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ENDOWMENT REPORT ENDOWMENT REPORT

CONTENTS

Endowment 2 THE UNIVERSITY OF WASHINGTON ENDOWMENT

4 BENEFITS OF THE CONSOLIDATED ENDOWMENT FUND

6 CONSOLIDATED ENDOWMENT FUND PROGRAM SUPPORT

8 CONSOLIDATED ENDOWMENT FUND SPENDING POLICY AND OBJECTIVES

10 CONSOLIDATED ENDOWMENT FUND INVESTMENT STRATEGY AND PERFORMANCE

12 TRUSTS AND NON-CONSOLIDATED ENDOWMENTS

General 14 GLOSSARY

15 INVESTMENT MANAGERS

16 GENERAL INFORMATION

Photography: Guy Morita ‘09 (cover), Mel Curtis, Frank Fani ‘07, Mary Levin, Dennis Wise

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the economic crisis that engulfed the economy left its impact on Consolidated endowment Fund HigHligHts: the consolidated endowment fund (cef). for fiscal year 2009, the Fiscal Year 2009 endowment returned -23.3%. when global financial markets fell, • Added 293 endowments, bringing the total to 3,118 endowments swift action was taken to defensively reposition the portfolio, actively • Distributed $75 million to programs reducing risk and insuring liquidity. in addition, the Board of regents • Returned -23.3% proactively implemented an interim spending policy; reducing Fiscal Years 2000-2009 distributions to protect the endowment from further erosion while • Added 1,638 new endowments continuing to provide reliable funding to campus. • Distributed $615 million to programs • Earned an average annual return of 5.4% the consolidated endowment fund receives tremendous donor • Increased market value by $1 billion support. over the past 10 years, the cef distributed $615 million in funding to students, faculty and programs across the uw’s three campuses. the commitment of the university’s many generous donors, coupled with active investing, ensures that the cef will fulfill its mission of supporting generations of uw scholars.

uw treasury office endowment report 2009 1 thE unIvERsIty oF wAshIngton EnDowmEnt

the metropolitan tract was the university of washington’s first and endowment and similar Funds* as of June 30, 2009 ($ in millions) only permanent gift for over 40 years. in 1905, the university received its first cash endowed gift of $400; thus began the accumulation of endowment and similar funds that are held today. those funds $47 Non­Consolidated Endowments fall into four groups. the largest group by far is the consolidated $43 Externally Held Trusts endowment fund (cef) with a market value of $1.6 billion. the $64 Life Income Trusts & Annuities growth, structure, investment strategy and performance of the cef are described on pages 3 through 11 of this report. $322 Operating Funds the next largest group is life income trusts and annuities with a market value of $64 million. these trusts pay income to designated $1,327 Endowed Funds beneficiaries during their lifetimes, after which the university receives the remaining principal value. externally held trusts total $43 million. these funds are invested at local banks and the income distributed supports university programs. finally, funds totaling $47 million are held in various non-consolidated endowments. trusts * + $322 – operating Funds and non-consolidated endowments are described more fully on pages $1,327 – Endowed Funds 12 and 13 of this report. $1,649 – consolidated Endowment Fund

uw treasury office endowment report 2009 2 the university of washington Board of regents is the university’s Value oF tHe CeF* governing body whose broad responsibilities include managing Fy 2000–2009 ($ in millions) the assets of the university, including its investments. assisting the Board as an advisory committee is the university of washington investment committee (uwinco), established in 2001. membership in uwinco consists of both regents and professionals from the investment community. current regents and uwinco members $1,649 are listed on page 16. the consolidated endowment fund is similar to a mutual fund in that each individual endowment buys units in the fund. the cef has experienced considerable growth over the past 10 years. the $670 number of endowments in the cef has increased from 1,480 to 3,118 and the market value has increased from $670 million to $1.6 billion as of June 30, 2009.

