The principal financial objective of the investment program is to preserve and, if possible, enhance the real purchasing power of the Endowment principal in order to ensure the University's financial future. The Endowment must strike a balance between the preservation of principal in real terms for perpetuity and support of the University's current operating needs.
In order to achieve the financial objectives of the investment program, the investment goal of the Endowment is to generate a real return of 5% annualized (net of inflation) over the long run. The 5% real return goal is expected to allow the University to grow the principal of the Endowment in order to support future generations' needs, and to maintain its current spending objective which supports near-term University operations. It is understood that the asset allocation of the Endowment will be the primary driver of its performance over time. The Finance Committee and Investment Subcommittee set the asset allocation policy that is expected to achieve the 5% real return investment objective. While the Finance Committee and Investment Subcommittee set the asset allocation policy, the Investment Office is responsible for the implementation of the policy and the day to day management of the Endowment.
The Endowment will transfer to the University's Operating Fund annually 5% of the twelve quarters 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.
In October 2018, the Finance Committee approved a modification of the minimum and maximum increase of 0% to 10% to -2% and 5%, respectively. The university will transition to this new policy collar on or before fiscal year 2022.