JHU Financial Report 1995
Investments

The University's invested funds, including cash and cash equivalents, had a market value of more than $1.1 billion at year end, held primarily in the Endowment Investment Pool. The Pool is made up of more than 1,500 individual accounts that are invested jointly, but accounted for separately to assure compliance with donor restrictions.

Investments in the Pool are diversified initially by asset class, and further diversified by investment style. At June 30, 1995, the management structure of the Pool included five separately managed domestic equity portfolios, two international equity portfolios, a combined domestic and international fixed income portfolio, and a portfolio of private equity investments known as Special Investments.

The Endowment Investment Pool has achieved a compound average annual return over the past five years of 10.4%, ranking it in the second quartile of a peer group of institutional portfolios on which data is maintained by Callan Associates. In addition to the objective of attaining a satisfactory return in relation to its peer group, the University has a goal of achieving an annual return of at least 4.0% above the rate of inflation. The Pool has achieved this over the past five years with an average return of 7.2% above inflation, including an average of 7.6% for the past three years.

The one-year period ending June 30, 1995 was a strong one for most equity and fixed income markets. The Standard & Poor s (S&P) 500 index experienced a total annual return of 26.1%, a difficult benchmark to meet for domestic equity investment managers. The S&P 500 return ranked in the top decile of Callan s institutional fund database and outperformed over 70% of the managers in Callan's domestic equity database. The Lehman Brothers Government/Corporate index, which experienced a total annual return of 12.8%, also was difficult for fixed income investment managers to beat.

Although the Endowment Investment Pool met its objective of staying well ahead of inflation, its annual return of 11.5% was below both the indexes and the majority of institutional funds in the Callan database. The underperformance of the Pool in 1995 is attributable primarily to the Pool's exposure to international equities and to low returns from the special investments portfolio which, when combined, represent over 23% of the Pool s assets. In 1992, the University made a decision to allocate up to 15% of Pool assets to international equity investments. Although this international equity exposure benefited the portfolio significantly in other years, in 1995 it did poorly. The University's international equity managers also underperformed the Morgan Stanley index of Europe, Australia, and Far East stocks in 1995, further compounding the effect of the low international equity market returns.

The Endowment Investment Pool's Special Investments portfolio is made up primarily of investments in equity-oriented limited partnerships. Several individual investments within those partnerships experienced significant losses during 1995, and the losses served to hold down the portfolio's return to 6.3% for the year. Although only one of the Pool's domestic equity and fixed income investment managers outperformed the established benchmarks, the composite annual return from these portfolios was 22.5%, a respectable return considering the difficulty of outperforming the benchmarks. The asset allocation of the Pool at June 30, 1995 and 1994 is shown in the following table.

	1995	1994
Equities / Domestic	31.9%	27.6%
Equities / International	12.7	13.5
Fixed Income	40.4	38.8
Special Investments	10.6	12.6
Cash and Equivalents	2.7	5.3
Miscellaneous	1.7	2.2
TOTAL	100.0%	100.0%

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