’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ‘08 ’09

* Reflects inclusion of operating Funds in the consolidated Endowment Fund starting July2001. value without would be $1.3 billion.

uw treasury office endowment report 2009 3 bEnEFIts oF thE consolIDAtED EnDowmEnt FunD

an endowment by design benefits both current and future a giFt oVer 10 FisCal Years ending june 30, 2009 generations. it is invested in perpetuity with ongoing program support provided by income distributions. despite two major financial disruptions (the dot-com crash and the mortgage crisis) a $100,000 gift invested in the cef 10 years ago provided $50,502 of program support, more than half of the initial gift value, while Initial Gift ...... $100,000 maintaining most of the principal. in addition to distributions for donor selected programs, a 1% fee was charged to the endowment to support central campus Distribution of Capital...... ($1,209) administration. of this fee, 0.2% was for treasury office oversight Endowment Value After 10 Years...... $98,791 and management of the endowment and 0.8% for university-wide advancement activities.

Program Distributions...... $50,502

Central Administration Fees ...... $11,829 Total Campus Support...... $62,331

uw treasury office endowment report 2009 4 endowed gifts provide the margin of excellence that distinguishes annual program support a great university from a good one. Generous donor support, Fy 2000–2009 ($ in millions) coupled with investment returns, resulted in the impressive growth in endowed support over the past decade. 2009 $75 the impact on students, faculty and programs has been substantial 2008 $94 with $615 million distributed in the past 10 years. during this $81 period, $198 million went directly to students in the form of 2007 scholarships, fellowships, prizes and awards, and $150 million 2006 $70 supported faculty in the form of chairs, professorships and 2005 $62 instructional support. 2004 $58 the decrease in distributions from fy09 compared to fy08 levels $57 is due to a change in the cef spending policy following market 2003 declines. for more on the change see page 8. 2002 $55

2001 $37

2000 $26

uw treasury office endowment report 2009 5 consolIDAtED EnDowmEnt FunD PRogRAm suPPoRt

permanent funding through the endowment is critically endowment support important to advancing the university’s mission. endowments Fy 2009 are diversified in terms of benefiting area, size and purpose. By Schools and Colleges endowments support scholarships, fellowships, faculty 4% Office of the President and Provost 4% Student Life professorships and chairs, and research activities. 24% Academic Medical Affairs 4% Law School 5% Foster School of Business during fiscal year 2009, $101 million was added to the cef 7% Engineering and 293 new endowments were created, benefiting over 100 departments and programs. fiscal year 2009 also marked the 7% Centrally Administered end of two successful matching initiatives: students first and the 20% Operating Funds 12% Arts & Sciences faculty, staff, retiree campaign for students. these programs have matched 567 endowments with a market value of 13% Other $80 million as of June 30, 2009. By Purpose 10% Research Activities 28% Scholarships and Fellowships 15% Academic Support

22%* Other University Activities 25% Professorships and Chairs

* Includes operating funds invested in the consolidated Endowment Fund. uw treasury office endowment report 2009 6 sCHools, Colleges and programs tHat HaVe reCeiVed endowed giFts

Endowment Value Number of Individual schools, colleges and programs with endowments at 6/30/09 Endowments

Academic medical Affairs 401,809,889 588 Arts & sciences 207,459,726 731 Engineering 115,635,765 286 Foster school of business 84,275,819 165 offices of the President and Provost 62,486,888 74 student Financial Aid 61,207,357 193 law 59,709,330 86 graduate school 29,323,846 66 undergraduate Education 26,991,687 24 Intercollegiate Athletics 26,285,257 110 libraries 25,713,230 66 Forest Resources 22,922,664 85 nursing 21,756,116 94 ocean and Fishery sciences 21,383,841 72 uw tacoma 20,529,069 39 built Environments 17,522,399 87 Dentistry 16,594,130 64 Evans school of Public Affairs 15,214,296 24 Education 11,738,391 38 Alumni Association 10,035,965 2 Pharmacy 9,519,154 34 Public health 8,897,378 56 social work 7,031,103 28 university of washington Press 4,615,189 16 college of the Environment 4,367,936 4 office of Research 3,247,849 3 Information school 3,101,370 26 uw bothell 2,409,571 9 Friday harbor laboratories 2,311,555 13 office of Intellectual Property 2,291,161 1 office of minority Affairs 1,867,398 22 office of the senior vice President 929,891 2 uw Professional and continuing Education 680,712 1 university Advancement 557,731 4 subtotal 1,310,423,663 3,113 Evergreen state college Foundation & Kuow 2,992,415 2 students First 13,419,582 1 operating Funds 322,323,604 2 total endowed Funds 1,649,159,264 3,118 uw treasury office endowment report 2009 7 consolIDAtED EnDowmEnt FunD sPEnDIng PolIcy AnD obJEctIvEs

