markets are inefficient and many stocks are undervalued based on their long-term earnings growth. The fund is managed by AXA Rosenberg. They apply a systematic approach to evaluate thousands of stocks on an ongoing basis based on a line by line analysis of financial statement items to put together a very diversified portfolio of international small-cap securities. AXA Rosenberg uses a valuation model combined with an earnings forecast model to rank each security in its universe. A portfolio optimization is then run frequently to balance the trade-off between risk and reward relative to the benchmark. Regional and sector weights are a residual of the stock selection process. AXA Rosenberg does not have traditional portfolio managers or analysts; instead their investment personnel are responsible for assimilating and checking input data on which their model relies. The firm was founded in 1985 by Dr. Barr Rosenberg and Mr. Ken Reid. The firm currently manages over $125 billion in assets, including $7.6 billion in the World ex-US Small-Cap strategy.

Vanguard Emerging Markets Stock Index is a passively managed, institutional class mutual fund (VEMAX) that seeks to track the performance of the MSCI Emerging Markets index which represents the emerging markets in Europe, Asia, Africa, and Latin America. Vanguard employs a full replication, low tracking error approach to implement this fund. Vanguard's Quantitative Equity Group is responsible for management of this fund, as well as the firm's other indexed and structured equity portfolios.

PIMCO Total Return Institutional Fund employs a “core plus” fixed income style. The non-core or plus sectors include non-investment grade US bonds (high yield), non-dollar denominated foreign bonds, and emerging market debt. The fund’s guidelines allow investments in high yield securities (rated B or better) up to 10% of total assets. The guideline limits exposure to the plus sectors to 30% of the portfolio. PIMCO normally hedges at least 75% of its exposure to foreign currency to reduce the risk of loss due to fluctuations in currency exchange rates. The fund is managed within a moderate duration range, typically one-and-one half years above or below that of the benchmark. As an efficient means of capturing exposure to a particular investment, they make substantial use of derivative instruments such as options, futures contracts or swap agreements, or in mortgage- or asset-backed securities.

Brandywine Asset Management, Global Bond Strategy is an active, tactical value-driven investment approach. Brandywine aims to outperform the Citigroup World Government Bond index by taking active positions in global bonds and currencies. The portfolio maintains an average credit rating of AAA with investments in a combination of sovereign debt, investment-grade corporate bonds, and mortgage backed securities.

Corbin Capital Partners, LP, Pinehurst Institutional Limited seeks to achieve substantial capital appreciation with limited volatility and low correlation to global equities and fixed income markets through investment in a broadly diversified portfolio of managers and strategies. The Fund will pursue its objective by investing the Fund’s assets in Pinehurst Partners, LP (“Pinehurst”), the onshore fund. Specifically, the Fund will target a return of T-Bills plus 7% to 9%, with volatility levels ranging from 5% to 7%.

Common Sense Investment Management, LLC Common Sense Offshore Limited seeks to preserve capital and provide superior risk-adjusted returns by generating positive absolute returns regardless of market direction. The Fund targets an annualized net return of 10% to 12% and endeavors to achieve this target with less volatility than the equity market over a market cycle. The firm has a conservative investment philosophy, taking a low-risk approach to investing (low use of leverage and low market exposure), where its primary objective is to avoid the loss of capital. The firm often invests with managers who are small and flexible and who are managing significantly less capital than their peers. Common Sense indicated that 75% of the underlying managers manage capital less than $500 million.

Northern Trust TIPs Index has an objective to track the risk and return characteristics of the Lehman Brothers Treasury Inflation Protected (TIPS) Index. The Index represents the Treasury Inflation Protected Securities segment of the U.S. fixed income market. The Fund provides the desired exposure using quantitative techniques which maintain the portfolio's neutrality to the index by monitoring a broad range of factors and avoiding excessive transaction costs. The Fund may make limited use of interest rate futures and/or options for the purpose of maintaining market exposure.

StreetTracks Wilshire REIT Index is an exchange-traded fund managed by State Street Global Advisors. It tracks the DJ Wilshire REIT index, which is comprised of equity REITS traded on US exchanges. The fund has 93 holdings and is diversified across all major property sectors.

BlackRock Diamond Property Fund, Inc. is an open ended private REIT that invests in a diversified portfolio of predominantly value-added real estate investments. Such investments will be made across the residential, office, retail, and industrial segments of the domestic real estate market.

iShares GS Natural Resources Index is an exchange-traded index fund that seeks to match the performance of the Goldman Sachs Natural Resources Index. The fund is a low-cost approach to achieving the performance of a basket of natural resource related stocks. The fund includes foreign-based companies that trade on a US exchange. Companies in the following categories are held: extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and owners of plantations. These companies are expected to benefit from unanticipated inflation, especially among commodity-based products. The bulk of the fund (78%) is in oil and oil services companies.

PIMCO Commodity RealReturn Institutional Fund’s objective is to provide diversification and protect investors against unexpected inflation. Management accomplishes this by entering swap contracts to receive the returns of the Dow Jones-AIG Commodity index. The swaps are fully collateralized, primarily with inflation-indexed securities (including TIPS), thus giving “Double Real” protection against inflation. If commodity prices increase, leading to higher inflation, investors will benefit from the exposure to the basket of commodities and receive the inflation adjustment on inflation-indexed securities.

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Monitoring and Rebalancing

The UNT Foundation Investment Committee meets at least quarterly with its Institutional Investment Consultant to review the portfolio’s performance and to address any issues or concerns. National and international economic trends and the anticipated performance of markets in future periods are discussed thoroughly. Actual individual and composite results for the portfolio are compared to the policy benchmark returns. In addition, changes in key management in the funds, internal and/or external changes affecting any asset class, and any changes in the investment process are evaluated.

Since asset allocation is the most critical component of the Foundation’s return, the portfolio will be rebalanced at least annually.

In addition, the portfolio will be rebalanced in the event any asset class allocation differs from policy by more than 20% of the target weight, but with a 2% minimum deviation threshold (before rebalancing is required). Alternative asset classes may require a longer period of time to achieve target allocation.

Governance

The University of North Texas Foundation, Inc. is a private, not-for-profit corporation. It was chartered June 27, 1972, under provisions of the Texas Non-profit Corporation Act to function as the legal conduit for the acceptance, investment, management and distribution of private gifts given for the funding of activities and programs related directly to the mission, role and scope of the University of North Texas.

Such gifts may include cash, property (real and otherwise), securities, life insurance policies, bequests, trusts, life income agreements, and gifts-in-kind. Gifts are administered according to the stipulations of the donors on behalf of the University in accord with federal, state and university laws, standards, policies and procedures. The U.S. Internal Revenue Service has ruled that gifts to the UNT Foundation are deductible for federal income tax purposes (subject to statutory limitations) and for federal estate and gift tax purposes. The Foundation is a tax-exempt entity under Section 501(c)(3) of the Internal Revenue Code.

The Foundation functions as a fiduciary entity on behalf of the donor of a gift and the University program or activity to be funded by the gift. An elected Board of Directors administers the affairs of the Foundation, including its investment policy and auditing of all accounts.

For more information:
endowunt@unt.edu
Office Phone – (940) 565-4555 or (800) 868-1153
Office FAX – (940) 369-7111

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