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ANNUAL REPORT
LEANING INTO LEARNING Holding ourselves accountable for strong outcomes takes a commitment to setting clear goals and developing strategies for achieving them. It means measuring and evaluating our progress, and extracting valuable insights from our results. Above all, LEANING INTO it takes an eagerness to learn. We chose Leaning into Learning as the theme for our 2017 Annual Report because learning is integral in our drive toward results. We rely LEARNING on thoughtful research, evaluation and the experiences of our partners in the field to help us shape and sharpen our work. Through learning, we identify what went well, what we could have done better and where In the nine decades since James B. Duke we can do the most good. signed the Indenture of Trust that On the following pages, we highlight efforts from our four program areas that are focused on learning. In Child Care, a retrospective established his private foundation, the evaluation is helping us gauge the impact of our out-of-home care grantmaking and inform our strategy going forward. In Health Trustees and staff of The Duke Endowment Care, ground-breaking research is targeting the opioid epidemic by testing new prescription protocols after orthopedic surgery. In have had the privilege of working together Higher Education, university leaders are studying a new educational model to measure how it helps students succeed. In Rural Church, to honor his extraordinary dream for the congregations are using a needs assessment process to discover how they can match their strengths to community challenges. Carolinas. Just as our founder did in 1924, As an organization, The Duke Endowment is embracing learning to we strive to use the Endowment’s resources strengthen the way we serve and work. In 2017, we expanded our Evaluation department by hiring an associate director of learning and where they have the greatest impact and evaluation who will help us accelerate our efforts to become more outcomes. As a foundation, that is our intentional about learning. We commissioned a Grantee Perception Report, administered by the Center for Effective Philanthropy, to opportunity — and challenge. collect actionable information about our performance. Throughout the year, staff members have been participating in an in-depth program designed to increase our effectiveness as a team. Both Trustees and staff have benefited from diversity training.
We believe that learning together will deepen our understanding and ultimately help us adapt and improve.
Solutions to today’s social challenges are always complex. But with strong grantees as our partners, we are “leaning into learning” to make a meaningful and lasting difference for people in the Carolinas.
In closing, we want to pay tribute to a former Trustee, Richard H. Jenrette, who died on April 22, 2018, at age 89. An esteemed leader in the business world, Mr. Jenrette was also known for his work in historic preservation. During his nearly 13 years on our Board, we benefited greatly from his wisdom, friendship and passion for excellence.
MINOR M. SHAW, BOARD CHAIR RHETT N. MABRY, PRESIDENT BOARD CHAIR PRESIDENT
2 1 2017 CHILD CARE HEALTH CARE GRANTMAKING $12.1M $37.8M DISTRIBUTED DISTRIBUTED
In 2017, The Duke Endowment distributed $132.3 million through $17,016,778 IN $39,121,789 IN 329 grants, some of which were approved in previous years; NEW GRANTS APPROVED NEW GRANTS APPROVED 169 new grants were approved, totaling nearly $118.7 million, some of which will be paid in future years. CROSS PROGRAM/SPECIAL OPPORTUNITY $12.1M DISTRIBUTED TOTAL GRANTMAKING $18,503,000 IN NEW GRANTS APPROVED $132.3M* DISTRIBUTED HIGHER EDUCATION RURAL CHURCH
$118,680,322 IN NEW GRANTS APPROVED $56.2M $14.3M DISTRIBUTED DISTRIBUTED
Find more information about our grantmaking at dukeendowment.org. *May not sum to total due to rounding $29,615,000 IN $14,423,755 IN NEW GRANTS APPROVED NEW GRANTS APPROVED
2 3 CHILD CARE HIGHLIGHT: CHILD CARE SUPPORTING CHILD WELFARE
Across the Carolinas, child welfare systems are reeling. The number of children in foster care has jumped 25 percent in the past five years. Foster parent shortages have reached crisis levels, and social worker caseloads remain stubbornly high.
Against this sobering backdrop, it is more important than ever for $12.1M* DISTRIBUTED IN 2017 The Duke Endowment to seek maximum impact from its child welfare investments. That’s why * Includes ongoing multi-year commitments approved before 2017 the Child Care program area commissioned a retrospective study aimed at gauging the impact of nearly a decade of its foster care It also showed that the Endowment’s shift from awarding grantmaking. unrestricted financial support to children’s homes created new challenges and opportunities for providers. The researchers Conducted by Chapin Hall at the $17,016,778 said the Child Care program area should continue using data University of Chicago, the evaluation to drive innovation. The program area should also apply 28 NEW GRANTS was released in 2017. It concluded implementation science and promote practice refinement, that despite the challenges inherent all while setting clear goals with measurable outcomes. Helping vulnerable children in reforming complex social services systems, the Endowment should The review stressed that the Endowment must improve its lead successful lives by continue to support child welfare. communication and coordination with public child welfare systems and private providers if it hopes to achieve significant, The study scrutinized nearly lasting reform. supporting early intervention, $50 million in grants to 80 Out-of-home care organizations from 2006 to 2015. Erin Hall, CEO of the Palmetto Association for Children and collaborative approaches and $11,049,251 It highlighted major themes Families, was among the child welfare experts interviewed for emerging from the Endowment’s the study. “The Duke Endowment makes a big difference in 15 NEW GRANTS evidence-based programs that child welfare work. Among them: child welfare in the Carolinas,” she said, “but it is always looking the broadening of the service to learn from and improve its work.” array beyond residential care, help serve children and their the promotion of higher quality Given the many challenges facing child welfare reform in the standards via national accreditation Carolinas, the Endowment’s leaders say much work remains. Prevention and early intervention families more effectively. and staff competency, engagement $5,967,527 with public child welfare systems, “With limited resources, The Duke Endowment is focused on both determining best practices and achieving the 13 NEW GRANTS and the need for greater alignment of priorities among the most effective execution,” said Ravenel Curry, chair of the Endowment, the states, counties Endowment’s Committee on Child Care. “We need better and service providers. outcomes for our children.”
4 5 HEALTH CARE HIGHLIGHT: TESTING NEW PROTOCOLS HEALTH CARE FOR PATIENT CARE
Several years ago, before America’s opioid epidemic became front- page news, Dr. Nady Hamid remembers listening to a patient describe his struggle to overcome prescription drug abuse after shoulder surgery. The man was back for a second operation — but this time, he didn’t want opioid painkillers during his recovery. $37.8M* Dr. Hamid, a surgeon at the DISTRIBUTED IN 2017 OrthoCarolina Shoulder and Elbow Center in Charlotte, prescribed * alternative medications. To his Includes ongoing multi-year commitments approved before 2017 surprise, not only did the patient recover well, he recovered faster and with fewer side effects. opioid painkillers even briefly after surgery have a 50 percent chance of still using them five years later. In North Carolina, four Today, Dr. Hamid is leading ground- cities are in the country’s top 25 when it comes to abuse rates; breaking research on opioid-free Wilmington is ranked first. $39,121,789 pain management in hundreds of 71 NEW GRANTS orthopedic patients. The goal is The Duke Endowment is focusing its funding on efforts aimed to help the medical community at limiting opioid use and providing treatment to newborns target the nation’s drug crisis by exposed during gestation. learning about improved protocols Enhancing the lives of for patient care. A 2017 grant “With abuse-related problems significantly hurting the health from The Duke Endowment to the and well-being of our communities, we’re concentrating on Access to health care OrthoCarolina Research Institute is where we can have the greatest impact on changing the individuals and the vitality supporting the work. trajectory of addiction in the Carolinas,” says Charlie Lucas, $23,755,955 38 NEW GRANTS chair of the Endowment’s Committee on Health Care. of communities by promoting “Opioids have been a cornerstone of pain control for many years In Dr. Hamid’s research, the Endowment’s grant will help now,” Dr. Hamid says. “We want to establish evidence-based strategies to eliminate opioid use prevention, improving the re-educate patients and doctors, in five common orthopedic procedures. Physicians, nurses and provide evidence that safer and anesthesia teams — and their patients — will learn about Prevention quality and safety of services and alternatives work.” opioid risks and alternative treatments; new guidelines will be $6,320,000 published and promoted nationally. Dr. Hamid is using insights 13 NEW GRANTS increasing access to care. Since the mid-1990s, potent opioids from a successful pilot to design the work. have been commonly prescribed as the best way to combat pain, but “While other research is focused on minimizing opioids in they are highly addictive and carry surgery, this clinical study looks at what happens when they a serious risk of overdose. Recent aren’t used at all,” he says. “It’s a bold idea, but I believe we’re studies show that patients who use poised to change the practice of medicine for the better.” Quality and safety of health care $9,045,834 20 NEW GRANTS 6 7 HIGHER EDUCATION HIGHLIGHT: HIGHER CREATING A BLUEPRINT EDUCATION FOR STUDENT SUCCESS
At the heart of the Furman University campus, students crisscross green lawns and manicured sidewalks, weighed down by backpacks as they head to their classes. Over the next five years, researchers will study the way these undergraduates are learning and assess if the university’s $56.2M* new approach to education is DISTRIBUTED IN 2017 having its intended impact.
“We’re not only trying to prove * Includes ongoing multi-year commitments approved before 2017 that The Furman Advantage works, but trying to understand how it works, when it doesn’t and why,” says President Elizabeth example, or why some students are drawn to study abroad Davis. “Are we contributing to a while others aren’t. The information will guide real-time greater level of well-being for our improvements, and document successes — and missteps — $29,615,000 graduates? This study will hold over the long-term. 13 NEW GRANTS us accountable and help us work toward our goals.” President Davis expects the Furman study to have as broad Working through Davidson College, an impact as the landmark study that Purdue University and The Furman Advantage is a Gallup produced in 2014, which identified the emotional Duke University, Furman University personalized, four-year pathway support and learning experiences that are correlated with that combines traditional thriving in life and engagement at work. Lessons learned and Johnson C. Smith University Academic excellence learning with mentoring, advising from studying The Furman Advantage will show effective and “real-world” experiences ways to achieve those outcomes. $24,875,000 outside the classroom. Furman 8 NEW GRANTS to advance the pursuit of educational guarantees every student the “This will be one of the most comprehensive and multi- opportunity for engaged learning faceted studies ever done in higher education,” says Brandon excellence, make education more integrated with academic and Busteed, Gallup’s executive director of education and professional goals. The high- workforce development. “We have strong data identifying impact approach is designed to why students thrive — this will provide a blueprint for affordable for qualified students Campus and community engagement prepare students for successful creating the right environments for making that possible.” $3,240,000 careers and meaningful lives. Bill Barnet, chair of the Endowment’s Committee on and support initiatives and programs 4 NEW GRANTS In 2017, with a $2.5 million grant Educational Institutions, agrees. “With a shifting landscape that benefit communities. from The Duke Endowment, the in higher education, Furman has made a bold commitment university formed a partnership to change the way it prepares students for life beyond with Gallup to evaluate The Furman graduation, and to share best practices with the field,” Advantage. Campus officials want he says. “Through this in-depth research, The Furman Educational access and success to learn which mentoring tactics Advantage will be the case study that moves the national $1,500,000 are particularly successful, for conversation forward.” 1 NEW GRANT 8 9 RURAL CHURCH HIGHLIGHT: OPENING DOORS TO OUTREACH RURAL CHURCH
On a warm spring morning, a dozen volunteers till the dark earth of Ruby’s Garden at Asbury United Methodist Church, readying it for seedlings and sprouts. Come summer, their work will pay off in fresh squash, beans and tomatoes — and nourishment for neighbors in need.
