Investment Performance
Objective
The primary Investment Objective of the Fund is to provide a growing stream of income to support the University's programs, while at the same time preserving the purchasing power of the endowment. Stated another way, this means that Northwestern must achieve on average, an annual total Rate of Return (actual income plus appreciation) equal to inflation plus actual spending. This objective of preserving purchasing power emphasizes the need to take a long-term perspective in formulating spending and investment policies.
The following chart illustrates the success of the University at meeting its primary investment objective over a long-term horizon. On an annualized basis the endowment fund exceeded its performance objective by 3.2% per year for the trailing 15 years. In addition, as markets recovered from the global recession of 2008-2009, the Endowment exceeded its performance objective by 5% over the past year. However, financial market headwinds have resulted in underperformance of this objective over the three, five and ten-year periods.
Data as of August 31, 2010
In addition to measuring its performance relative to the University’s primary investment objective, the Endowment Fund’s results are measured relative to a target composite benchmark--the secondary investment objective. The performance goal is to seek superior gains within each asset class (U. S. Equity, Fixed Income, etc.) through outside investment managers’ out-performance of the asset class benchmark or through a tilt to an investment subclass, e.g. overweighting emerging markets within the International Equity portfolio.
The Endowment Fund has surpassed the composite benchmark for all time horizons except for the three-year period. The Fund has underperformed in the three-year period due to the declining financial markets’ impact on values of less liquid investments.