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Endowment Fund Report June 30, 2011

Endowment Fund Report June 30, 2011. Introduction…………………………………….………………......….1 Endowment History………………………………........................…3 Endowment Growth…………………........................................4 Increases by Component……………………………….............5

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Endowment Fund Report June 30, 2011

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  1. Endowment Fund Report June 30, 2011

  2. Introduction…………………………………….………………......….1 Introduction…………………………………….………………......….1 Endowment History………………………………........................…3 Endowment Growth…………………........................................4 Increases by Component……………………………….............5 Endowment Performance….…………………………………….7 NCSE………………………...…………………………………………..8 Size & Endowment per FTE Student……………………..........9 Investment Performance……………………..……………..….12 Asset Allocation……………………………………………….…15 Gift Flow Rate……………….…………………………………....16 Endowment Spending Rate..…………………………….....…19 Table of Contents

  3. Introduction An endowment fund for an educational institution provides long-term continuous support for various programs and services. Lehigh University recognizes the importance of providing enduring financial support through endowment and desires to enhance its endowment position through the procurement of new endowment contributions and the prudent management of its invested funds. Responsibilities The University By-Laws provide that one of the general powers of the Board of Trustees is to oversee the management of the University's endowment and investments. The Board has delegated endowment management responsibility to its Finance Committee. The Finance Committee is responsible for approving and recommending to the Board general guidelines for the management of the University’s endowment and investments. Because sound endowment management policy suggests a clear separation between certain functions such as asset allocation decisions and the determination of endowment spending policy, the Finance Committee has established an Investment Subcommittee that has particularresponsibilities for the endowment fund as follows: 1. Fiduciary oversight of the Investment Office. 2. Recommend investment policy guidelines for the endowment and monitor conformance. 3. Recommend asset allocation targets and ranges, and monitor conformance. Due to the increased size, complexity and sophistication of the investment portfolio, the Subcommittee has established an Investment Office with the delegated responsibility to manage the day-to-day operations of the investment program. 1

  4. Introduction • Committee Membership • Trustee Finance Committee • F. J. Ingrassia, Chair • R. L. Brown III M. L. Chrin K. L. Clayton • T. J. Healy, Jr. W. F. Hecht M. L. Paley • J. R. Perella J. S. Ryan D. E. Singleton III • E. J. Sussman M. D. Zisman Lehigh Liaison – Margaret Plympton FFPOC – H. L. Coulmba-Piervallo • Investment Subcommittee • M. L. Chrin • K. L. Clayton J. D. Enslin A. J. Greenwood • S. K. Kreider M. L. Paley S. Sethi Lehigh Liaisons – Peter Gilbert, Jennifer Sassani & Corey Galstan (2/2012) • Annual Reporting • The Trustee Finance Committee desires to report annually to the Board of Trustees upon the status of the University's endowment fund. These reports will present the general progress and stewardship of endowment at Lehigh. This report will give specific attention to: • 1. Historical changes, • 2. Performance and comparative data with other colleges and universities, and • 3. Policies and procedures. 2

  5. Endowment History The University's Endowment Fund has grown in market value from approximately $739 million at June 30, 2001, to $1.07 billion at June 30, 2011. The value as of March 31, 2012 was $1.07 billion. The market value increase over the past 10 years can be broken down into the following components: Gifts Realized and Unrealized Gains Reinvested Earnings The following three pages highlight the market growth and the components of that growth over the past 10 years. Lehigh Endowment Fund’s 25-year performance history is provided on page 7. The Endowment Fund has returned an average total annual return of 10.7% over the 25-year period, which compares favorably to the Composite Index of 9.8%. 3

  6. Lehigh University Endowment FundGrowth History 4

  7. Endowment Increase by ComponentsJune 30, 2001 through June 30, 2011 Gifts and Other Additions $259,056,000 Investment Performance 518,559,000 Endowment Spending (446,615,000) Increase $331,000,000 5

  8. Lehigh University Endowment FundIncrease by Component June 30, 2001 to June 30, 2011(in millions) 6

  9. June 30 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Avg. Annual Return Composite Index (65% Equities/35% Bonds) Total Return 24.3 20.8 3.3 18.6 8.3 6.1 13.6 15.4 2.1 18.6 16.9 21.4 21.8 12.4 19.3 -4.6 -5.7 7.2 16.1 9.5 12.0 15.7 -2.7 -18.3 8.8 18.0 10.7% 9.8% Lehigh University Endowment Fund25 Year Performance History 7

  10. NCSE Comparisons The National Association of College and University Business Officers (NACUBO) and Commonfund have published the NACUBO-Commonfund Study of Endowments® (NCSE). This report is a useful tool for colleges and universities to help evaluate the effectiveness of their endowment policies and investment performance. Lehigh has participated in the NACUBO sponsored Endowment Studies for over three decades. The 2011 Study reports on 823 participating institutions of higher education. The following pages compare various aspects of Lehigh's Endowment Fund with one or more of: a) the universe of all participating colleges and universities; b) participating independent schools; and c) participating institutions of similar endowment size of $500 million to $1 billion and greater than $1 billion. 8

  11. NCSE Comparisons Endowment Size and Endowment per FTE Student Page 10 indicates the growth of Lehigh's Endowment Fund from 2001 to 2011. As of June 30, 2011, the University ranks 68th in endowment size among 823 participating institutions. Lehigh's $168,823 endowment per FTE student compares favorably to the $140,501 for independent institutions over $500 million to $1 billion. Lehigh continues to rank in the lower half of the list among institutions with which we compete for students (see page 11). The endowment per FTE student for independent institutions with endowments greater than $1 billion is $399,117. 9