“This is one way for us to use $14.3M* our resources in ministry that DISTRIBUTED IN 2017 matters,” says the Rev. Jim Reed, pastor of the 80-member church. * “We’re small in numbers, but Includes ongoing multi-year commitments approved before 2017 we’re large in energy.”
In rural North Carolina, an intensive members, boosted interest and involvement in missions, and training program is helping Asbury increased commitment. Participants said the training provided and other small congregations important skills for outreach and helped them create strategic build their capacity to become action plans based on their church’s strengths. One congregation, $14,423,755 agents of change. Through Project for example, started a healthful lifestyle program; another offered Bountiful, these United Methodist 44 NEW GRANTS English as a Second Language. Other efforts included developing churches are learning about a ministry for neighbors with special needs and forming a choir their communities’ challenges, with Latino youth and parents. identifying their own strengths, and Strengthening rural designing “outward-facing” plans At Asbury, in Washington, N.C., the action plan addressed the for sharing their gifts. The Center county’s 17 percent food insecurity rate. The church expanded Clergy leadership United Methodist churches and for Leadership Excellence at the Ruby’s Garden to stock a local food pantry and shelter with North Carolina Conference of the $6,725,548 hundreds of pounds of much-needed produce. In 2017, the 20 NEW GRANTS United Methodist Church is leading congregation helped nearly 200 children receive lunch daily the communities they serve by the work with funding from The when schools were closed for the summer. Duke Endowment. forming church leaders, building “Hospitality is in our DNA,” the Rev. Reed says. “We are out The program’s first three years making a difference in the community, and it’s making a Congregational outreach included pastors and lay members difference in us.” congregational capacity and from 39 churches before ending $1,579,000 in 2017. Retreats allowed time for With a new grant from the Endowment, leaders are using 7 NEW GRANTS fostering community engagement. sharing ideas and setting goals; insights from the first phase of Project Bountiful to offer it to coaches explored best practices 30 other rural churches beginning in September 2018. for building teams and engaging in community work. “We are seeing what can happen when small congregations use their bountiful gifts,” says Dr. Dennis Campbell, chair of the Evaluation results were promising. Endowment’s Committee on Rural Church. “By opening doors to Rural church development Project Bountiful strengthened outreach, they’re making a meaningful impact both inside $6,119,207 relationships among church the church and beyond.” 17 NEW GRANTS 10 11 FINANCIALS INVESTMENTS During 2017, the investment return on the Endowment’s portfolio was 11.8 percent. Investment performance benefited from increases in global equity, hedged Since James B. Duke’s death in 1925, the assets of strategies, private investments, commodities and fixed income. The Endowment’s assets increased in value from $3.37 billion to $3.69 billion from December 31, 2016 Marking an Anniversary The Duke Endowment have achieved significant growth, to December 31, 2017, impacted by investment returns, grants and expenses. from $107 million to $3.69 billion. During the same time, Since July 2007, The Duke Endowment’s investment portfolio has been managed by For the 10-year period ending December 31, 2017, the DUMAC, a professionally-staffed investment Endowment’s investment portfolio, net of fees, returned nearly $3.7 billion has been distributed in grants. organization in Durham, N.C., governed 5.9 percent annualized, outperforming its policy by Duke University. In 2017, the DUMAC benchmark by 2.0 percentage points and a 70 percent staff visited the Endowment in Charlotte MSCI All Country World Index/30 percent Bloomberg to celebrate the 10th anniversary of our Barclays US Aggregate Bond Index benchmark by partnership and learn more about our history, 1.1 percentage points annualized over the same period. our work and our grantees.
TOTAL ASSETS (IN $ BILLIONS)
* 3.69 3.37 3.43 3.35 3.37 2.95 2.74 2.80 $164.7M 2.48 2.23 GRANTS AND EXPENSES More than 80 percent of the Endowment’s total spending goes directly to grantmaking, which compares favorably to foundations of similar size. This chart and the legend below show our grantmaking in the context of other spending. 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
INVESTMENT RETURNS (PERCENT)
17.1 14.4 10.1 12.3 10.9 11.8 6.1 4.5 2.8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$132.3M $12.3M $10.6M $5.6M $3.8M Find more information about Grants Paid Admin. Expenses Investment Expenses Program Expenses Provision for Taxes -24.4 our audited financial statements 80.4% 7.4% 6.5% 3.4% 2.3% at dukeendowment.org.
*May not sum to total due to rounding 12 13 STAFF
Ashleigh J. Allessio Melinda O. Hardin Trena McClure Gillian L. Small Senior Administrative Accounting Specialist Senior Administrative Fellow Specialist, Health Care Specialist, Rural Church Charisma J. Hibbler Natalie C. W. Smith William F. Bacon Fellow Susan L. McConnell Senior Accountant Director, Evaluation Director, Higher Education Kate G. Hiley Director, Human Resources Eric D. Stevens Laila A. Bell Senior Administrative Administrative Specialist Associate Director of Specialist, Child Care Arthur E. Morehead IV Learning & Evaluation Vice President/General K. Todd Walker Lin B. Hollowell III Counsel Managing Director, Chris M. Collins Director, Health Care Investments LEADERSHIP Associate Director, Laura A. Peres Health Care Stella J. Jalon Project and Facilities Stacy E. Warren Senior Administrative Manager Program Officer, Todd W. Dalrymple Specialist, Higher Health Care TRUSTEES Program Officer, Education Charity L. Perkins Special Initiatives Director, Communications Kimberly M. Webb Julie A. Kemp Executive Assistant, Ronda S. Dwyer Senior Administrative Phillip H. Redmond Jr. President's Office Senior Administrative Specialist, Health Care Director, Child Care Specialist, Finance Robert R. Webb III Jay E. Kennedy Kristen R. Richardson- Director, Rural Church Nancy L. Edwards Program Officer, Frick Administrative Specialist, Health Care Associate Director, Anita W. West Health Care Rural Church Accounting Manager Jeri F. Krentz Minor M. Shaw, Chair Dennis M. Campbell, Vice Chair Mary D.T. Jones, Vice Chair Jean G. Spaulding, Vice Chair Eric E. Frazier Associate Director, Karen H. Rogers Tamika D. Williams Greenville, SC Durham, NC Abingdon, VA Durham, NC Digital Communications Communications Chief Financial Officer/ Associate Director, (Retired December 2017) Strategist Treasurer Child Care Rhett N. Mabry Paula W. Greene President Meka S. Sales Lily H. Zhang Events Manager Director, Special Initiatives Controller Jena M. Manilla Janet B. Haas Evaluation Analyst Matthew D. Sharp Diana Zilberdrut Senior Administrative Director, Information Project Specialist, Specialist, Evaluation Tania G. Mapes Technology Communications/ Human Resources Investments Generalist
William Barnet III John F.A.V. Cecil Ravenel B. Curry III Harris E. DeLoach Jr. Spartanburg, SC Asheville, NC New York, NY Hartsville, SC
Retirements
We marked the retirement of two longtime Trustees in 2017. Russell M. Robinson II, who served as a Trustee for more than 30 years, retired in June.
Constance F. Gray J. Trent Jones Thomas S. Kenan III Charles C. Lucas III Mr. Robinson chaired our Child Care, Finance and Health Care committees Winston-Salem, NC Sun Valley, ID Chapel Hill, NC Charlotte, NC and was Board Chair from 2001 to 2010.
The Board elected J. Trent Jones, a partner with Hall and Hall Ranch Brokers and a native of Abingdon, Va., as his successor.
Mary D.T. Jones, who also served as a Trustee for three decades, retired in December. Mrs. Jones chaired our Communications Committee since 1999, chaired our Governance Committee in 2009 Wilhelmina M. Reuben-Cooke Russell M. Robinson II Kenneth D. Weeks Jr. Judy Woodruff and was Vice Chair of our Board since 2011. Alexandria, VA Charlotte, NC Charlotte, NC Washington, DC (Retired June 2017) We are grateful for their many years of extraordinary service. 14 15 Investing in Early Childhood Supporting Oral Health
NEWS In 2017, The Duke Endowment shared with grantees and other With strong research connecting dental disease with diabetes, heart stakeholders that we are exploring an exciting new strategic emphasis and lung diseases, stroke and low birth weight, we know that oral health on early childhood issues, focusing on children ages zero to eight. is a critical part of a person’s overall health. We also know that with Initially, this will be seen in special initiatives — such as our work with adequate preventive care and education, dental disease is 100 percent Blue Meridian Partners, a collaborative effort among 12 national funders preventable. But many people in the Carolinas, including those with seeking to expand evidence-based programs serving economically Medicaid coverage, struggle to access dental care. The Duke Endowment disadvantaged youth. Over time, we’ll be asking our four program areas has begun funding oral health in North Carolina and South Carolina to incorporate early childhood work into their everyday grantmaking. using a three-part strategy of supporting system reform and policy With brain science offering compelling evidence that early childhood change; promoting prevention by expanding school-based oral health interventions can be the powerful lever we need to maximize our services; and improving medical-dental integration models. impact, we believe this will help fulfill Mr. Duke’s vision for a better life in the Carolinas.
GreenLight Charlotte Embracing Community
With funding from The Duke At the 2017 Convocation on the Endowment and more than 30 local Rural Church, an annual event philanthropic investors, Charlotte sponsored by The Duke Endowment, has joined six other cities in the 200 United Methodist clergy GreenLight Fund, a national gathered in Myrtle Beach, S.C., to organization that works to identify discuss racism and religion and and address the challenges facing the role that they — and their rural low-income children and families in North Carolina congregations — can urban areas. GreenLight Charlotte play. Guest speakers helped them will conduct an annual process think deeply about inclusion and to identify critical needs; import community; workshops provided innovative organizations with proven, ideas and resources. To continue the measurable results; and galvanize work, the Endowment is supporting community support to help programs district-level diversity training for reach and sustain impact. GreenLight clergy and congregations that will aims to grow a national network of help them develop action plans to sites that learn and work with each foster racial healing. other to find and spread effective social impact solutions.
