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

Since asset allocation is the most critical component of the UNT Foundation's return, the portfolio is re-balanced at least annually, or more frequently as necessary. Due to their more limited liquidity options, alternative investment assets may require a longer period of time to effect re-balancing to achieve the target allocation.

The UNT Foundation invests to have a lasting beneficial impact to the University of North Texas. The Foundation’s investment goal is to earn attractive long-term risk-adjusted returns to preserve the purchasing power of gifts made to endowments; fund distributions which provide a dependable revenue source to the University; and cover Foundation expenses. Its investment objectives are based upon a long-term investment horizon, consistent with supporting UNT in perpetuity; allowing interim fluctuations to be viewed in an appropriate perspective.

Investment risk is monitored taking into consideration the portfolio as a whole, with careful attention to the asset allocation. Investing involves substantial risks, including the possible loss of principal. Risk is evaluated both at the individual investment level, and how investments impact the overall portfolio risk within the asset allocation. Time-tested practices are used to control investment risk, including strategic and tactical asset-allocation, portfolio diversification, periodic re-balancing, valuation assessment, correlation statistics, manager due diligence, investment research and ongoing monitoring. Because financial markets are inherently volatile, and will ebb and flow over time, the Foundation does not employ market-timing as part of its long-term strategy.

Several basic tenets to the Foundation’s investment policy include core fundamental investment beliefs:

• Endowments are by definition perpetual funds. This allows the Foundation to take a very long-term view in setting investment policy.

• In light of the endowments’ long-term nature, a bias towards equity investments is justified, as they have produced higher historical rates of return and, over long periods of time, better downside and inflation protection.

• Diversification of assets can reduce risk and enhance long-term risk-adjusted returns.

Growth Assets – Equities: History has shown that owning attractively valued equity investments in companies that grow their earnings and cash-flow rewards the patient investor and generates real long-term wealth. Additionally, current income is recognized from dividends. While annual returns can be quite volatile, risk of loss from equity investments diminishes over time.

Risk Reduction – Fixed Income Securities: Rather than participating as an owner of assets through equities, fixed income positions the Foundation as a lender of funds to asset owners. Varying levels of risk are assumed based on the credit worthiness of the borrower and the positioning in the debt structure relative to other lenders, but in all cases the risk level is lower than for the equity owners in these companies. Fixed income investments may include government and agency securities, investment grade corporate or municipal bonds, bank loans, high-yield debt, mezzanine lending, or other forms of lending.

Risk Reduction – Alternative Strategies: Alternative Strategies are intended to enhance the investment portfolio’s overall risk/return profile by providing less-correlated return streams that generate excess return (or “alpha”) compared to the general market. Strategies may include long-short equity, long-short debt, distressed assets, global macro, option strategies, special situations, and others.

Risk Reduction – Cash: While cash is perceived an extremely safe asset due to its negligible risk of lost principal, for a portfolio with a perpetual time horizon, cash is also risky because of its low long-term returns relative to other financial assets and inflation. As such, endowment assets tend to hold minimal amounts of cash, which is held primarily to provide liquidity for transactional purposes. On occasion, the Foundation may tactically raise cash to control overall portfolio risk.

Inflation Protection – Real Assets: Real Assets include investments in commodities, infrastructure and real estate. Real assets protect against inflation either through direct price increases of the underlying commodity or property, or through the ability to raise rents or service charges for the use of their property or infrastructure.

Inflation Protection – Inflation Protected Bonds: Inflation Protected Bonds are fixed income securities that adjust their interest and principal payments with inflation to protect the bond investor from unanticipated increases in inflation. When inflation is positive, interest payments and the principal to be returned at maturity increase, and vice-versa. The vast majority of inflation protected bonds are issued by the U.S. Treasury and known as “TIPS” for treasury inflation protected securities.

The strategic target portfolio is biased toward blended returns from equities, fixed income securities, and alternative investments. The UNT Foundation's strategic target allocation is 65% to Growth Assets, 25% to Risk Reduction Assets, and 10% to Inflation Protection Assets to achieve a diversified portfolio allocation. The resulting ratio of equity securities to income vehicles is a common investment strategy employed by university foundations. 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.

