Endowment Report For Our Donors 2018 March 2019

Dear Donors, Thank you for your continued confidence in Heidelberg University and your commitment to our students, faculty and staff. Your investments make Heidelberg a truly distinctive institution. Resources generated from your endowed funds and annual gifts help us to provide big opportunities and a lifetime of advantages in our mission to deliver a unique and excellent educational experience to every student, every day.

This past year’s market ride has resembled the wild ups and downs of the roller coasters at Cedar Point, compared to the steady growth we have enjoyed through the last run. Our team of advisors and trustees employs an investment strategy that is designed to preserve, protect and grow our General Endowment in a volatile environment. We are grateful for their talent, vision and hard work.

Having passed the $50 million plateau in our endowment in January 2018, we have embarked on our journey to $100 million. With a favorable market, energized thoughtful donors and a strategy for growth, we feel very confident that this will be possible. At present, Heidelberg counts more than $35 million in our funds for the future, our bequest intentions. This robust program, coupled with our current endowment, will grow further faster and will enable us to continue to be agile and appropriate in our planning for Heidelberg’s future.

This fiscal year, Heidelberg applied for and was subsequently awarded a major loan from the U.S. Department of Agriculture. The $38 million loan will be the catalyst in allowing the University to accelerate many of our needed building and renovation projects. It will also allow us to restructure our long-term debt. This financing is a game-changer in many respects. It will have far-reaching effects on our physical plant. The impact on our students in the ways they live, learn and interact will be dramatic. While it will improve our campus and the overall student experience, it is still a loan and we will have to repay it.

This report documents Heidelberg’s performance with the resources you have entrusted to us. Because of you, our students learn, grow and compete as scholars and athletes. They sing and dance, research and present. They learn to think, communicate, prepare for productive careers and integrate into the world around them. You provide space, equipment and opportunity. Thank you again for your generosity, your vision, your commitment, and the gift of the Heidelberg educational experience for all of our students.

All Hail Heidelberg!

Phil Ness Vice President University Advancement & Marketing 2 General Endowment ($ millions)

Beginning Contributions/ Net Change in Ending HU Total Fiscal Year Market Value Receipts Withdrawals Market Value Market Value Return

7/1/09-6/30/10 $ 23.33 $ 1.35 $ (1.47) $ 2.98 $ 26.19 13.7% 7/1/10-6/30/11 $ 26.19 $ 0.58 $ (1.57) $ 6.27 $ 31.47 24.7% 7/1/11-6/30/12 $ 31.47 $ 1.25 $ (2.06) $ (0.55) $ 30.11 -2.3% 7/1/12-6/30/13 $ 30.11 $ 3.13 $ (2.37) $ 2.97 $ 33.85 11.2% 7/1/13-6/30/14 $ 33.85 $ 5.10 $ (2.09) $ 6.36 $ 43.21 18.0% 7/1/14-6/30/15 $ 43.21 $ 2.51 $ (1.81) $ 1.85 $ 45.76 2.5% 7/1/15-6/30/16 $ 45.76 $ 2.70 $ (2.84) $ (0.79) $ 44.83 -1.8% 7/1/16-6/30/17 $ 44.83 $ 1.32 $ (2.85) $ 5.61 $ 48.91 12.5% 7/1/17-6/30/18 $ 48.91 $ 2.19 $ (2.76) $ 3.33 $ 52.24 8.2% 7/1/18-12/31/18 $ 52.24 $ 0.37 $ (1.20) $ (4.77) $ 47.47 -10.5%

Note: The market value of the General Endowment was $51.55 million on 2/28/2019.

Authority The Heidelberg University Board of Trustees has designated the oversight responsibilities for the General Endowment Fund to its Finance and Facilities Committee (the Committee). The Committee at its discretion may appoint an Investment Subcommittee that can serve on behalf of the full Committee. The Committee and the Investment Subcommittee will provide oversight and review of the investment program and have been authorized to retain professional services from investment consultants and investment managers. The Committee and Investment Sub committee may delegate certain day-to-day responsibilities for implementing the investment program to these consultants and managers.

3 FY2018 Endowment Value ($ millions)

$250 $226

$200 Intl/Emerging Fixed: $371,323, 0.8% $175 $160 High Yield Fixed: $150 $137 $657,685, 1.4%

$116 $108 $100 $84 $79 Domestic Fixed: $9,449,258, 19.9% $52 $50

$19 Emerging Mkts: $1,753,986, 3.7%

International: $4,477,236, 9.4% Capital Marietta Defiance Wittenberg Muskingum Heidelberg John Carroll Mount Union Ohio Northern Small Cap: Baldwin Wallace $3,363,960, 7.1% Heidelberg participated in the annual NACUBO-Commonfund Study of Endowments for the fiscal year ending June 2018. According toNACUBO , 802 U.S. colleges and universities participated in the study. Data gathered for the study show that participating institutions’ endowments returned an average of 8.2% (net of fees) for the 2018 fiscal year compared with 12.2% for the 2017 fiscal year. Based on the study findings, the decline in year-over-year performance for U.S. institutions was largely driven by a decline in the U.S. and international equity markets.

The following are charts highlighting Heidelberg’s General Endowment performance with respect to peers and national average.