World Food Policy Center Keeping Children Safe
After two years of fact-finding and planning, Duke University has At the New Hanover County Department of Social Services in North launched the World Food Policy Center to address global food issues Carolina, social workers are testing a new analytics tool designed to and problems such as malnutrition and food safety. A $5 million help them do their jobs. Developed by SAS, a global data and analytics grant from The Duke Endowment is supporting the center, which will company based in Cary, N.C., the system mines up-to-date data from focus on collaborative problem solving through research, educational public records and creates statistical algorithms to give caseworkers programming, conferences and policymaker outreach. “Our intention vital and timely information. An alerts engine triggers a notification is to facilitate connections between researchers and change agents,” when changes in a child’s life signify a possible problem. Social workers says Kelly Brownell, the director. “It is a two-way street: the needs can respond with appropriate follow-up. The pilot project, funded by of policymakers can guide research, and scientific findings can help The Duke Endowment, SAS and New Hanover County, has the potential policymakers make informed decisions.” to help other DSS agencies enhance child safety as well.
16 17 The Duke Endowment in Charlotte, North Carolina, is a private foundation established in 1924 by industrialist and philanthropist James B. Duke. We seek to fulfill his dream for the Carolinas by enriching lives and communities through children’s services, health care, higher education and rural churches. Mr. Duke’s legacy endures today in every life touched, every institution advanced and every innovation discovered.
800 East Morehead Street Charlotte, North Carolina 28202
dukeendowment.org 2017 GRANTMAKING TABLE OF CONTENTS
2 4 2017 GRANTMAKING CHILD CARE
7 12 HEALTH CARE HIGHER EDUCATION
14 18 RURAL CHURCH CROSS PROGRAM/ SPECIAL OPPORTUNITY
THE DUKE ENDOWMENT | 2017 GRANTMAKING 1 2017 GRANTMAKING
In 2017, The Duke Endowment distributed $132.3 million through 329 grants, some of which were approved in previous years; 169 new grants were approved, totaling nearly $118.7 million, some of which will be paid in future years.
TOTAL GRANTMAKING
$132.3M* DISTRIBUTED
$118,680,322 IN NEW GRANTS APPROVED
*May not sum to total due to rounding
THE DUKE ENDOWMENT | 2017 GRANTMAKING 2 CHILD CARE HEALTH CARE
$12.1M $37.8M DISTRIBUTED DISTRIBUTED
$17,016,778 IN $39,121,789 IN NEW GRANTS APPROVED NEW GRANTS APPROVED
CROSS PROGRAM/SPECIAL OPPORTUNITY $12.1M DISTRIBUTED
$18,503,000 IN NEW GRANTS APPROVED
HIGHER EDUCATION RURAL CHURCH
$56.2M $14.3M DISTRIBUTED DISTRIBUTED
$29,615,000 IN $14,423,755 IN NEW GRANTS APPROVED NEW GRANTS APPROVED
THE DUKE ENDOWMENT | 2017 GRANTMAKING 3 CHILD CARE
Helping vulnerable children lead successful lives by supporting early intervention, collaborative approaches and evidence-based programs that help serve children and their families more effectively.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 4 CHILD CARE $17,016,778 CHILD CARE 28 NEW GRANTS
Out-of-home care $11,049,251 15 NEW GRANTS
Prevention and early intervention $5,967,527 13 NEW GRANTS
$12.1M* DISTRIBUTED IN 2017
*Includes ongoing multi-year commitments approved before 2017
NORTH CAROLINA
Out-of-home care
Black Mountain Black Mountain Home for Children, Hickory Catawba County Department of Youth & Families Social Services $250,000 To support an apprenticeship program for $2,470,000 To support Success Coach expansion youth aging out of care. and evaluation.
Charlotte Elon Homes of North Carolina Raleigh Methodist Home for Children $115,000 To support a residential transitional living $200,000 To support program diversification. program for young men ages 18 to 21.
Raleigh Benchmarks Charlotte Alexander Youth Network $300,000 To support a public/private collaborative $130,000 To support a transitional living specialist for to improve service integration and quality youth aging out of foster care. treatment for youth in child welfare.
Durham Duke University School of Medicine $2,067,000 To continue support for Together Facing Prevention and early intervention The Challenge, an evidence-informed therapeutic foster care model.
Chapel Hill Frank Porter Graham Child Fayetteville Cumberland County Department of Development Institute Social Services $984,322 To support the sustainable scale-up of Triple To pilot Cumberland County’s redesign of $783,848 P in South Carolina. child welfare policies and practices for older youth in care. Charlotte Family Centered Treatment Foundation $1,699,000 To evaluate Family Centered Treatment, an Hendersonville Henderson County Department of in-home model. Social Services $415,961 To pilot an in-home substance abuse treatment model.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 5 CHILD CARE
NORTH CAROLINA SOUTH CAROLINA
Prevention and early intervention (continued) Out-of-home care
Durham Exchange Clubs Child Abuse Prevention Columbia South Carolina Department of Center in Durham Social Services $25,000 To continue support for Multi-Dimensional $100,000 To implement an evidence-informed foster Family Therapy. parent skill-building model.
Durham Durham County Cooperative Extension Columbia South Carolina Youth Advocate Program $240,000 To expand the Incredible Years program in $381,330 To recruit and train foster families using the Durham County. Together Facing the Challenge model.
Graham Children’s Advocacy Centers of North Greenwood Connie Maxwell Children’s Home Carolina, Inc. $350,000 To implement an evidence-informed foster $393,000 To support CAC CareNet, a comprehensive parent skill-building model. database for accredited child advocacy centers in North Carolina. Spartanburg Hope Center for Children $370,000 To replicate Trauma-Focused Cognitive Hendersonville Children & Family Resource Center Behavioral Therapy. $83,000 To implement Parent-Child Interaction Therapy.
Matthews Thompson Child & Family Focus $1,064,225 To expand evidence-based parenting OTHER programs and foster care services in North Carolina and South Carolina. Out-of-home care
Raleigh Triangle Family Services $270,000 To expand Trauma-Focused Cognitive Bethesda, MD Child Trends Behavioral Therapy. $323,482 To evaluate how children adopted from foster care in North Carolina fare as young adults. Raleigh Prevent Child Abuse North Carolina $300,000 To create implementation support for Triple Framingham, MA Kids Insight P, an evidence-based model. $2,792,630 To expand use of the Treatment Outcome Package (TOP) with private agencies and Raleigh Prevent Child Abuse North Carolina managed care organizations in North Carolina. $415,980 To support implementation of the Incredible Years and Strengthening Families Program.
Prevention and early intervention Rockwell Nazareth Children’s Home $40,000 To implement The Seven Challenges, an evidence-based substance abuse treatment model. Washington, DC National Children’s Alliance $378,000 To continue support for the implementation of Child and Family Traumatic Stress Wilmington Blue Ribbon Commission on the Prevention Intervention in South Carolina. of Youth Violence $75,000 To expand Trauma-Focused Cognitive Behavioral Therapy.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 6 HEALTH CARE
Enhancing the lives of individuals and the vitality of communities by promoting prevention, improving the quality and safety of services and increasing access to care.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 7 HEALTH CARE $39,121,789 HEALTH CARE 71 NEW GRANTS
Access to health care $23,755,955 38 NEW GRANTS
Prevention $6,320,000 13 NEW GRANTS
$37.8M* DISTRIBUTED IN 2017 Quality and safety of health care
*Includes ongoing multi-year commitments approved before 2017 $9,045,834 20 NEW GRANTS
NORTH CAROLINA
Access to health care
Asheville Mission Health Durham Duke University School of Medicine $750,000 To expand a community network of care for the $750,000 To expand a community network of care for low-income, uninsured in Buncombe County. the low-income, uninsured in Durham County.
Asheville Mission Health Fayetteville Cape Fear Valley Health System $1,250,000 To establish a comprehensive mental health $750,000 To expand a community network of care for the program in western North Carolina. low-income, uninsured in Cumberland County.
Cary North Carolina Hospital Foundation Flat Rock Hospice of Henderson County $100,000 To establish a program to improve crisis $750,000 To train primary care providers in rural stabilization services in North Carolina. communities in palliative care.
Chapel Hill University of North Carolina at Chapel Hill Greensboro Cone Health $340,000 To train community health workers in $645,000 To expand a community network of care for accessing health care services for people the low-income, uninsured in Guilford County. recently released from prison.
$727,804 To expand a community network of care Greenville Vidant Medical Center for the low-income, uninsured in Alamance, $700,000 To expand services for patients with advanced Orange, Chatham, Caswell and Lee counties. heart disease.
Charlotte Carolinas HealthCare Foundation Morganton Blue Ridge Healthcare Foundation $496,000 To identify and address social determinants of $700,000 To expand a community network of care for health needs within pediatric practices. the low-income, uninsured in Burke County.
$660,000 To expand a community network of care for the low-income, uninsured in Mecklenburg County. Morrisville Care Share Health Alliance $500,000 To expand a state resource center supporting community networks of care for the low- Charlotte NC MedAssist Mecklenburg income, uninsured in North Carolina. $950,000 To expand a medication assistance program for the low-income, uninsured in North Carolina.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 8 HEALTH CARE
NORTH CAROLINA
Access to health care (continued) Quality and safety of health care
Raleigh Hospice of Wake County Cary North Carolina Hospital Foundation $125,000 To establish a pediatric palliative care $142,500 To support a web-based data collection and telehealth program. analysis program for North Carolina hospitals.
$414,399 To support the North Carolina Center for Rural Raleigh WakeMed Health Innovation and Performance. $750,000 To expand a community network of care for the low-income, uninsured in Wake, Franklin and Johnston counties. Chapel Hill University of North Carolina at Chapel Hill $600,000 To establish a patient navigation program to improve cancer outcomes in North Carolina. Reidsville Annie Penn Hospital $589,000 To expand a community network of care for the low-income, uninsured in Rockingham County. Durham Duke University School of Medicine $1,804,958 To establish the Duke Center for Population Health Sciences. Wilmington New Hanover Regional Medical Center $750,000 To expand a community network of care for the low-income, uninsured in southeastern Jefferson Ashe Memorial Hospital North Carolina. $375,000 To implement a community paramedicine program in Ashe County.
Winston-Salem Forsyth Memorial Hospital $750,000 To expand a community network of care for Morehead City Carteret General Hospital the low-income, uninsured in Forsyth, Stokes, $290,000 To establish a palliative care program in Davie, Davidson and Yadkin counties. Carteret County.
