| January 2005 | Volume 2, Issue 4 |
|
FUND UPDATETo bear or not to bearFoundation assets,like others, caught in third quarter quandaryA slowing economy in the third quarter of 2004 led to an abrupt decline in market growth, and left many analysts disputing whether the market was turning to “bearish” times. |
The UNT Foundation’s fund pools reflected the national downturn. The Foundation’s Growth Pool return tumbled to a negative 3.79 percent in the third quarter after gains in the preceding three quarters.
The Foundation’s Growth & Income Pool return fell to a negative 1.66 percent after three consecutive gains, the last two exceeding benchmarks.
Analysts were quick to point out that despite third quarter market activity, the economy was showing signs of strengthening. Orie E. Dudley, chief investment officer for Northern Trust, labeled the downturn as a market “correction.”
“When we look at economic and corporate performance, we remain encouraged, and do not think we’re facing a bear market,” he stated in the September edition of Market Signals, Northern Trusts’ newsletter. “While we are obviously not pleased with recent market activity, we recognize that corrections are a normal occurrence, particularly in strong markets.”
Dr. Jim Paulsen, chief investment strategist for Wells Fargo Investments, stated in the company’s October newsletter that the sluggish economy was based on fear of oil prices and unemployment, and that concerns about both should be short-lived.
Both analysts said that despite discouraging initial third quarter unemployment reports, later numbers showed that companies were hiring more. Household surveys also showed employment growth, Dr. Paulsen stated.
Like Dudley, he noted that the “terror premium” placed on fuel prices would recede as the sense of caution lessened.
Despite third quarter performance, the Foundation’s two investment pools still showed double-digit return percentages for the last twelve months.
The Growth Pool posted a 12.26 percent return between October 2003 and September 2004. The Growth & Income Pool showed a return of 10.4 percent in the same period.
The Foundation’s assets at the end of the 2004 third quarter, including additional contributions, were $46.2 million, compared with $38.8 million at the same time in 2003.
Investment
Performance 10/1/03 - 9/30/04 |
||||
| Growth pool performance | Growth benchmarks | Growth & income pool performance | Growth & income benchmarks | |
|---|---|---|---|---|
12/31/2003 |
9.51% | 8.26% | 12.17% | 10.99% |
3/31/2004 |
2.71% | 2.77% | 3.5% | 3.51% |
6/30/2004 |
0.75% | 0.9% | 0.94% | 1.56% |
9/30/2004 |
-0.46% | -1.66% | -1.57% | -3.79% |
Quarters to date |
12.8% | 10.4% | 15.35% | 12.26% |
Remember the UNT Foundation in your WILL. |
Investment Committee keeps watchful eye on fund health
Foundation acts quickly on investment firm’s oversight
The UNT Foundation’s Investment Committee is at the core of investment policy and decision-making. Committee chair Jack Wall says that achieving a balance between distributions and fund growth is just one of his group’s responsibilities.
While national market performance produced disappointing third quarter returns, the Foundation encountered another setback of its own, and the Investment Committee served its function as a protector of assets.
One of the Foundation’s money managers, the Wasatch Group, reported a surprisingly poor fund performance, and the Investment Committee took action.
“We saw that they had been performing particularly well throughout the year, but in the third quarter they underperformed their benchmarks,” Wall said. “Within three weeks of the third quarter report we had a conference call” to get answers.
Wall said the individual who led a Wasatch team in managing the Foundation’s assets was promoted to a chief financial officer position in the company. For a short time, the team lacked a manager.
In the interim, a timely fund reallocation was missed.
“What we discussed was, ‘Do we just fire them, or could we live with them after this one glitch?’” Wall said. “Frankly, you can’t afford a glitch when you’re talking about fiduciary funds.”
Wall said that the Foundation, and particularly the Investment Committee, is carefully scrutinizing Wasatch performance in the fourth quarter. Wasatch has performed well with the Foundation’s portfolio since it was employed in April 2002. Assets have grown from $3.5 million at inception to $5.1 million as of November 2004, with additional contributions.
Wasatch Ultra Growth Fund performance over time (Cumulative performance as of September 30, 2004) |
||
| Wasatch Fund | Russell 2000 Fund | |
1 year |
-2.1% |
11.9% |
3 year |
11.2% |
9.1% |
5 year |
12.8% |
-0.7% |
The Investment Committee, comprised of eight Foundation board members, recommends money managers and asset classes to the Foundation board, Wall said. “We manage money managers.”
The committee also monitors performance. “We watch them all very closely,” Wall said, “some in smaller increments than quarterly reports.”
The committee’s other primary function is to allocate investments and income, and that can be challenging, Wall said. Maintaining investment levels to negate inflation’s effect on an endowment, while making distributions to satisfy the endowment’s purpose, “really makes you look hard at your allocation,” he said.
“All colleges and universities have difficulty bringing in unrestricted funds. Those funds can help with the distributions during bad times in the market.”
Wall said that without that option “we have to count on market performance to pay distributions.”
That, in turn, underscores the importance of monitoring fund performance.
Website updated: February 1, 2005. Website comments or corrections: rsimmans@unt.edu