  12. NCSE Comparisons Endowment Size: 6/30/20016/30/2011 Lehigh $739,024,000 $1,077,430,000 Rank 64 of 611 68 of 823 Institutions Institutions Endowment per FTE Student: 6/30/20016/30/2011 Lehigh $125,620 $168,823 Rank (Independent Institutions) 93 of 413 83 of 496 Independent Institutions: Over $500 million to $1 billion $206,500 $140,502 Over $1 billion N/A $399,117 All $138,300 $129,918 10

  13. Endowment Dollars per FTE StudentLehigh vs. Aspirational PeersJune 30, 2011 Market Value FTE Endowment Institution in 000s Students per Student Rice University 4,451,452 5,681 783,568 University of Notre Dame 6,259,598 11,840 528,682 Northwestern University7,182,745 17,631 407,393 Emory University 5,400,367 13,381 403,585 Brown University 2,496,926 8,367 298,425 University of Pennsylvania 6,582,029 22,471 292,912 Vanderbilt University 3,414,514 12,155 280,914 Lafayette College * 658,146 2,379 276,648 Cornell University 5,059,406 22,024 229,722 University of Rochester 1,622,812 9,050 179,316 LEHIGH UNIVERSITY 1,077,430 6,382 168,823 Tufts University 1,403,883 10,026 140,024 Carnegie Mellon University 1,017,338 10,885 93,462 Georgetown University 1,160,291 15,305 75,811 George Washington University 1,331,101 20,654 64,448 * Lafayette College is included for informational purposes only. 11

  14. NCSE Comparisons Investment Performance Lehigh's endowment return for the ten year period ending June 30, 2011 ranked in the top half performance vs. all endowment funds. Returns for the three and five year periods ending June 30, 2011 ranked in third quarter of all endowments. Performance information can be found on the following two pages. 12

  15. Average Annual ReturnEnding June 30, 2011 for Each Period 10 Yrs5 Yrs3 Yrs1 Year Lehigh University5.4% 3.3% 1.5% 18.0% LU Composite Benchmark 5.0% 3.4% 2.3% 17.4% Added Value over Benchmark 0.4% -0.1% -0.8% 0.6% All Endowment Funds 5.6% 4.7% 3.1% 19.2% LU Rank 255/456 532/646 537/681 562/765 Greater than $1 billion 6.9% 5.4% 2.4% 20.1% LU Rank 60/65 64/67 50/67 53/67 $500 million - $1 billion 6.0% 4.8% 2.6% 18.8% LU Rank 39/58 54/63 47/64 50/66 Independent Institutions 5.6% 4.6% 3.1% 19.3% LU Global Equity 5.4% 3.4% 2.0% 31.2% MSCI World (net) 4.0% 2.3% 0.5% 30.5% LU Bonds 5.2% 5.0% 6.1% 10.4% BC Treas Int N/A 7.7% 6.8% 3.8% 13

  16. LU Investment Performance vs. All Participating Institutions June 30, 2011 14

  17. Asset AllocationJune 30, 2011 6/30/01 6/30/11 Equal Equal Equal Equal Weighted Weighted Weighted Weighted LU All Institutions LU All Institutions$500mm - $1billion > $1billion Global Equity 60.9% 59.4% 30.1% 48.0% 36.0% 32.0% Fixed Income 33.3% 23.9% 14.2% 19.0% 11.0% 10.0% Alternative Strategies 3.8% 6.3% 52.8% 27.0% 46.0% 53.0% ST Securities/Cash/Other 2.0% 10.4% 2.9% 6.0% 7.0% 5.0% TOTAL 100.0%100.0%100.0%100.0%100.0%100.0% 15

  18. NCSE Comparisons Endowment Gift Flow Rate The endowment gift flow rate measures the percent of the market value increase at June 30 related to gifts received during the year. The percentage can fluctuate significantly depending on the gift activity, such as endowment campaign gifts and large bequests received, in a particular year. The year by year gift flow rate is charted on the following page. Fiscal year 2001Fiscal year 2011 Lehigh University 1.5% 1.7% Average - All Institutions 5.2% 1.5% Over $1 billion N/A% 1.1% Over $500 million to $1 billion 3.4% 2.1% Independent Institutions 3.8% 1.1% 16

  19. Gift Flow RateFiscal Year 2001-2011 17

  20. NCSE Comparisons Endowment Spending Rate Below are details of Lehigh's spending as a percentage of the current year’s average market value. Lehigh’s spending rate in 2011 was above the NCSE average for all endowments, the average for endowments over $1 billion, and the independent institution average. Further information regarding Lehigh’s spending policy and historic spending rates can be found on the following two pages. FISCAL YEAR 20012011 Lehigh University 3.8% 5.9% Average - All Institutions 5.0% 4.6% Over $1 billion N/A 5.2% Over $500 million to $1 billion 4.8% 5.2% Independent Institutions 5.0% 4.8% 18

  21. Endowment Spending Rate2001 - 2011 19

  22. Endowment Fund Spending Policy The Endowment will transfer to the University's Operating Fund annually 5% of the three year moving average market value of the Endowment. On a per unit basis, the transfer will result in a minimum increase of 0% and a maximum increase of 10% over the prior year's payout. For fiscal years 2011 and 2012 the spending amount per share was reduced by 3% and .5%, respectively, of the computed amount in order to minimize the impact on the endowment corpus as a result of the recently challenging economic environment. 20

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