Morrisville North Carolina Institute of Medicine Prevention $90,000 To develop the Accountable Care Communities Task Force.
$150,000 To establish the Health Policy Fellows program Cary Foundation for Health Leadership providing education on health policy for and Innovation legislators to support informed decision-making. $320,000 To establish a regional standardized community health needs assessment process Winston-Salem Wake Forest University Health Sciences for eastern North Carolina. $274,499 To improve patient and family engagement in advance care planning. Chapel Hill University of North Carolina at Chapel Hill $575,000 To assist in a statewide intervention to address infant mortality and health outcomes. $830,000 To improve maternity care and breastfeeding SOUTH CAROLINA rates in underserved communities. Access to health care
Charlotte OrthoCarolina Research Institute $630,000 To establish evidence-based strategies to reduce utilization of opioids in orthopedic surgery. Camden Community Medical Clinic of Kershaw County $750,000 To expand a community network of care for Raleigh NC Child the low-income, uninsured in Kershaw County. $300,000 To implement a lead poisoning prevention program for children. Charleston Medical University of South Carolina Foundation $335,000 To reduce disparities in access to kidney transplantation in South Carolina.
$498,000 To implement a telemedicine program for diabetic retinopathy in South Carolina.
$540,000 To expand the trauma/telehealth resilience and recovery program in South Carolina.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 9 HEALTH CARE
SOUTH CAROLINA
Access to health care (continued)
Charleston South Carolina Area Health Greenville Greenville Health System Education Consortium $750,000 To expand a community network of care for $735,000 To expand the primary care workforce in the low-income, uninsured in Oconee County South Carolina. and the greater Clemson area.
Charleston Roper St. Francis Foundation Rock Hill Keystone Substance Abuse Services $750,000 To expand a community network of $250,000 To establish an outpatient opioid treatment care for the low-income, uninsured in program for young adults. Charleston County.
Spartanburg Spartanburg Regional Healthcare Columbia Palmetto Health System Foundation $219,543 To implement a patient-centered care $750,000 To expand a community network of delivery model. care for the low-income, uninsured in Spartanburg County.
Columbia University of South Carolina Educational Foundation $240,000 To expand PASOs, a statewide health program Prevention for Latino families.
Columbia South Carolina Hospital Research & Camden Community Medical Clinic of Education Foundation Kershaw County $300,000 To improve behavioral health access, services $450,000 To expand a community coalition to increase and outcomes in South Carolina. capacity and improve population health.
Columbia Welvista Charleston Medical University of South $385,608 To expand a school-based dental program in Carolina Foundation Hampton County. $450,000 To establish an intensive program for pain and opioid-free rehabilitation in South Carolina. Columbia South Carolina Hospital Research & $465,000 To train providers in evidence-based screening Education Foundation for substance abuse. $500,000 To expand AccessHealth SC, a state resource center supporting community networks of care for the low-income, Cheraw McLeod Health Cheraw uninsured in South Carolina. $450,000 To expand a community coalition to increase capacity and improve population health. Columbia Welvista $950,000 To expand a medication assistance Florence McLeod Health Foundation program for the low-income, uninsured in $500,000 To develop a Neonatal Abstinence Syndrome South Carolina. treatment and screening plan for the Pee Dee region. Columbia South Carolina Department of Mental Health $1,220,000 To establish a mental health court initiative in Greenville Bon Secours St. Francis Health System South Carolina. $450,000 To expand a community coalition to increase capacity and improve population health. Conway Conway Medical Center $750,000 To expand a community network of care for Orangeburg Regional Medical Center the low-income, uninsured in Horry County. $450,000 To expand a community coalition to increase capacity and improve population health. Florence McLeod Regional Medical Center of the Pee Dee Winnsboro Fairfield Memorial Hospital $750,000 To expand a community network of care $450,000 To expand a community coalition to increase for the low-income, uninsured in Darlington, capacity and improve population health. Dillon, Florence and Marion counties.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 10 HEALTH CARE
SOUTH CAROLINA
Quality and safety of health care
Columbia South Carolina Hospital Research & Education Foundation $20,000 To support the Small and Rural Hospital Conference.
Columbia University of South Carolina Educational Foundation $90,000 To develop a task force to improve the health care workforce in South Carolina.
$270,000 To expand a program to reduce pre-term births in South Carolina.
$875,000 To expand the South Carolina Institute of Medicine and Public Health.
Florence McLeod Regional Medical Center of the Pee Dee $125,000 To prepare for the implementation of a medical/dental integration pilot.
$281,000 To establish a regional lactation education program.
Florence McLeod Health Foundation $2,021,000 To implement an oral health system delivery model.
Greenville Greenville Health System $525,000 To expand a memory health program.
Lexington South Carolina Office of Rural Health $150,000 To support the South Carolina Rural Health Action Plan Task Force.
Manning McLeod Health Clarendon $272,478 To implement a community paramedicine program in Clarendon County.
West Columbia Lexington Medical Center $275,000 To implement a transitional care program for patients with chronic diseases.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 11 HIGHER EDUCATION
Working through Davidson College, Duke University, Furman University and Johnson C. Smith University to advance the pursuit of educational excellence, make education more affordable for qualified students and support initiatives and programs that benefit communities.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 12 HIGHER EDUCATION HIGHER $29,615,000 EDUCATION 13 NEW GRANTS
Academic excellence $24,875,000 8 NEW GRANTS
Campus and community engagement $3,240,000 4 NEW GRANTS
$56.2M* DISTRIBUTED IN 2017 Educational access and success
*Includes ongoing multi-year commitments approved before 2017 $1,500,000 1 NEW GRANT
NORTH CAROLINA
Academic excellence Educational access and success
Charlotte Johnson C. Smith University Charlotte Johnson C. Smith University $175,000 To develop a sustainable business model for $1,500,000 To support the President’s Gap Scholarship Fund. the university.
$1,400,000 To provide unrestricted operating support.
SOUTH CAROLINA Davidson Davidson College $1,400,000 To provide unrestricted operating support. Academic excellence
Durham Duke University $500,000 To support the institutional initiatives of Greenville Furman University President Vincent Price. $1,400,000 To provide unrestricted operating support.
$5,000,000 To endow the James B. Duke and Benjamin $2,500,000 To support Gallup’s evaluation of The N. Duke Dean of the School of Law. Furman Advantage.
$12,500,000 To provide unrestricted operating support.
Campus and community engagement Campus and community engagement
Greenville Furman University $1,100,000 To support Furman University’s Davidson Davidson College implementation of College Advising Corps. $540,000 To support the College Advising Corps.
Durham Duke University $500,000 To support Duke-Engage in honor of Duke University President Richard H. Brodhead upon his retirement.
$1,100,000 To support the College Advising Corps.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 13 RURAL CHURCH
Strengthening rural United Methodist churches and the communities they serve by forming church leaders, building congregational capacity and fostering community engagement.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 14 RURAL CHURCH $14,423,755 RURAL CHURCH 44 NEW GRANTS
Clergy leadership $6,725,548 20 NEW GRANTS
Congregational outreach $1,579,000 7 NEW GRANTS
$14.3M* DISTRIBUTED IN 2017 Rural church development
*Includes ongoing multi-year commitments approved before 2017 $6,119,207 17 NEW GRANTS
NORTH CAROLINA
Clergy leadership
Garner Gateway District Albemarle Uwharrie District $25,000 To provide diversity training for clergy $15,000 To provide diversity training for clergy and congregations. and congregations.
Garner Harbor District Durham Duke Divinity School $25,000 To provide diversity training for clergy $125,000 To support the Director of Field Education and congregations. and to provide training and counseling services to Field Education Students. Garner North Carolina Conference United $252,072 To support rural United Methodists Methodist Church attending continuing education events at $151,000 To train church leaders through language Duke University Divinity School. and culture immersion.
$525,000 To develop a strategic plan that optimizes the $194,400 To begin a coaching program for part-time organizational structure and practices of Duke pastors in rural settings. Divinity School. $200,000 To support the conference’s $1,166,700 To provide scholarships for the 2017 Academic Empowering Network Initiative for Year Field Education Assistant Pastors and Hispanic faith communities. Student Pastors program. $793,040 To provide pensions to retired ministers $1,396,800 To provide scholarships for the 2017 Summer and widows and dependent children of Field Education Assistant Pastors program. deceased ministers.
Emerald Isle Sound District Greensboro Northern Piedmont District $36,000 To provide diversity training for clergy and $13,500 To provide diversity training for clergy congregations. and congregations.
Garner Beacon District Raleigh North Carolina State University Foundation $25,000 To provide diversity training for clergy $195,000 To support rural churches as community and congregations. anchor institutions.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 15 RURAL CHURCH
NORTH CAROLINA
Clergy leadership (continued)
Winston-Salem Western North Carolina Conference United Durham Duke Divinity School Methodist Church $87,500 To build the capacity of rural churches to $39,800 To support a mental health program for clergy improve community health and wellness. in crisis. $226,533 To adapt a stress management training for $1,154,091 To provide pensions to retired ministers clergy and plan its delivery and evaluation. and widows and dependent children of deceased ministers Garner North Carolina Conference United Methodist Church $100,000 To build the capacity of rural churches to engage Congregational outreach in community needs assessment and planning.
$2,227,000 To assist rural churches in long-range planning.
Elizabeth City First United Methodist Church Greensboro Boundless Impact $30,000 To expand a literacy program for Latino children and provide language classes for adults. $55,000 To train churches for innovative community ministry.
Garner Harbor District Hayesville Hinton Rural Life Center $300,000 To engage rural United Methodists in home repair ministry. $250,000 To strengthen missional outreach in rural churches.
Garner Beacon District Oxford Oxford United Methodist Church $1,100,000 To expand a collaborative home repair ministry. $150,000 To renovate and expand church facilities for mission. Hayesville Ledford’s Chapel United Methodist Church $60,000 To expand a food and literacy Raleigh EducationNC outreach program. $335,000 To help rural churches build capacity through social media technology. Siler City El Camino United Methodist Church $9,000 To support a summer nutrition program Raleigh Youth Empowered Solutions (YES!) for children. $650,000 To build the capacity of rural United Methodist teens to engage in civic leadership. Thomasville Fairview United Methodist Church $20,000 To begin a literacy program. Raleigh Rural Economic Development Center $1,139,000 To build the capacity of rural congregations West Jefferson Bethany United Methodist Church for community economic development. $60,000 To expand the services of a food pantry.
Sparta Shiloh United Methodist Church $150,000 To build a fellowship hall. Rural church development $200,000 To expand outreach to youth and families.
Washington Asbury United Methodist Church Chapel Hill Johnson Service Corps $7,500 To expand a community garden ministry. $150,000 To develop Rural Servant Leadership Fellows.
