General Endowment Fund ($3,293.2 million)
Overview
The University of Texas System General Endowment Fund (GEF) is a new fund, established March 1, 2001, by the UT Board. Its creation provides a pooled investment vehicle for the Permanent Health Fund (PHF) and the Long Term Fund (LTF). The GEF's creation allows the PHF and LTF to benefit from their identical investment objectives by providing greater efficiencies and cost savings than was possible when the investments of the PHF and LTF were managed separately. The GEF is organized as a mutual fund in which the PHF and LTF purchase and redeem units quarterly at the GEF's market value price per unit.
The PHF and the LTF initially purchased units in the newly created endowment fund on March 1, 2001, in exchange for the contribution of their investment assets. The following GEF section provides information on various investment details of the PHF's and the LTF's ownership interests in the GEF.
The chart below represents the highlights of the GEF since its funding on March 1, 2001.
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Contributions
The PHF and LTF redeemed and purchased GEF units resulting in a net reduction in contributions of $230.7 million during the year.
Investment Return
The GEF posted a net negative return of 7.0% (net of investment management fees) for the year ended August 31, 2002. The chart below presents the GEF's performance compared to the Endowment Policy Portfolio. The attribution analysis, appropriate for marketable assets only, indicates how each asset class contributed to the aggregate performance of the GEF relative to the Endowment Policy Portfolio. The GEF's marketable assets' return of negative 5.7% underperformed the negative 5.4% benchmark by .3%.
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Expenses
Total expenses related to the management of the GEF were $7.2 million for the year ended August 31, 2002. The expenses are paid from GEF assets and include external investment management fees, custody and safekeeping fees, and other fees related to its operations. The GEF does not incur a fee for UTIMCO's management services. UTIMCO's management fee is assessed directly to the Permanent Health Fund and the Long Term Fund. GEF expenses represented .20% of the GEF's average net asset value during the year ended August 31, 2002. In year 2001, with only six months of operation, the GEF incurred total expenses of $3.4 million.
Distributions
The GEF allocates its net investment income and its realized gain or loss to the PHF and LTF monthly based on their ownership of GEF units at month end. The distributed investment income and realized gain amounts are considered reinvested as GEF contributions. Any distributed realized losses reduce the cost basis of the units in the GEF. Since the distribution is proportional to the percentage ownership by the PHF and LTF, no additional units are purchased.
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