Cornell University 2011-2012 Annual Report - DFA Home - Cornell ...

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands)C. Separately Invested Portfolio, Pooled Life Income Funds, and Dormitory Authority of the State of New York (DASNY) HoldingsThe University maintains a category of assets referred to as the separately invested portfolio. This category consists of assetsthat, for legal or other reasons, or by request of the donor, could not participate in any of the investment pools.Life income fund pools consist of donated funds, the income from which is payable to one or more beneficiaries duringtheir lifetimes. On the termination of life interests, the principal is available for University purposes, which may or maynot be restricted by the donors.University funds on deposit at DASNY consist of reserves for retirement of debt and bond proceeds not yet expended. Thetotal funds on deposit are $1,965 and $227,609 as of June 30, 2012 and 2011, respectively. The amount of bond proceeds notyet expended included in the total reserves at DASNY are $1,965 and $213,336 as of June 30, 2012 and 2011, respectively.D. Derivative HoldingsThe use of certain financial derivative instruments is governed by either the University’s written investment policy, specificmanager guidelines, or partnership/fund agreement documents. Specifically, financial derivative instruments may be usedto manage foreign currency exposure, to obtain commodity exposure, to create synthetic exposure, or to obtain protectionagainst increases in interest rates. These derivatives, based on definitions in GAAP, are not designated as hedging instruments.The University allocates a percentage of its assets to investment managers specializing in securities whose prices aredenominated in foreign currencies as part of its overall diversification strategy. The investment guidelines provide discretionto these managers to adjust the foreign currency exposure of their investment portfolio by using derivative instruments.The derivatives are used for buying or selling foreign currency under a short-term contract to lock in the dollar cost of aspecific pending purchase or sale of a foreign security, and selling foreign currency under a longer-term contract to hedgeagainst a general decline in the dollar value of foreign security holdings.As part of its overall investment strategy, the University’s investment managers manage a diversified portfolio of commodityfutures under strict investment guidelines. These commodity futures are fully collateralized and are denominatedin U.S. dollars.Some investment managers have discretion, limited by overall investment guidelines, to use derivative instruments to createinvestment exposures that could not be created as efficiently with other types of investments. These synthetic exposures inthe University’s portfolio as of June 30, 2012 are of four types: 1) forward contracts used to increase exposure to a foreigncurrency beyond the level of underlying security investments in that currency; 2) futures contracts used to create exposuresto assets where the futures market provides a more efficient investment than the underlying securities; 3) swap contracts,also used to provide a more efficient means to gain exposure than the underlying securities; and 4) option contracts usedto adjust the exposure of the fixed-income portfolio to interest rate volatility.The University entered into option contracts on interest rates swaps as a way to mitigate the impact of a significant rise ininterest rates in the future.The following table provides detailed information on the derivatives included in the investment portfolio as of June 30.All the derivatives have been deemed Level 2 in the fair-value hierarchy.FAIR VALUE OF DERIVATIVE HOLDINGS IN STATEMENT OF FINANCIAL POSITION2012 2011LocationInvestmentsDerivative typeNotionalamount# ofContractsLevel 2fair valueNotionalamount# ofContractsLevel 2fair valueForeign currency $ -67 $ 1,385 $ -51 $ (1,126)Commodity 314,893 53 3,563 257,239 50 (7,015)Synthetic (23,198) 41 153 68,043 46 115Interest rate 444,703 4 (8,156) 2,067,903 5 10,746Total fair value $ 736,398165 $ (3,055) $ 2,393,185152 $ 2,72022
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(dollars in thousands)EFFECT OF DERIVATIVE HOLDINGS ON STATEMENT OF ACTIVITIES2012 2011LocationDerivative TypeInvestment return, net of amount distributedUnrealizedgain/(loss)Unrealizedgain/(loss)Foreign currency $ 1,385 $ (1,126)Commodity 3,563 (7,015)Synthetic 372 255Interest rate (17,678) (2,808)Total unrealized gain/(loss) $ (12,358) $ (10,694)The unrealized gain/ loss from derivative holdings affects temporarily restricted net assets for LTIP shares in the permanentendowment; otherwise, the gain/loss affects unrestricted net assets. The net unrealized gain/loss is reported in the operatingsection of the consolidated statement of cash flow as net realized and unrealized gain/loss on investments.E. Alternative Investments Measured Using Net Asset ValueThe University uses NAV to determine the fair value of all alternative investments which do not have a readily determinablefair value, and have financial statements consistent with the measurement principles of an investment company orhave the attributes of an investment company. The following tables list investments in investment companies (in partnershipor equivalent format) by major category:SUMMARY OF ALTERNATIVE INVESTMENTS MEASURED USING NET ASSET VALUEAsset class Strategy NAV in funds Remaining lifeUnfundedcommitmentsTiming to drawcommitmentsPrivate equity Buyout $ 361,176 $ 95,437Special situation 296,209 92,643Venture capital 391,537 107,161Total private equity $ 1,048,922 1 to 10 years $ 295,241 1 to 10 yearsReal assetsFixed incomeForeign equityHedged equityMarketablealternativesReal estate 658,571 182,169Natural resource 243,225 151,600Total real assets $ 901,796 1 to 8 years $ 333,769 1 to 8 yearsDistressed 115,792 64,807Leveraged loans 18,704 -Mezzanine 81,873 42,376Multi-strategy 78,747 3,000Total fixed income $ 295,116 1 to 10 years $ 110,183 1 to 10 yearsEmerging markets 86,520Global equity 3,979Total foreign equity $ 90,499Global equity long/short 153,012U.S. equity long/short 352,429Total hedged equity $ 505,441Event driven 75,346Global macro 70,518Multi-strategy 173,592Relative value 79,939Special opportunity 328,568Total marketablealternatives$ 727,963Domestic equity Indexed 96,488Total domestic equity $ 96,488Total for alternative investments using NAV $ 3,666,225 $ 739,19323
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CORNELL UNIVERSITY HIGHLIGHTS2011-1
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8Annual Report 2011-2012
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FROM TOP TO BOTTOM: Taio Cruz perfo
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Cornell Administration:FY12 Updates
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18Annual Report 2011-2012
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