Winston-Salem Western North Carolina Conference United Charlotte UNC Charlotte Urban Institute Methodist Church $329,174 To examine rural-urban connections for $37,500 To adapt and deliver a stewardship program. economic renewal.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 16 RURAL CHURCH
OTHER
Clergy leadership
Conshohocken, PA Center for Assessment and Policy Development $143,145 To continue evaluation of the Thriving Rural Communities Initiative.
Whitesburg, KY Center for Rural Strategies $250,000 To support the 2017 National Rural Assembly.
Rural church development
Boulder, CO New Voice Strategies $25,000 To survey rural United Methodist leaders to inform the Rural Church program area’s strategic priorities.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 17 CROSS PROGRAM/ SPECIAL OPPORTUNITY
The Duke Endowment’s Cross Program grants tap the resources and expertise of two or more of the Endowment’s program areas. Special Opportunity grants are made to organizations to further the Endowment’s core program priorities.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 18 CROSSCROSS PROGRAM/PROGRAM/SPECIAL OPPORTUNITY SPECIAL OPPORTUNITY
$18,503,000 13 NEW GRANTS
$12.1M* DISTRIBUTED IN 2017
*Includes ongoing multi-year commitments approved before 2017
NORTH CAROLINA SOUTH CAROLINA
Charlotte Renaissance West Community Initiative Columbia SC Thrive $600,000 To support neighborhood-based early $803,000 To support a web-based program for state and childhood initiatives. federal entitlement programs in South Carolina.
Durham Duke University School of Law North Charleston Tri-County Cradle-to-Career Collaborative $250,000 To commemorate the service and leadership $1,545,000 To support continuous improvement coaching of Russell M. Robinson II as a Trustee of The for early childhood providers in Charleston, Duke Endowment. South Carolina.
Durham Duke University Spartanburg Northside Development Group $250,000 To commemorate the service and leadership $600,000 To support neighborhood-based early of Mary Duke Trent Jones as a Trustee of The childhood initiatives. Duke Endowment.
$5,000,000 To support the World Food Policy Center.
OTHER Durham Center for Child and Family Policy $405,210 To support prenatal outreach in Guilford County.
$500,000 To support Family Connects in Durham Boston, MA Root Cause County and to assist replication efforts in $649,580 To support continuous improvement coaching North Carolina and South Carolina. for early childhood providers in Guilford County.
$815,876 To support child well-being and kindergarten readiness in Guilford County. Multiple Multiple Regional and National Affinity Groups $500,000 To support philanthropic advocacy organizations and affinity groups.
New York, NY Blue Meridian $6,584,334 To support Blue Meridian Partners.
THE DUKE ENDOWMENT | 2017 GRANTMAKING 19 800 East Morehead Street Charlotte, North Carolina 28202
dukeendowment.org 2017 FINANCIALS
1 TABLE OF CONTENTS
REPORT OF INDEPENDENT CERTIFIED 4 PUBLIC ACCOUNTANTS
5 STATEMENTS OF FINANCIAL POSITION
6 STATEMENTS OF ACTIVITIES
7 STATEMENTS OF CASH FLOWS
8 NOTES TO FINANCIAL STATEMENTS
THE DUKE ENDOWMENT | 2017 FINANCIALS 1 FINANCIALS
Since James B. Duke’s death in 1925, the assets of The Duke Endowment have achieved significant growth, from $107 million to $3.69 billion. During the same time, nearly $3.7 billion has been distributed in grants.
$164.7M* GRANTS AND EXPENSES More than 80 percent of the Endowment’s total spending goes directly to grantmaking, which compares favorably to foundations of similar size. This chart and the legend below show our grantmaking in the context of other spending.
$132.3M $12.3M $10.6M $5.6M $3.8M Grants Paid Admin. Expenses Investment Expenses Program Expenses Provision for Taxes 80.4% 7.4% 6.5% 3.4% 2.3%
*May not sum to total due to rounding
THE DUKE ENDOWMENT | 2017 FINANCIALS 2 INVESTMENTS
During 2017, the investment return on the Endowment’s portfolio was 11.8 percent. Investment performance benefited from increases in global equity, hedged strategies, private investments, commodities and fixed income. The Endowment’s assets increased in value from $3.37 billion to $3.69 billion from December 31, 2016 to December 31, 2017, impacted by investment returns, Marking an Anniversary grants and expenses. Since July 2007, The Duke Endowment’s investment portfolio has been managed by For the 10-year period ending December 31, 2017, the DUMAC, a professionally-staffed investment Endowment’s investment portfolio, net of fees, returned organization in Durham, N.C., governed 5.9 percent annualized, outperforming its policy benchmark by Duke University. In 2017, the DUMAC by 2.0 percentage points and a 70 percent MSCI All staff visited the Endowment in Charlotte Country World Index/30 percent Bloomberg Barclays US to celebrate the 10th anniversary of our Aggregate Bond Index benchmark by 1.1 percentage points partnership and learn more about our history, annualized over the same period. our work and our grantees.
TOTAL ASSETS (IN $ BILLIONS) 3.69 3.37 3.43 3.35 3.37 2.95 2.74 2.80 2.48 2.23
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
INVESTMENT RETURNS (PERCENT)
17.1 14.4 10.1 12.3 10.9 11.8 6.1 4.5 2.8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
-24.4
THE DUKE ENDOWMENT | 2017 FINANCIALS 3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF TRUSTEES OF THE DUKE ENDOWMENT:
We have audited the accompanying financial statements of The Duke Endowment (the “Endowment”), which comprise the statement of financial position as of December 31, 2017, and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements.
Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Endowment’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Endowment’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Duke Endowment as of December 31, 2017, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of matter As explained in Notes 2 and 5, the financial statements include certain private equity investments valued at $1,035,106,064 or 29% of net assets as of December 31, 2017. The fair values of such investments have been estimated by management in the absence of readily determinable fair market values. Management’s estimates are based on information provided by the fund managers or the general partners of the private equity investments. Our opinion is not modified with respect to this matter.
Report on 2016 summarized comparative information We have previously audited the Endowment’s 2016 financial statements (not presented herein), and we expressed an unmodified audit opinion on those audited financial statements in our report dated May 5, 2017. In our opinion, the accompanying summarized comparative information as of and for the year ended December 31, 2016 is consistent, in all material respects, with the audited financial statements from which it has been derived.
Charlotte, North Carolina May 17, 2018
THE DUKE ENDOWMENT | 2017 FINANCIALS 4 STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2017 (WITH COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2016)
ASSETS 2017 2016 Cash and cash equivalents $ 9,341,596 $ 14,447,006 Securities transactions receivable 3,139,602 11,912,950 Investments, at fair market value (Note 5) 3,631,435,249 3,301,738,558 Land, building, furniture and equipment, net 41,148,089 42,600,664 Other assets 3,205,986 3,360,149 TOTAL ASSETS $ 3,688,270,522 $ 3,374,059,327
LIABILITIES AND NET ASSETS Liabilities:
Grants payable $ 25,220,192 $ 21,775,942 Securities transactions payable 2,503,657 2,277,554 Notes payable 34,730,016 35,865,892 Net deferred excise tax liability 10,062,318 6,338,981 Other liabilities 16,805,768 13,673,100 TOTAL LIABILITIES $ 89,321,951 $ 79,931,469
Net assets: Unrestricted $ 3,825,765 $ 3,505,364 Temporarily restricted 3,335,441,728 3,030,941,416 Permanently restricted 259,681,078 259,681,078
TOTAL NET ASSETS $ 3,598,948,571 $ 3,294,127,858
TOTAL LIABILITIES AND NET ASSETS $ 3,688,270,522 $ 3,374,059,327
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
THE DUKE ENDOWMENT | 2017 FINANCIALS 5 STATEMENTS OF ACTIVITIES
FOR THE YEAR ENDED DECEMBER 31, 2017 (WITH SUMMARIZED AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2016)
TEMPORARILY PERMANENTLY REVENUE UNRESTRICTED RESTRICTED RESTRICTED 2017 2016 Dividends and interest income $ 49,759,914 — — $ 49,759,914 $ 46,443,211 Other income 198,492 — — 198,492 1,783,538 Net realized gains on investment transactions — $ 57,275,987 — 57,275,987 168,602,347 Increase (decrease) in net unrealized appreciation on assets — 368,610,356 — 368,610,356 (24,083,796)
TOTAL REVENUE $ 49,958,406 $ 425,886,343 — $ 475,844,749 $ 192,745,300
EXPENSES
Administrative $ 12,265,290 — — $ 12,265,290 $ 11,539,072 Program (Grantmaking) 5,639,555 — — 5,639,555 6,669,077 Investment 10,616,905 — — 10,616,905 9,604,858
Provision for taxes 3,826,837 — — 3,826,837 4,787,791
Increase (decrease) in pension and postretiment benefit obligation 2,886,031 — — 2,886,031 (436,589)
TOTAL EXPENSES $ 35,234,618 — — $ 35,234,618 $ 32,164,209
RELEASED FROM RESTRICTIONS (NOTE 3) $ 121,386,031 $ (121,386,031) — — — GRANTS APPROVED Education $ 56,181,026 — — $ 56,181,026 $ 56,098,742 Health Care 38,989,784 — — 38,989,784 38,950,578 Child Care 12,071,034 — — 12,071,034 12,131,828 Superannuated Preachers 1,947,131 — — 1,947,131 1,931,401 Building Rural Churches 443,000 — — 443,000 1,115,000 Operating Rural Churches 12,194,580 — — 12,194,580 11,593,598 Administrative Grants 940,000 — — 940,000 645,000 Special Opportunities 13,022,863 — — 13,022,863 14,552,688
TOTAL GRANTS APPROVED $ 135,789,418 — — $ 135,789,418 $ 137,018,835
CHANGE IN NET ASSETS $ 320,401 $ 304,500,312 — $ 304,820,713 $ 23,562,256 NET ASSETS AT BEGINNING OF YEAR $ 3,505,364 $ 3,030,941,416 $ 259,681,078 $ 3,294,127,858 $ 3,270,565,602 NET ASSETS AT END OF YEAR $ 3,825,765 $ 3,335,441,728 $ 259,681,078 $ 3,598,948,571 $ 3,294,127,858
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
THE DUKE ENDOWMENT | 2017 FINANCIALS 6 STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2017 (WITH COMPARATIVE AMOUNTS FOR THE YEAR ENDED DECEMBER 31, 2016)
CASH FLOWS FROM OPERATING ACTIVITIES 2017 2016 Change in net assets $ 304,820,713 $ 23,562,256 Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation expenses 1,550,834 1,526,175 Net realized gains on investment transactions (57,275,987) (168,602,347) (Increase) decrease in net unrealized appreciation on assets (368,610,356) 24,083,796 Changes in assets and liabilities: Decrease in securities transactions receivable 8,773,348 1,860,874 Decrease in other assets 154,163 5,876,967 Increase in grants payable 3,444,250 7,927,804 Increase (decrease) in securities transactions payable 226,103 (1,653,915) Increase (decrease) in other liabilities 3,132,668 (1,662,744) NET CASH USED IN OPERATING ACTIVITIES $ (103,784,264) $ (107,081,134)
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales and maturities of investments $ 1,652,357,260 $ 2,511,285,180 Disbursements for purchase of investments (1,552,444,271) (2,402,449,332) Disbursements for purchase of land, building, furniture and equipment (98,259) (17,053) NET CASH PROVIDED BY INVESTING ACTIVITIES $ 99,814,730 $ 108,818,795
CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on notes payable $ (1,135,876) $ (1,093,375) NET CASH USED IN FINANCING ACTIVITIES $ (1,135,876) $ (1,093,375)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS $ (5,105,410) $ 644,286 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,447,006 13,802,720 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,341,596 $ 14,447,006
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for taxes $ 3,826,837 $ 887,791 Cash paid during the year for interest $ 1,370,008 $ 1,412,508
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
THE DUKE ENDOWMENT | 2017 FINANCIALS 7 NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2017 (WITH COMPARATIVE AMOUNTS AS OF DECEMBER 31, 2016 AND SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31, 2016)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION The Duke Endowment (“the Endowment”) was established by James B. Duke by Indenture and Deed of Trust of Personalty, dated December 11, 1924, for specific charitable, educational and religious purposes. The Endowment is to have perpetual existence. Subsequently, additional amounts were contributed to the Endowment under Items VIII, X, and XI of the Will of James B. Duke and by gifts from members of Mr. Duke’s family. Additional amounts were also received from The Doris Duke Trust. The Endowment has been classified as a private foundation and, accordingly, is subject to federal excise taxes imposed on net investment income, including realized capital gains. The Endowment is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code.
