NU Foundation 2020 Endowment Report

Endowment Report - 2020

The foundation’s endowed assets under management totaled $1.7 billion in fiscal 2020. The largest portion of the endowment, referred to as Fund A, had a value of $1.3 billion and returned -1.3% for the fiscal year. The foundation manages endowed gifts given directly to the university through an agency agreement; this endowment is referred to as Fund N. Fund A and Fund N plus several smaller endowments make up the total $1.7 billion in endowed assets for the University of Nebraska.  

Main Endowment (Fund A) Performance - $1,268,764,323

Endowment Return by Asset Class

Capital Markets Commentary

Although the first half of fiscal year 2020 had some volatility due to US-China trade tensions, equity markets posted solid results for the six months ending December 31, 2019. The FTSE All World Index, a broad measure of global public equity performance, posted a return of +8.15% during the first half of the fiscal year. While fixed income returns were more subdued, the Barclays Aggregate Bond Index returned a modest +2.45% during the same period. However, beginning in March of 2020, the economic impact of the emerging COVID-19 pandemic rapidly disrupted markets and reintroduced volatility, ultimately leading to steep declines in stocks and other risk assets. For the full fiscal year, the FTSE All World Index barely broke even, posting a +0.28% gain. Commodities suffered precipitous price declines on reduced demand as economic activity sputtered and unemployment rates soared. While many commodities experienced large drops in demand, crude oil was hit particularly hard as prices were also negatively influenced by storage capacity shortfalls. US Equity markets led the way in FY 2020, outperforming all major developed and emerging markets regions.

Yields on core government bond yields tumbled across the globe as central banks rushed to respond to the large drop in demand in the wake of COVID-19. This response took the form of rate cuts where feasible, and the expansion of quantitative easing programs. Energy markets saw a negative demand-driven situation exacerbated by political maneuvering.  Already suffering from a decline in demand, Russia and Saudi Arabia announced an increase in oil production, thus artificially influencing supply dynamics which led to further price declines. Further, the resulting surplus of oil, and a lack of storage, meant that short-dated West Texas Intermediate oil contracts briefly traded at deeply negative prices in mid-April. Widespread economic shutdowns depressed the demand for many commodities, pushing down prices. Real estate suffered both directly from the lockdown, and also from fears that the widespread adoption of working from home may have implications for the future demand of commercial real estate in particular.

Main Endowment (Fund A) Return Drivers

For fiscal year 2020, Fund A posted a return of -1.3%, as compared to the Policy Benchmark return of +0.1% and the Dynamic Benchmark Policy return of -1.10%. Factors driving performance included:

  • Strong returns from International Equity managers contributed to overall absolute returns. Offsetting these positive contributions were several negative factors, including an active management posture within US Equity. The active US Equity managers held in Fund A were not able to keep up with their respective benchmarks and were the single largest detractor from benchmark relative performance.
  • Fund A ended the fiscal year with a slight overweight to Fixed Income of 13.6% vs. the long-term target of 12.0%. This positioning, along with strong absolute and relative returns, added to the overall return for the portfolio.
  • Another negative contributing factor was benchmark relative poor performance with Fund A’s single non-US Fixed Income manager.
  • Broad Hedge Fund strategies did not produce the non-correlated returns that would be expected during market drawdowns, and Fund A’s managers likewise failed to meaningfully protect capital and negatively added to composite performance.
  • Finally, although a small component of Fund A, Inflation Hedging strategies saw steep declines across Energy, Commodity and Real Estate investments.

Main Endowment (Fund A) Portfolio Activities

During fiscal year 2020, several changes were made to the overall structure and implementation of Fund A, all of which are designed to improve performance:

  • In November of 2019, the entirety of the portfolio’s active US Large Cap Equity manager slate was replaced with a low-cost index strategy.
  • In April of 2020, the active US Mid and Small Cap Equity roster was likewise replaced by low cost index options.
  • Fund A’s single Non-US Fixed Income manager was terminated in April as the portfolio eliminated this strategy from the asset allocation structure.
  • In early calendar 2020, the decision was made to begin divesting from all hedge funds, and over time invest the proceeds into increased exposure to private investments, including private equity, credit, real estate and real assets.
  • Commodity exposure was reduced with the intention of rotating this capital into real estate strategies over time as attractive valuations present themselves.
  • Finally, a search for a new investment advisor was initiated in March of 2020, with the expectation of retaining in the fall of 2020.