a spending policy provides a disciplined approach to moving money endowment distribution Vs. total return from the endowment to support the purpose designated by the Fy 2000–2009 donor on a predictable, consistent basis. prior to fy09, the spending policy, 5% of the three year moving average market value, resulted in gradual changes in distributions 4.0 30 due to the smoothing effect of this type of policy. 20 E oa return total CEF in light of the 2008-2009 financial crisis and subsequent drop in ($) 3.0 the cef market value, the Board of regents adopted an interim 10 spending policy. this policy decreases year-over-year distributions to 2.0 0

campus programs from fy08 levels by 25% in fy09 and another 25% distribution 1 in fy10. thereafter, distributions will be held at the reduced fy10 ­10 (%) unit 1.0 level until market conditions warrant a return to normal spending. per ­20 the Board will determine the appropriate next steps no later than June 30, 2013. 0.0 ­30 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’102 ’112 the interim policy acknowledges that it will take time for the cef‘s market value to recover while continuing to provide reliable support 1 cEF returns are shown net of external management fees of .3%. to campus. 2 the estimated payout for fiscal year 2010 and 2011 is $2.34 per unit.

uw treasury office endowment report 2009 8 the overall financial objective of the cef is to provide support sourCes and uses Fy 2000-2009 for programs while maintaining the cef’s purchasing power over time. this is accomplished through a total return approach to investing. this approach defines total return as appreciation, both Sources realized and unrealized, interest and dividends.

Distribution Appreciation Income the total return is utilized by distributing funds for current of Capital 3.7% 1.7% programs, paying internal fees and reinvesting any excess back 0.5% into principal. the result of total return investing and prudent spending is 5.4% total return increased asset value over time and steady distributions to campus. Uses

Program Support Internal Distributions Fees 4.9% 1.0%

uw treasury office endowment report 2009 9 consolIDAtED EnDowmEnt FunD InvEstmEnt stRAtEgy AnD PERFoRmAncE

the university’s investment policy governs investment CeF asset alloCation management, including portfolio composition, asset allocation, Fy 2009 monitoring and delegations of authority. primary among investment objectives is to provide a maximum level of return consistent with prudent risk levels. the university utilizes a variety 12% International Equity 16% Fixed Income of investment strategies to reduce the overall risk (volatility) of the Developed Markets cef while providing opportunities for active management to earn attractive returns across distinct market segments. 14% Domestic Equity 10% Real Assets at June 30, 2009, 38% of the cef was invested in global public equities, 21% in absolute return, 16% in fixed income, 15% in 15% Non­Marketable non-marketable alternatives and 10% in real assets. Alternatives 21% Absolute Return

12% International Equity Emerging Markets

uw treasury office endowment report 2009 10 the financial crisis that shook capital markets worldwide left perFormanCe Comparisons its impact on the cef. performance was down -23.3% in fiscal 1, 5 and 10 Year FisCal periods For periods ending june 30, 2009 year 2009. although disappointed with the results, the Board set liquidity as its top priority and the investment team moved swiftly to defensively reposition the portfolio and actively reduce risk. these actions mitigated to some extent the damage 23.3% wrought by the severe market conditions and positioned the 1 year cef for future recovery. 26.2% the cef is designed to provide support to the university in 5.0% perpetuity. this long-term horizon, combined with prudent 5 years asset management and spending policy, positions the cef to ­2.2% recover over time. the university remains committed to the mission of the cef, supporting current and future generations 5.4% of scholars. 10 years ­2.2%