(B) DUMAC On July 1, 2007 the Trustees of the Endowment entered into a formal agreement with Duke Management Company (“DUMAC”), an organization providing investment management services for the Duke University endowment assets, whereby Duke Management Company would perform investment management services on behalf of the Endowment.
Pursuant to the terms of the arrangement, DUMAC is compensated by the Endowment for its investment management services at a rate proportionate to the Endowment’s share of the total investment assets managed by DUMAC in comparison to the total operating expenses of DUMAC, paid annually. For the years ending 2017 and 2016, the Endowment incurred investment management fees to DUMAC in the amount of $3,935,408 and $4,289,588, respectively. Such fees are included in investment expenses within the accompanying statement of activities.
(C) METHOD OF ACCOUNTING The Endowment presents its financial statements on an accrual basis in accordance with accounting principles generally accepted in the United States of America (US GAAP). Certain items are maintained on a cash basis, which is not materially different from the accrual basis of accounting.
During the years ended December 31, 2017 and 2016, the Endowment had leased certain office facilities and equipment. Such leases were operating leases and costs were expensed as incurred.
(D) BASIS OF PRESENTATION The Endowment is required by the Indenture to use the interest and dividends (Endowment Income) earned on investments for purposes defined in the Indenture, subject to the defined authority of the Trustees to withhold Endowment Income. More specifically, the Endowment is required by the Indenture to distribute to Duke University a certain amount of Endowment Income from the Original Corpus, Corpus Item VIII and Corpus Item XI, subject to a limited right to withhold by the trustees of the Endowment. The Indenture provides for additional trustee discretion with respect to the disbursement of Endowment Income to Endowment beneficiaries other than Duke University and also to Duke University out of accounts other than the three Corpus accounts listed above. In accordance with terms of the Indenture, which established the Endowment, realized gains and losses arising from investment transactions are considered part of Corpus. For purposes of presentation within the financial statements, all Corpus accounts are classified as either temporarily or permanently restricted net assets.
North Carolina and New Jersey have both enacted the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”). This law provides, in part, additional flexibility by allowing an institution to prudently spend from its endowment fund without regard to the historical value of the Corpus of the fund. In response to UPMIFA, the Financial Accounting Standards Board (FASB) issued Staff Position on Statement No. 117 (“FSP FAS 117-1”, codified as ASC 958-205), which provides guidance on classifying net assets associated with donor-restricted endowment funds subject to UPMIFA and improves disclosure requirements. Although not subject to UPMIFA, the Endowment elected to implement the additional requirements outlined in FSP FAS 117-1.
As a result of this implementation, the trustees determined that they would classify as permanently restricted net assets (a) the original value of Original Corpus, Corpus VIII and Corpus XI, plus (b) the original value of subsequent gifts to Corpus, less (c) distributions specified by the donor. The trustees have determined that $259,681,078 be classified as permanently restricted net assets as of December 31, 2017 and 2016.
All realized gains and losses arising from investment transactions will be reflected in the statements of activities as increases or decreases in temporarily restricted net assets until such time that the trustees appropriate funds as described in Notes 3 and Note 8.
THE DUKE ENDOWMENT | 2017 FINANCIALS 8 Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, the net assets of the Endowment and changes therein are classified and reported as follows:
• Unrestricted Net Assets – These amounts are available for appropriation to the beneficiaries of the Endowment or for similar charitable purposes in accordance with terms of the Indenture.
• Temporarily Restricted Net Assets – These principal funds are available for appropriation to the beneficiaries of the Endowment or for similar charitable purposes in accordance with terms of the Indenture or under circumstances described in Note 3.
• Permanently Restricted Net Assets – Net assets subject to donor-imposed stipulations that they be maintained permanently by the Endowment. These funds are to be held in perpetuity and represent (a) the original value of Original Corpus, Corpus VIII and Corpus XI, plus (b) the original value of subsequent gifts to Corpus, less (c) distributions specified by the donor in the Indenture.
Dividends and interest are reported as increases in unrestricted net assets. Realized and unrealized gains and losses are reported as increases or decreases in temporarily restricted net assets in accordance with donor-imposed restrictions. Expenses and grants approved are recorded as decreases in unrestricted net assets.
The financial statements include certain prior-year summarized comparative financial information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with US GAAP. Accordingly, such information should be read in conjunction with the Endowment’s financial statements for the year ended December 31, 2016, from which the summarized information was derived.
(E) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of demand deposits and certain short-term interest bearing investments held with banks for beneficiary and expense purposes. The Endowment maintains cash on deposit and the balance, at times, may be in excess of federally insured limits.
(F) SECURITIES TRANSACTIONS RECEIVABLE Securities transactions receivable represents investment transactions that have been sold, but not settled. The Endowment recognizes investment transactions on a trade-date basis. Amounts are recognized in the statements of financial position at fair market value.
(G) INVESTMENTS The Endowment accounts for investments under Accounting Standards Codification (ASC) 958,Not-for-Profit Entities, through which the Endowment has elected to record investments at estimated fair market value with gains and losses included in the statements of activities. Realized gains and losses are recognized when securities are sold based on the first-in, first-out method.
(H) LAND, BUILDING, FURNITURE AND EQUIPMENT Land, building, furniture and equipment owned by the Endowment are stated at cost at date of acquisition. Useful lives range from 39 years for buildings, 7 years for furniture, and 5 years for technological equipment. Depreciation is calculated on the straight-line basis over the assets’ estimated useful lives, except for land. The Endowment reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment charge is recognized when the fair value of the asset or group of assets is less than the carrying value.
(I) GRANTS PAYABLE The Endowment records grants payable once the Board of Trustees approves the grant. Once approved, each grantee organization must sign a grant agreement which stipulates guidelines and related requirements. The grantee must meet the terms of the signed grant agreement before funds are distributed.
(J) SECURITIES TRANSACTIONS PAYABLE Securities transactions payable represents investment transactions that have been purchased, but not settled. The Endowment recognizes investment transactions on a trade-date basis. Amounts are recognized in the statements of financial position at fair market value.
THE DUKE ENDOWMENT | 2017 FINANCIALS 9 (K) PROVISION FOR TAXES The Endowment is exempt from federal income taxes on related income under Section 501(c)(3) of the Internal Revenue Code and is classified as a private foundation. Accordingly, the Endowment is subject to federal excise taxes imposed on net investment income, including realized gains. The annual federal excise tax, normally 2%, can be reduced to 1% of net investment income provided certain requirements are met. In 2017, management estimates that the Endowment will pay the 2% excise tax rate. In 2016, the Endowment was subject to the 2% excise tax rate.
In addition, the Endowment may be required to pay unrelated business income tax incurred through certain private equity investments. This tax is not material to the financial statements as a whole.
The Endowment records deferred excise taxes using the asset and liability method. Under this method, deferred excise taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect when such amounts are realized or settled.
(L) RISKS AND UNCERTAINTIES A significant portion of the Endowment’s assets are held in a variety of investment forms. Investment securities, and other investments, including alternative investments in general, are exposed to various risks, such as interest rate risk, credit risk, liquidity risk, foreign currency risk and overall market volatility. Additionally, certain of the Endowment’s alternative investments contain redemption rights which may be restricted or eliminated by the underlying funds based on the provisions of the fund agreements. Alternative investment transactions are conducted primarily through secondary markets, and accordingly the risk exists that the secondary markets could experience fluctuations in liquidity and/or volume, which could impact the estimated fair value of these alternative investments.
Due to the level of risk associated with certain investment securities, it is possible that changes in values of investment securities will occur and that such changes could materially affect the amounts reported in the financial statements.
(M) USE OF ESTIMATES Management of the Endowment has made certain estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in preparing these financial statements in conformity with US GAAP. Actual results could differ from these estimates.
Significant items in the Endowment’s financial statements subject to such estimates and assumptions include valuations for certain investments without readily determinable fair values, and actuarially determined benefit liabilities related to the Endowment’s pension and other postretirement benefit plans.
(N) RECENT ACCOUNTING PRONOUNCEMENTS In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Updated (ASU) 2016-14, Not-for Profit Entities (Topic 958). The ASU reduces the number of net assets from three to two (net assets without donor restrictions and net assets with donor restrictions). Additionally, it increases the quantitative and qualitative disclosures regarding liquidity, and requires expenses to be reported by both their natural and functional classification in one location. ASU 2016-14 is effective for fiscal year 2018.
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by the Endowment as follows:
Cash and cash equivalents, securities transactions receivable, and liabilities are carried at cost which approximates fair value because of the short maturity of these instruments.
Investments are carried at estimated fair value, which is generally based on year-end published quotations, except as discussed below.