In addition to its strategic target allocation, the UNT Foundation’s Investment Policy establishes tactical ranges around each of the strategic targets. Tactical ranges are 55 - 75% for Growth Assets, 15 – 25% for Risk Reduction Assets, and 5 – 15% for Inflation Protection Assets. The Investment Committee is responsible for monitoring and re-balancing to the UNT Foundation’s strategic target allocation ranges, and within the tactical ranges, has discretionary authority for setting, monitoring, and making re-allocations to the portfolio’s specific underlying assets. Allocation changes which would exceed the established ranges require prior approval from the UNT Foundation’s Board of Directors.

65% of the portfolio is Growth Assets and is split between US Equity and International Equity categories.

Growth assets are primarily investments in equity securities held through various fund vehicles and strategies, including passive index funds and, actively managed public and private funds, and are diversified across geographies, industry sectors and fund managers. Because endowments have perpetual lives spanning multiple generations, growth assets constitute the majority of the investment portfolio due to their higher long-term expected rates of return versus other asset classes. This higher return potential also comes with greater volatility, which may result in losses over shorter time horizons. During periods of equity market distress, the portfolio may be rebalanced to take advantage of improved securities valuations.

25% of the policy portfolio is Risk Reduction Assets and is divided between US/Global Fixed Income, Absolute Return Funds and Cash

The Risk Reduction portion of the portfolio consists of investments in funds, both private and public, that focus on fixed income instruments, or deploy alternative strategies such as equity long/short, debt long/short, arbitrage, global macro, special situation investing, and other strategies that are non-correlated to equities, but still provide attractive returns on a risk-adjusted basis. The lack of correlation to equities results in these investments being "portfolio stabilizers," reducing overall portfolio volatility and providing somewhat of a ballast which facilitates rebalancing the more volatile equity investments.

While cash is the least attractive investment over the long-term due to its low return profile, cash is held to facilitate rebalancing transactions and may be tactically increased from time to time if considered a prudent risk mitigation strategy.

10% of the policy portfolio is Inflation Protection Assets and is invested in Real Assets.

The Real Assets category includes investments in funds, both private and public, that focus on real estate, infrastructure and other hard assets that can protect against inflation. This category may also invest in inflation-protected bonds. Investments are diversified across types of real assets, geographies and managers to control risk in the portfolio. Typically, investments in real assets also provide attractive dividend yields.

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 into alternatives and fixed income.

The UNT Foundation’s Investment Committee has chosen a return benchmark consisting of an investment policy-weighted composite of relevant indexes for each of the asset classes in which it is invested (i.e., S&P 500, Russell 1000, MSCI ACWI, MSCI EAFE, MSCI EM, Barclays Aggregate, S&P Global Infrastructure, FTSE EPRA/NAREIT, HFR Fund of Funds, etc.). The Foundation uses a weighted strategic benchmark of the Dow Jones U.S. Total Stock Market Index, MSCI All-Country World ex U.S. Index, Barclays Capital Aggregate Bond Index, and the U.S. Consumer Price Index. The strategic benchmark is used to measure the portfolio’s overall results versus a representative broad diversified global portfolio. In addition to the strategic benchmark, UNT Foundation’s Investment Committee uses a policy index consisting of an investment weighted composite of relevant indexes for each of the asset classes in which it is invested (i.e., S&P 500, Russell 1000, MSCI ACWI, MSCI EAFE, MSCI EM, Barclays Aggregate, S&P Natural Resources, FTSE EPRA/NAREIT, HFR Fund of Funds, etc.). The policy index is used to evaluate the effectiveness of active managers against a passive alternative.

During the first fiscal quarter ended November 30, 2023, the Foundation’s endowment investments produced a return of 0.5% compared to the strategic benchmark return of 0.8% as US active managers trailed the passive benchmark for the quarter. The fiscal quarter started with two negative months (September and October) but finished with the strongest month (November) in more than a year. The month of November was bookended by the Fed meeting on November 1 and the announcement of October personal consumption expenditures (PCE) on November 30. Investors concluded that inflation was under control and that the Fed was done raising rates, even though core PCE remained at 3.5%, significantly above the Fed’s target of 2.0%. Time will tell whether inflation persists and the Fed has to raise rates again.

Graphical comparisons of actual and benchmark performance over multiple time periods are accessible in the chart accompanying the link below.