Performance Standards

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These performance standards provide a framework with which the Subcommittee on Investments can measure investment performance. The Subcommittee’s preference will be to view managers through a full market cycle (cyclical peak to trough) rather than an arbitrary time frame. However, absent adequate cyclical data, the committee will utilize three-year and five-year time frames for analysis. The private investments in real estate and private equity will be judged over a ten-year time frame that is more consistent with the longer run cycle of these investments.

Total Fund

The investment objectives of the fund represent long term expectations and will be evaluated over three (3) year, five (5) year and inception time periods. Performance goals are defined in "real" (in excess of inflation) rates of return and relative rates of return.

  1. Total Fund investments should earn over time an annualized real rate of return (over inflation as measured by the Higher Education Price Index) of at least 4% (HEPI + 4%).
  2. On a relative rate of return basis, each fund segment and manager should exceed the performance of its respective market index over full market cycles.
  3. Performance of the Total Fund and its investment managers will be measured against a peer group of similar funds and is expected to be in the top one-third over full market cycles.

U.S. Large Capitalization Equities

Performance is expected to exceed the S&P 500 index after all management fees.

The investment manager is expected to rank in the top third of the Morningstar universe of investment managers following a core large capitalization equity style over a full market cycle.

The investment manager’s volatility of returns, as measured by the standard deviation of monthly returns, should not exceed the S&P 500 index by 25%.

U.S. Small Capitalization Equities

Performance is expected to exceed the Russell 2000 Index after all management fees.

The investment manager is expected to rank in the top third of the Morningstar universe of investment managers following a small capitalization equity style over a full market cycle.

The investment manager’s volatility of returns, as measured by the standard deviation of monthly returns, should not exceed the Russell 2000 Index by 25%.

International Equities

Performance is expected to exceed the MSCI EAFE index after all management fees.

The investment manager is expected to rank in the top third of the Morningstar universe of investment managers following an international equity style over a full market cycle.

The investment manager’s volatility of returns, as measured by the standard deviation of monthly returns, should not exceed the MSCI EAFE index by 25%.

Global Hedge Equity

Performance is expected to exceed the MSCI World index after all management fees.

The investment manager is expected to rank in the top third in the Hedge Fund Research Institute Fund of Funds universe over a full market cycle.

The investment manager’s volatility of returns, as measured by the standard deviation of monthly returns, should not exceed the MSCI World index by more than 25%.

Absolute Return Strategies

Performance is expected to exceed both Treasury bills+5% and the Lehman Bros. Aggregate Index +3% after all management fees.

The investment manager’s volatility of returns, as measured by the standard deviation of monthly returns, should not exceed the Lehman Bros. Aggregate Index over a full market cycle.

U.S. Bonds

Performance is expected to exceed the Lehman Bros. Aggregate Index after all management fees.

The investment manager is expected to rank in the top third of the Morningstar universe of investment managers following an intermediate duration fixed income style over a full market cycle.

The duration of the investment manager’s portfolio should not exceed the duration of the Lehman Bros. Aggregate Index by more than 20%.

Private Equity

Over ten-year rolling time periods, performance is expected to exceed the S&P 500 index by 3% after all management fees with lower portfolio volatility because of diversification away from the public securities market (not marked to market on a regular basis).

Private Real Estate

Over ten-year rolling time periods, performance is expected to exceed the NCREIF index by 3% after all management fees with lower portfolio volatility because of diversification away from the public securities (not marked to market on a regular basis).

The above listed rates of return and risk targets will be monitored and evaluated for each manager over three-year and five-year rolling periods. Any strategy or manager falling outside their respective return and/or risk ranges will be reviewed by the Committee for appropriate action.

**** Both private equity and real estate are difficult to measure during interim periods. We would expect our manager/programs to rank in the top half of similar vehicles (private equity, real estate, and venture capital).

In effect February 14, 2008.
Vice President for Finance and Business Affairs.