Consolidated Endowment Fund S&P 500

the cambridge Associates colleges and university Investment Pool top 50 results were not available at the time of printing.

uw treasury office endowment report 2009 11 tRusts AnD non-consolIDAtED EnDowmEnts

non-Consolidated endowed Funds liFe inCome trusts and annuities the university of washington non-consolidated endowment Life income trusts and annuities are invested in separately funds totaled $47 million as of June 30, 2009. these gifts include managed irrevocable trusts. money or other property is limited partnership interests, real property, closely held securities, contributed to the university on the condition that the trust will externally-managed trusts and funds on deposit with the state make payments to the donor or other designated beneficiaries of washington. for a specified term or life of the beneficiaries. the remaining trust principal passes to the university, with most becoming while some may eventually be invested in the cef, most are endowments. as of June 30, 2009, the total market value of the illiquid or have donor restrictions that do not allow consolidation. uw’s life income program was $64 million. externallY Held trusts the university of washington receives income annually from funds held in irrevocable trusts managed by trustees other than the university. the market value of these funds at June 30, 2009 was $43 million. during the last 10 years, these funds have provided over $20 million to support schools, colleges and programs at the university.

uw treasury office endowment report 2009 12 lIFE IncomE tRusts1

target asset alloCation returns Compared to benCHmark

3.5% Short­Term Investments 1 Year 5 Years 10 Years 2% High Yield Bonds 2.8% Hedged Foreign Fixed Income 4.9% 3.1% 5.7% Domestic Fixed Income: 29.5% Domestic 2.7% Investment Grade Large Cap 1.7%

15% Domestic Fixed Income: High Quality

5% International Real Estate 8% Domestic Small Cap 9% Domestic Real Estate 14% International 3% Emerging Markets Large Cap 2.5% International -18.5% Small Cap -19.7%

1Represents the growth portfolio which holds over 60% of life Income assets. life Income trusts Return multi-Asset growth benchmark

uw treasury office endowment report 2009 13 glossARy

absolute return. Includes hedged equity, credit Cash. cash and short term liquid assets (e.g., non-marketable alternatives. higher risk event driven and relative value managers. treasury bills, commercial paper, and non-convertible investments, generally held in limited partnerships, bonds with remaining maturities of under one year). with the potential for significantly higher returns. asset allocation. the diversification of endowment assets among various asset classes. Asset allocation Closely Held securities. securities of a real assets. Investments in real estate, natural affects both risk and return and is a central concept corporation whose voting stock is owned by only resources and inflation protection vehicles. in investment management. a few shareholders. spending. the amount withdrawn from asset Classes. Including, but not limited to, equity. Investments where the underlying asset is an endowment for program support and domestic equity, international equity, domestic the ownership interest in a company. investment expenses. fixed income, international fixed income, cash, real assets, marketable alternatives and non-marketable Fixed income. this usually refers to government, spending policy. the guidelines used to determine alternatives. corporate, or municipal bonds which pay interest the frequency and rate of distributions from the until the bonds mature. It also refers to preferred endowment. Cambridge associates. A leading provider of stock, which pays a fixed dividend. investment and financial research and consulting total return. the accepted method of measuring services to nonprofit endowed institutions in limited partnership. A partnership that includes the performance of equity and bond funds. the the country. one or more partners who have limited liability. the total return is the combination of income (interest partnership is managed by a general partner. and dividends) and appreciation/depreciation in the fund’s value for a specified period of time. multi-asset benchmark. market index returns of the asset classes used in the growth Allocation, each weighted by its long-term strategic target.