Certain Endowment assets that are held in various alternative investments, including limited partnerships that invest in the securities of companies, hedge funds and other investments, may not be immediately liquid and do not have a readily determinable fair value, that is, instruments not listed on national exchanges or over-the-counter markets. The partnerships’ general partners, who must follow the valuation guidelines stipulated in their respective limited partnership agreements, determine the fair value of such partnership investments. Given the inherent risks associated with this type of investment, there can be no guarantee that there will not be widely varying gains or losses on these limited partnership investments in future periods. For its alternative investments, the Endowment is eligible and has utilized the practical expedient method to measure fair value under generally accepted accounting principles. In accordance with the practical expedient method, the net asset value (NAV) reported by the underlying alternative investment is concluded to represent the fair value.
THE DUKE ENDOWMENT | 2017 FINANCIALS 10 (3) TRANSFERS FROM CORPUS
In December 2009, the Indenture was modified by court order to allow the trustees to expend restricted net assets to the extent necessary in the judgment of the trustees for the Endowment to make available to beneficiaries of the Endowment funds reasonably needed for purposes described in the Indenture, consistent with the fiduciary duty of the trustees to preserve the Endowment in perpetuity. The modifications were not in effect until after the trustees’ final meeting of the year and did not affect the financial statements of the Endowment for years ended prior to January 5, 2010.
Under certain circumstances described above, the trustees may be required to transfer restricted net assets to unrestricted net assets to the extent necessary to comply with the provisions set forth in Section 4942 of the Internal Revenue Code. The trustees determined that transfers of principal funds in 2017 and 2016 in the amounts of $121,386,031 and $120,863,411, respectively, were required.
(4) PROVISION FOR TAXES AND DEFERRED EXCISE TAX LIABILITY
During 2017 and 2016, the Endowment recorded a provision for current year estimated excise taxes in the amounts of $3,826,837 and $4,787,791, respectively. This was allocated to the net change in unrestricted net assets. The increase in deferred excise tax liability was $3,723,337 and was allocated to unrealized appreciation in temporarily restricted net assets for 2017. The Endowment’s net deferred excise tax liability was $10,062,318 and $6,338,981 at December 31, 2017 and 2016, respectively, which primarily relates to unrealized gains on investments.
(5) INVESTMENTS
Investments are composed of the following:
2017 COST 2017 MARKET Short-term investments $ 395,040,329 $ 395,040,329 Fixed income 67,038,399 63,469,934 Equities 444,901,110 675,401,312 Hedged strategies 619,220,742 849,295,030 Private investments 592,089,344 1,035,106,064 Real assets 468,212,926 587,903,290 Other 38,680,498 25,219,290 $ 2,625,183,348 $ 3,631,435,249
2016 COST 2016 MARKET Short-term investments $ 443,240,387 $ 443,240,387
Fixed income 61,627,463 55,359,035
Equities 514,678,667 650,765,450
Hedged strategies 560,263,571 742,805,666
Private investments 583,469,109 879,248,779
Real assets 439,426,465 494,514,148
Other 64,810,999 35,805,093 $ 2,667,516,661 $ 3,301,738,558
At December 31, 2017, the Endowment received collaterals totaling $8,989,571 for financial instruments. As of December 31, 2016, $316,861 were posted as collaterals for financial instruments and thus not readily available for use. Collaterals held are included in hedged strategies and short-term investments.
The Endowment’s investment classes are described in further detail below. Classes include direct holdings, which are generally marketable securities, and interests in funds for which the related investment strategies are described.
THE DUKE ENDOWMENT | 2017 FINANCIALS 11 Short-term investments include cash collateral, money market funds, short-term U.S. Treasury, agency, corporate, and other highly liquid debt securities with an aggregate duration of less than a year.
Fixed income includes non-government U.S. and non-U.S. debt securities, funds holding similar securities, and debt-based derivatives.
Equities include U.S. and non-U.S. stocks, equity-based derivatives and interests in funds that invest predominantly long but also short stocks.
Hedged strategies primarily include interests in funds that invest both long and short in U.S. and non-U.S. stocks, credit-oriented securities and arbitrage strategies. Virtually all of Endowment’s investments in these funds are redeemable, and the underlying assets of the funds are predominately marketable securities and derivatives.
Private investments primarily include interests in funds or partnerships that hold illiquid investments in venture capital, buyouts, and credit. These funds typically have periods of 10 or more years during which committed capital may be drawn. Distributions are received through liquidation of the underlying assets of the funds, which are anticipated to occur over the next 4 to 10 years. Certain private placement securities may also be held.
Real assets include interests in funds or partnerships that hold illiquid investments in residential and commercial real estate, oil and gas production, energy, other commodities, and related services businesses. These funds typically have periods of 10 or more years during which committed capital may be drawn. Distributions are received through liquidations of the underlying assets of the funds, which are anticipated to occur over the next 5 to 12 years. Additionally, certain liquid commodity- and real estate-related equities, private placement securities and related derivatives are included.
Other includes primarily other derivative instruments.
THE DUKE ENDOWMENT | 2017 FINANCIALS 12 As of December 31, 2017 and 2016, redemption frequency and the corresponding notice period for all investments are shown within the table below. The values of the unfunded commitments included within the following table are as of December 31, 2017.
REDEMPTION UNFUNDED FREQUENCY (IN DAYS) REDEMPTION NOTICE ASSET CLASS COMMITMENTS (IF CURRENTLY ELIGIBLE) 1 PERIOD (IN DAYS) Short-term investments $ — daily 1 Fixed income — 1 to 30 1 to 30 Equities — 1 to >365 1 to 90 Hedged strategies 1,200,000 1 to >365 30 to 180 Private investments 261,743,120 N/A N/A Real assets 217,679,000 N/A N/A Other — N/A N/A
The Endowment measures fair value at the price expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance prioritizes the assumptions that market participants would use in pricing the asset or liability (the “inputs”) into a three-tier fair value hierarchy. This fair value hierarchy gives the highest priority (Level 1) to quoted prices in active markets for identical assets or liabilities and the lowest priority (Level 3) to unobservable inputs in which little or no market data exists, requiring enterprises to develop their own assumptions. Observable inputs that do not meet the criteria of Level 1, and include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets and liabilities in markets that are not active, are categorized as Level 2. Level 3 inputs are those that reflect management’s estimates about the assumptions market participants would use in pricing the asset or liability, based on the best information available in the circumstances. Alternative investments are typically valued using Level 3 inputs, and such inputs include information provided by the managers of the underlying funds.
At December 31, 2017, $89,190,286, or 2.5 % of the Endowment’s total investments, are valued using Level 3 inputs. At December 31, 2016, $83,182,005, or 2.5 % of the Endowment’s total investments, are valued using Level 3 inputs. These items consisted of alternative investments in private equity funds as well as other alternative investments. The schedule below presents the Endowment’s financial assets and financial liabilities that are recorded at fair value on a recurring basis, categorized by the level of inputs utilized in determining the fair value of each.2 As of December 31, 2017 and 2016, the Endowment had no material financial assets or financial liabilities that were measured at fair value on a non-recurring basis.
1 Based on current terms, it is possible that these redemption rights may be restricted or eliminated by the funds in the future in accordance with the underlying fund agreement.
2 Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.
THE DUKE ENDOWMENT | 2017 FINANCIALS 13 QUOTED PRICES SIGNIFICANT IN ACTIVE OTHER SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE INVESTMENTS IDENTICAL ITEMS INPUTS INPUTS REPORTED As of December 31, 2017: FAIR VALUE (LEVEL 1) (LEVEL 2) (LEVEL 3) AT NAV Equities $ 675,401,312 $ 420,543,954 $ 37,673,798 $ — $ 217,183,560 Fixed income 63,469,934 7,900,585 55,569,349 — — Private investments 1,035,106,064 3,857,085 — 77,600,695 953,648,284 Real assets 587,903,290 30,860,550 18,078,426 5,548,756 533,415,558 Hedged strategies 849,295,030 729,665 20,639,245 — 827,926,120 Short-term investments 395,040,329 — 395,040,329 — — Other 25,219,290 1,255,210 17,923,245 6,040,835 — TOTAL ASSETS MEASURED ON A $ 3,631,435,249 $ 465,147,049 $ 544,924,392 $ 89,190,286 $ 2,532,173,522 RECURRING BASIS
QUOTED PRICES SIGNIFICANT IN ACTIVE OTHER SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE INVESTMENTS IDENTICAL ITEMS INPUTS INPUTS REPORTED As of December 31, 2016: FAIR VALUE (LEVEL 1) (LEVEL 2) (LEVEL 3) AT NAV Equities $ 650,765,450 $ 309,979,379 $ 48,954,888 $ — $ 291,831,183 Fixed income 55,359,035 7,724,531 47,634,504 — — Private investments 879,248,779 587,370 — 68,527,196 810,134,213 Real assets 494,514,148 44,458,540 1,701,557 8,614,982 439,739,069 Hedged strategies 742,805,666 (296,099) 13,872,364 — 729,229,401 Short-term investments 443,240,387 — 443,240,387 — — Other 35,805,093 48,956 29,716,310 6,039,827 — TOTAL ASSETS MEASURED ON A $ 3,301,738,558 $ 362,502,677 $ 585,120,010 $ 83,182,005 $ 2,270,933,866 RECURRING BASIS
THE DUKE ENDOWMENT | 2017 FINANCIALS 14 The Endowment has included a summary of the investment valuation methodologies in Note 2.
For the years ended 2017 and 2016, there have been no significant transfers in or out of Level 1 and Level 2 fair value measurements of the Endowment’s investment portfolio, aside from the transfers into/out of Level 3 assets as described below.
The following table presents additional information about Level 3 assets measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Endowment has classified within the Level 3 category. As a result, the unrealized gains and losses for assets within the Level 3 category in the table below may include changes in fair value that were attributable to both observable and unobservable inputs.
During the year ended 2017, Level 3 securities totaling $5,116,743 were reorganized into investments reported at NAV during the year.
BALANCE OF LEVEL 3 INVESTMENTS AS OF DECEMBER 31, 2016 $ 83,182,005 Net realized gains 1,500,709 Increase in net unrealized appreciation 6,608,208 Purchases 15,554,664 Proceeds from sales and maturity of investments (12,538,557) Net transfers out of Level 3 (5,116,743) BALANCE OF LEVEL 3 INVESTMENTS AS OF DECEMBER 31, 2017 $ 89,190,286
The following summarizes the relationship between cost and market value of investments:
2017 2016 Gross unrealized gain, net of deferred excise tax $ 1,139,943,884 $ 827,468,636 Gross unrealized loss (143,774,374) (199,909,482) EXCESS OF MARKET OVER COST $ 996,169,510 $ 627,559,154
Decrease in net unrealized appreciation on assets $ 368,610,356 $ (24,083,796) Net realized gains from sale of investments 57,275,987 168,602,347 TOTAL NET GAIN $ 425,886,343 $ 144,518,551
Investment income 49,958,406 48,226,749 TOTAL RETURN $ 475,844,749 $ 192,745,300
The gross unrealized losses include $20,073 and $323,762 relating to short-term investments at December 31, 2017 and 2016, respectively, which are recorded in cash and cash equivalents on the statements of financial position.
