The UNH Foundation Endowment

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Objective

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Investment Options

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Horizon and Liquidity

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Distributions

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Asset Allocation

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Oversight and Advice

Objective

 The investment objective of the Foundation is to preserve the purchasing power of its endowed funds, while providing a continuing and stable funding source to support the current and future mission of UNH. To accomplish this objective, the Fund seeks to generate a market return that will exceed distributions, expenses, and the eroding effects of inflation. It is the intention that all returns (i.e., interest income, dividends, realized gains and unrealized gains) above and beyond the amount approved for distribution will be reinvested in the Fund. The Fund is managed consistent with the applicable standard of conduct set forth in the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as adopted in the state of New Hampshire (RSA 292 - B).

Horizon and Liquidity

The Foundation has a long-term investment horizon with relatively low and predictable liquidity needs. For this reason, the Fund is designed to tolerate short- and intermediate-term volatility, provided that long-term returns meet or exceed the investment objective. Consequently, the Fund may include less liquid investments, such as private equity, hedge funds, and other partnership vehicles, which typically offer higher risk-adjusted return potential as compensation for reduced liquidity. To ensure adequate liquidity for distributions and to facilitate rebalancing, Foundation staff and the Asset Allocation Committee periodically review the Fund's liquidity characteristics.

Asset Allocation

To achieve the investment objective, the Fund is allocated among several asset classes with above-average long-term return expectations and reduced volatility through diversification.

The global equity segment is expected to provide long-term growth and offer high expected real returns and liquidity. Flexible capital strategies are employed to offer market-comparable returns with lower expected volatility. Fixed income investments are intended to provide stability and protection in deflationary environments. Inflation hedging assets are used to provide the Fund with a diversified hedge against inflation, plus a stronger yield component. Cash provides short-term liquidity primarily for distributions and rebalancing. The Fund is diversified within asset classes as well. The purpose of diversification is to provide reasonable assurance that no single security, or class of securities, will have a disproportionate impact on the performance of the Fund. As a result, the risk level associated with the portfolio investment is reduced.

The Fund’s long-term, strategic asset allocation targets are presented in the following table, as well as the permissible ranges of actual investment exposure. Variation from a target is based on the Committee’s assessment of market conditions and opportunities.

Asset Class Policy Target Policy Range
Global Public Equity 40 30-60
Private Equity 10 0-20
Flexible Capital 20 10-30
Credit 0 0-20
Deflation Hedging Assets 10 0-20
Inflation Hedging Assets 20 0-25
Liquid Capital 0 0-20

The Foundation employs a combination of active and passive managers in the Fund. Active investment managers are expected to provide an appropriate excess return, net of fees, over a normal portfolio or a relevant index, e.g., the S&P 500, ideally placing them well into the second quartile of managers with similar objectives over a market cycle. Passive managers are expected to track the performance of the appropriate normal portfolio or index within reasonable tolerances. Selected managers have discretion with regard to portfolio composition and individual asset selection, within guidelines and constraints established by the committee. The committee oversees the activities and results of the managers through regular meetings and communications.

Investment Options

The Foundation maintains two investment strategy options for donors: an unconstrained strategy and an ESG (environmental / social / governance) strategy. 

The Foundation’s traditional investment pathway for endowed funds is via an unconstrained investment strategy in the main endowment pool.  This pool has been in place since the Foundation was established in 1989 and is a diversified mixture of fund managers designed to yield a long-term real return, net of fees and inflation, in excess of distributions.  At June 30, 2015, the traditional pool totaled $196 million.

In 2014, a new investment option for UNH funds was established which seeks to achieve these same return goals while taking into account environmental, social and governance criteria.  The Foundation is actively seeking to increase this ESG pool so that investment opportunities are maximized, giving the pool the greatest possible chance for achieving its long term goals.  At June 30, 2015, the ESG pool totaled $1.2 million.  Additional information on the ESG pool can be found here.

Distributions

Annually, as approved by the Committee, distributions consist of payouts to the many donor-specified purposes within the Fund and a payout for administrative costs associated with the Fund. Payout to purpose is based on the trailing 12-quarter average of the Fund’s unit value. Currently, 4.25 percent goes to purpose and 1 percent of the latest Dec 31 unit value supports Fund administrative expenses. All remaining gains (or losses) in value are attributed back to each endowed fund. Payouts are in accordance with UPMIFA.

Oversight and Advice

The Asset Allocation Committee consists of several voting and advisory members of the UNHF Board, all with expertise in the investment field. In addition, the Committee engages consultants to advise on the management of the Fund. Hired in June 2008, Prime Buchholz & Associates (Portsmouth, New Hampshire) is the Foundation's investment consultant.