uw treasury office endowment report 2009 14 InvEstmEnt mAnAgERs As oF JunE 30, 2009

absolute return Dynamo Administracao de Recursos ltDA centerbridge capital Partners tPg Partners, lP Adamas Partners, llc grantham, mayo, van otterloo & company chryscapital management company, llc vestar capital Partners, lP Angelo gordon & company, lP (gmo) clsA voyager capital management, llc baupost group, llc harris Associates, lP code hennessy & simmons, llc weston Presidio service company, llc blackRock Financial management, Inc. hIg capital, llc commonfund capital, Inc. real assets (Quellos) liberty square Asset management, llc Domain Associates, llc Aetos capital, llc carval Investors lone Pine capital, llc Endeavour capital, llc centerbridge capital Partners martin currie, Inc. Agl life Assurance company & Avanti Frazier healthcare ventures Properties highfields capital management, lP matterhorn Investment management, llP general catalyst Partners, lP Arclight capital Partners, llc morgan stanley mekong capital greenbriar Equity group, llc beacon capital Partners, llc oaktree capital management, llc Prosperity capital management harbourvest Partners (uK) ltd. bPg Rimrock capital management, llc Rainier Investment management, Inc. hIg capital, llc cabot Properties, Inc. satellite Asset management, lP Renaissance Institutional management, llc Ignition Partners, llc cadent Energy Partners, llc standard Investment Research silchester International Investors, ltd. Interwest Partners, llc commonfund capital tiger Asia management, llc snyder capital management J.c. Flowers & co., llc crow holdings Realty management, lP varde Partners, Inc. state street bank and trust company madrona venture group, llc Denham capital management, lP steel Partners Fixed income matlin Patterson global Advisers, llc Fidelity Real Estate Partners, llc tree line Investment management, ltd. Aberdeen Asset management, Inc. new Enterprise Associates Development gemini oil & gas Advisors, llP tygh capital management, Inc. corporation Payden & Rygel grove International Partners, llc valinor capital Partners, lP oak Investment Partners Pugh capital management, Inc. lasalle Investment management, Inc. ward Ferry management, ltd. Parthenon capital, llc wellington management company merit Energy company wellington management company Paul capital Partners natural gas Partners global equity Polaris venture management co., llc life income ngP Energy technology Partners, llc Arisaig Partners, ltd. Pomona Associates, lP Kaspick and company orbis Real Estate Advisors Arrowstreet capital, lP Quadrangle Advisors / group, llc Phoenix Property Investors ltd. Axiom International Investors, llc non-marketable assets Riverside company, the Resource management services, llc bridger capital, llc Accel-KKR sequoia capital square mile capital management, llc brookside capital Partners, llc ARch venture Partners, llc sevin Rosen thackeray Partners chesapeake Partners management co., Inc. bain capital shott capital management wellington management company city of london Investment management battery ventures siguler guff & company, llc company, ltd. bessemer venture Partners tA Associates, llc

uw treasury office endowment report 2009 15 gEnERAl InFoRmAtIon

board of regents as of june 30, 2009 this report on the management of the university’s For further information on the university’s craig w. cole (chair) endowed funds was prepared by the treasurer investment program please visit: herb simon* (vice chair) of the board of Regents for donors and other www.washington.edu/admin/treasury/ stanley h. barer interested parties. Reports are also available, upon If you would like to receive information on Kristianne blake* request, to donors and fund administrators for each how you can support the university’s programs, Jeffrey h. brotman* of the 3,118 separate funds in the consolidated please contact: william h. gates Endowment Fund. sally Jewell* Connie kravas Frederick c. Kiga* For Further information vice President for university Advancement constance l. Proctor If you have questions or comments about this report, (206) 685-1980 Jean-Paul A. willynck or would like copies of the consolidated Endowment [email protected] *members of the Finance, Audit and Facilities committee Fund investment policies, please contact: university of washington investment V’ella warren Committee as of june 30, 2009 treasurer of the board of Regents (206) 685-1822 Jeffrey h. brotman (chair) [email protected] David bonderman Frederick c. Kiga keith Ferguson michael larson chief Investment officer mary Pugh (206) 685-1822 [email protected]

judy peterson senior Associate treasurer (206) 685-1822 [email protected]

uw treasury office endowment report 2009 16 Photography: Guy Morita 09 (cover), Mel Curtis, Frank Fani 07, Mary Levin, Dennis Wise

FSC logo and environmental statement (if applicable) to go here. Will be placed by vendor. BOTHELL SEATTLE TACOMA