FY2018 Endowment Value per FTE Student ($ thousands)

$80 $77

$64 $64 $62 Mission $60 $54 The mission of this investment policy $49 $43 $41 is to establish the parameters and $40 structure of the investment program $34 $33 for the Heidelberg University Endowment Fund (the Fund.) The $20 program will employ professional management to maintain the real purchasing power and provide Capital prudent long-term growth of assets. Marietta Defiance Wittenberg Heidelberg Muskingum John Carroll Mount Union Ohio Northern Baldwin Wallace

4 Asset Allocation Summary ($ amount, %)

Public Real Estate: Private Equity: $1,075,799, 2.3% $63,213, 0.1%

Intl/Emerging Fixed: Alternative Investments: $371,323, 0.8% $1,647,839, 3.5%

Cash: High Yield Fixed: $5,223,432, 11.0% $657,685, 1.4%

Domestic Fixed: $9,449,258, 19.9%

Large Cap: $14,194,035, 29.9% Emerging Mkts: $1,753,986, 3.7%

International: $4,477,236, 9.4%

Small Cap: $3,363,960, 7.1% Mid Cap: $5,195,037, 10.9%

Heidelberg’s Asset Allocation Mix as Compared with National Averages (Asset Allocation %)

60% 56 52.5 50%

40% Investment Principles 34 Fund assets shall be invested with 30% skill, care and prudence, under the 22 22 19 19 20% 18.2 prevailing circumstances that a 15 13.6 prudent person acting in a like 8.8 10% 7 6.9 capacity, and familiar with such 3 3 matters, would use in the investment Domestic Fixed International Alternative Cash of a fund of like character and Equity Income Equity objectives. The investment portfolio n All Endowments n $51M-$100M Endowments n Heidelberg shall be diversified to minimize the risk of large losses, unless

Other and larger endowments invest much more heavily in circumstances at any given point in “alternative” investments. time indicate that diversification is clearly imprudent. Assets will be fully invested at all times; idle cash will be invested in money market funds or other short-term instruments.

5 Annual Investment Returns for 1-, 3-, 5- and 10-year Periods (Annual Returns %)

10.0

8.2 8.2 8.0 7.6 7.7 7.3 7.0 6.2 6.0 6.1 6.0 5.8 5.7 5.5

4.0

2.0

0 1 Year 3 Year 5 Year 10 Year

n All Endowments n $51M-$100M Endowments n Heidelberg

Heidelberg’s investment returns in 1-year, 3-year, and 5-year periods as compared to all endowments are consistent. The return benchmark against endowments between $51M-$100M is slightly better. While one- year returns are important, many endowment managers use 10-year average annual returns as a target for long-range planning purposes. While on a positive trajectory, the 10-year average annual return of 5.8% is still lower than institutions’ target rate of 7.2%.

9.0 % Change in Market Value FY2017 to FY2018 8.0 40.0 38.0

7.0 30.0 6.0

20.0 Investment Objective 5.0

The objective of the investment 10.0 8.8 8.1 7.9 4.0 6.8 6.2 5.0 program is to maximize total 2.7 2.6 1.5 return on investment within the 0 3.0 risk parameters specified in the Capital Investment Guidelines. Preservation Marietta Defiance Wittenberg Heidelberg Muskingum John Carroll Mount Union Ohio Northern of capital, aversion to unnecessary Baldwin Wallace risk and achievement of returns According to NACUBO, the average asset allocation in FY18 of the that exceed established benchmarks institutional participants in the study showed very little change from are the fundamental objectives of FY17. Non-U.S. equities, which produced last year’s highest return, this program. Both investment 20.2 percent, fell to 6.8 percent in FY18, the largest decrease in percentage income and capital appreciation point year-over-year. U.S. equities returned 13.6 percent, a decrease are components of expected total from last year’s return of 17.6 percent. Short-term securities/cash/other returned 1.3 percent, just slightly less than last year’s 1.4 percent. return on investment. Note: Capital University’s large percentage change in market value is mostly due to the acquisition of Trinity Lutheran Seminary as of 6 January 2018. General Endowment Spending Policy

Period End Trailing 12* Annual Spending Fiscal Year Market Value Quartely Avg Amount (6.0)

07/01/09-06/30/10 $ 26,190,393 5.0% $ 1,474,044 07/01/10-06/30/11 $ 31,596,816 6.0% $ 1,574,799 07/01/11-06/30/12 $ 30,108,632 8.0% $ 2,062,951 07/01/12-06/30/13 $ 33,845,235 8.0% $ 2,369,145 07/01/13-06/30/14 $ 43,211,990 6.5% $ 2,087,277 07/01/14-06/30/15 $ 45,764,725 5.0% $ 1,807,639 07/01/15-06/30/16 $ 44,827,642 7.0% $ 2,840,707 07/01/16-06/30/17 $ 48,909,380 6.5% $ 2,864,927 07/01/17-06/30/18 $ 52,245,539 6.0% $ 2,754,887

Note: Our spending rate is 5.0% in FY2019.

Annual Spending Rate % 2008-2018 9.0

8.0

7.0

6.0 Spending Policy 5.0 The University has adopted a 5.0%

4.0 annual spending policy for the Endowment Fund. In 2016, the Board 3.0 of Trustees chose to deviate from 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 the standard policy for strategic n Heidelberg n NACUBO Private Average purposes. The quarterly spending amount (1.25% per quarter) is based In FY2018, our endowment spending covered about 8.2% of our operating on the average market value of the expenses, as compared with a 10% average for all institutions. total endowment fund over the preceding 12 calendar quarters. The funds will be remitted during the last week of each quarter. The Investment Consultant will be notified should there be any change to this policy.

7 For questions, additional information and ways to support the Heidelberg Endowment, contact:

Phil Ness Jim Minehart Ashley Helmstetter Vice President for University Executive Director of Executive Director of Alumni Advancement & Marketing Major Gifts and Planned Giving Engagement and Major Gifts 419-448-2383 419-448-2060 419-448-2231 [email protected] [email protected] [email protected]

Hoa Nguyen Susan Berryman Cheryl Staib-Lewis Vice President for Administration Director of The Heidelberg Fund Executive Director of and Business Affairs 419-448-2386 Advancement and Major Gifts 419-448-2227 [email protected] 419-448-2027 [email protected] [email protected]