As discussed in Note 4, a provision for deferred excise taxes of $10,062,318 and $6,338,981 was also allocated to gross unrealized gain in 2017 and 2016, respectively.
At December 31, 2017 and 2016, Duke Energy Corporation common stock represented a concentration of approximately 2% of the Endowment’s investments.
THE DUKE ENDOWMENT | 2017 FINANCIALS 15 From time to time the Endowment will participate in a securities lending program. The Endowment loans certain investment securities for short periods of time in exchange for collateral, consisting mainly of cash and U.S. Government securities, equal to at least 102% of the fair value of the investment securities on loan. As of December 31, 2017 and 2016, there were no investment securities on loan.
As part of its investment strategy, the Endowment invests in certain derivative instruments, typically intended to economically hedge certain investment positions from fluctuations in market, rate, currency or other identified risks. During fiscal 2017 and 2016, the Endowment, or external investment managers on the Endowment’s behalf, entered into swap agreements, futures contracts, or forward contracts, and acquired warrants or rights to increase, reduce or otherwise modify investment exposures.
The Endowment’s investment related derivative exposures, categorized by primary underlying risk, are as follows:
Primary underlying risk as LONG SHORT DERIVATIVE DERIVATIVE of December 31, 2017: NOTIONAL NOTIONAL ASSETS LIABILITIES GAIN/LOSS Equity Price3 $ 1,149,403,510 $ 804,703,330 $ 36,490,843 $ (26,167,111) $ 41,321,092 Interest Rate4 86,430,079 451,924,195 1,049,734 (236,164) (94,413) Commodity Price5 91,258,357 6,654,016 1,406,868 (100,735) 627,562 Credit6 843,733,585 369,443,491 39,149,783 (10,971,106) (4,861,989)
Foreign Currency Exchange Rate7 50,233,622 385,679,898 807,172 (10,808,125) (34,312,031) TOTAL $ 2,221,059,153 $ 2,018,404,930 $ 78,904,400 $ (48,283,241) $ 2,680,221
Primary underlying risk as LONG SHORT DERIVATIVE DERIVATIVE of December 31, 2016: NOTIONAL NOTIONAL ASSETS LIABILITIES GAIN/LOSS Equity Price3 $ 699,172,621 $ 364,348,281 $ 20,689,280 $ (22,629,026) $ 40,607,515 Interest Rate4 59,716,286 302,148,459 680,218 (667,003) (707,583) Commodity Price5 146,426,182 35,025,018 4,288,997 (1,545,588) 1,431,050 Credit6 1,662,951,830 578,470,778 41,987,883 (5,782,378) (2,898,073) Foreign Currency Exchange Rate7 53,898,246 499,631,742 10,077,232 (1,044,588) 15,387,350 TOTAL $ 2,622,165,165 $ 1,779,624,278 $ 77,723,610 $ (31,668,583) $ 53,820,259
As part of relative value strategies, the Endowment and investment managers on the Endowment’s behalf entered into credit default swap derivative transactions on investment grade and high yield securities which typically have terms of five years or less to buy and sell credit protection. At December 31, 2017 and 2016 the notional of protection sold was $810,196,594 and $1,579,900,118 and the notional of protection bought with identical underlying assets was $170,967,294 and $369,545,936, respectively. These instruments are included in the Credit line of the preceding table.
3 Includes options, swaps, and futures contracts. 4 Includes options, swaps, swaptions, and futures contracts. 5 Includes options and futures contracts. 6 Includes credit default swaps, swaptions, and credit total return swaps. 7 Includes options, futures, and forward contracts.
THE DUKE ENDOWMENT | 2017 FINANCIALS 16 The Endowment’s investment related derivative assets and liabilities at December 31, by counterparty, are as follows:
CASH COLLATERAL December 31, 2017: ASSETS LIABILITIES PLEDGED (HELD) NET AMOUNT Counterparty A $ 19,589,840 $ (8,080,224) $ (7,351,253) $ 4,158,363 Counterparty B 18,750,092 (6,227,752) (13,844,218) (1,321,878) Counterparty C 12,781,655 (7,355,017) 14,440,000 19,866,638 Counterparty D 16,198,101 (8,952,723) (7,160,000) 85,378 Counterparty E 1,583,717 (2,432,248) 565,900 (282,631) Counterparty F 6,731 (3,880,890) 2,940,000 (934,159) Counterparty G 1,847,241 (1,176,085) 3,433,672 4,104,828 Counterparty H 1,902,694 (5,111,944) 3,800,000 590,750 Counterparty I 1,052 (3,049,114) 620,000 (2,428,062) All Other Counterparties 6,243,277 (2,017,244) (3,020,000) 1,206,033 TOTAL $ 78,904,400 $ (48,283,241) $ (5,575,899) $ 25,045,260
CASH COLLATERAL December 31, 2016: ASSETS LIABILITIES PLEDGED (HELD) NET AMOUNT Counterparty A $ 16,956,811 $ (6,767,852) $ (7,110,000) $ 3,078,959 Counterparty B 14,549,416 (2,979,312) (12,410,951) (840,847) Counterparty C 9,543,962 (5,669,405) 18,610,000 22,484,557 Counterparty D 12,789,734 (4,930,417) (5,630,000) 2,229,317 Counterparty E 7,443,273 (1,444,776) 10,509,828 16,508,325 Counterparty F 5,388,277 (3,611) (4,790,000) 594,666 Counterparty G 854,668 (1,399,293) 4,022,514 3,477,889 Counterparty H 3,272,102 (6,522,269) 2,060,000 (1,190,167) Counterparty I 1,181,596 — — — All Other Counterparties 5,743,771 (1,951,648) (910,000) 4,063,719 TOTAL $ 77,723,610 $ (31,668,583) $ 4,351,391 $ 50,406,418
(6) LAND, BUILDING, FURNITURE AND EQUIPMENT
Land, buildings, and equipment, net, are summarized as follows at December 31:
2017 2016 Land $ 4,303,101 $ 4,303,101 Building 37,896,785 37,896,785 Furniture 2,239,362 2,239,362 Technological equipment 1,304,770 1,206,511 GROSS LAND, BUILDING, FURNITURE AND EQUIPMENT $ 45,744,018 $ 45,645,759 Accumulated depreciation (4,595,929) (3,045,095) NET LAND, BUILDING, FURNITURE AND EQUIPMENT $ 41,148,089 $ 42,600,664
THE DUKE ENDOWMENT | 2017 FINANCIALS 17 (7) NOTES PAYABLE
On October 31, 2012, the Endowment (the “Issuer”) entered into a $40,000,000 note purchase agreement with Massachusetts Mutual Life Insurance Company, MassMutual Asia Limited, and C.M. Life Insurance Company (collectively the “Purchasers”), whereby the Endowment authorized the issue and sale of $40,000,000 aggregate principal amount of its 3.85% senior notes due October 31, 2037. The Endowment applied the proceeds of the sale of the notes to the construction of its headquarters located at 800 East Morehead Street, Charlotte, North Carolina and for other general organizational purposes.
The Endowment is required to make payments of principal, in the amounts specified in the note purchase agreement, on the unpaid balance thereof at the rate of 3.85% per annum, payable semiannually on the last day of April and October in each year commencing 2013. As of December 31, 2017 and December 31, 2016, the principal balance of the notes payable was $34,730,016 and $35,865,892, respectively, which approximates fair value.
Future maturities of the principal note payments are as follows:
AMOUNT 2018 1,180,028 2019 1,225,896 2020 1,273,547 2021 1,323,051 2022 1,374,479 Thereafter 28,353,015 $ 34,730,016
The note purchase agreement contains financial covenants customary for such transactions, including limits on minimum total net assets, maximum total indebtedness to total net assets and priority indebtedness. The Endowment was in compliance with its covenants as of December 31, 2017.
THE DUKE ENDOWMENT | 2017 FINANCIALS 18 (8) NET ASSETS
Temporarily restricted net assets consist of the following at December 31:
2017 2016 Duke University under Original Corpus, Corpus $ 696,734,952 $ 633,128,382 Item VIII and Corpus Item XI Other charitable purposes 2,638,706,776 2,397,813,034 TEMPORARILY RESTRICTED NET ASSETS $ 3,335,441,728 $ 3,030,941,416
Permanently restricted net assets consist of the following at December 31:
2017 2016 Duke University under Original Corpus, Corpus $ 54,244,354 $ 54,244,354 Item VIII and Corpus Item XI Other charitable purposes 205,436,724 205,436,724 PERMANENTLY RESTRICTED NET ASSETS $ 259,681,078 $ 259,681,078
(9) PENSION AND OTHER POSTRETIREMENT PLANS
The Endowment sponsors a noncontributory defined benefit pension plan covering all eligible employees, as defined under the plan. The benefits are based on years of service and the employee’s average final creditable compensation. No contributions were made to the plan during 2017 and 2016. The benefit obligation as of December 31, 2017 and 2016 was $23,476,871 and $19,564,093, respectively, and the net pension liability, included in the other liabilities in the statements of financial position, was $10,620,811 and $7,734,780, respectively, based on actuarial assumptions at December 31, 2017 and 2016.
The Endowment also sponsors a defined contribution plan with the Endowment providing matching contributions equal to 100% of employee contributions up to 3% and 50% of employee contributions between 3% and 5%. All full-time employees are eligible after a three-month waiting period. Total Endowment contributions in 2017 and 2016 were $214,384 and $210,176, respectively.
The Endowment provides certain health care and life insurance benefits to retired employees. The accumulated postretirement benefit obligation at the latest measurement date of December 31, 2016 was $3,207,428. It was included in Other Liabilities on the Statement of Financial Position. At December 31, 2017, the Endowment determined that any additional liability for unfunded retirement benefits extended to retirees and to employees upon their retirement since the latest measurement date would not be material to its net assets.
(10) SUBSEQUENT EVENTS
The Endowment has evaluated its December 31, 2017 financial statements for subsequent events through May 17, 2018, the date the financial statements were available to be issued. The Endowment is not aware of any subsequent events which would require recognition or disclosure in the financial statements.
THE DUKE ENDOWMENT | 2017 FINANCIALS 19 800 East Morehead Street Charlotte, North Carolina 28202
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