ENDOWMENT ASSET ALLOCATION

As of December 31, 2013

5

Investing in the Endowments

  • Proposition 102 in 1998 made two significant changes in how the Endowment can be invested.
    • It allowed up to 60% of the endowment to be invested in equities.
    • It changed the distribution formula to protect the principal from inflation.
    • Contained a 4 year transition from the old formula to the new.
  • The United States Congress amended the Enabling Act (the Act that admitted Arizona into the Union) to allow Prop 102 changes to go into effect.
  • Any change in distribution, management, or investment of the State Trust Land Endowment requires BOTH an Arizona Constitutional change and a Federal Enabling Act change.

Current Constitutional Guidelines

  • Article 10, Section 7 of the Arizona Constitution outlines the requirements for the investment and distribution of Endowment Funds.
    • “Prudent Person” investment standard
    • Up to 60% may be invested in equity securities
    • Up to 100% may be invested in fixed income securities
    • Standards established for calculating ‘total return’ and ‘distributions’
    • Distributions equal to 5-year average total return – LESS – inflation (‘net return’),
    • Multiplied by the average (prior) 5 year market value of each Fund
  • The Board of Investment serves as the trustee of the Endowment.
  • The State Treasurer’s Office manages the investment activities.