Endowment and Other Long-Term Investments Report

Duquesne University of the Holy Spirit

Fiscal Year 2016

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Table of Contents Management of the Endowment and Other Long-Term Investments………………………………………………………3

Governance……………………………………………………………………………………………………………………………………………..3

Impact……………………………………………………………………………………………………………………………………………………..5

Uses…………………………………………………………………………………………………………………………………………………………6

Growth…………………………………………………………………………………………………………………………………………………….7

Performance……………………………………………………………………………………………………………………………………………8

Asset Class Strategies and Objectives………………………………………………………………………………………………………9

Liquidity…………………………………………………………………………………………………………………………………………………11

Competitive Benchmarking Analysis..………………………………………………………………………………………………......12

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Management of the Endowment and Other Long-Term Investments The Investment Committee (“the Committee”) of the Board of Directors (“the Board”) of Duquesne University maintains prudent oversight of the University’s endowment and other long-term investments (the “Investments”). The Committee adheres to sound investment principles that, at a minimum, seek to preserve the real value of the investment assets, adjusted for spending, inflation, and fees. The Committee also exercises prudence and appropriate care based solely on the interest of the University and its investments. Members of the Committee acknowledge they are fiduciaries of the Investments, agree to discharge their duties solely in support of the University’s mission, and must maintain independence and disclose any potential conflicts of interest. Governance Board of Directors The Board has the ultimate fiduciary responsibility for the Investments and seeks to ensure that policies are in place and are functioning effectively. The Board delegates authority to the Committee for ongoing monitoring. Investment Committee The Committee is responsible for adopting and approving the provisions of the Investment Policy Statement. This responsibility includes approving investment philosophy and asset allocation strategy; hiring and firing of investment managers, investment custodians, and investment consultants; monitoring performance on a regular basis; and maintaining sufficient knowledge of the Investments and its managers to be reasonably assured of their compliance with the Investment Policy Statement. Vice President for Management and Business The Vice President for Management and Business has daily responsibility for administration of the Investments and will consult with the Committee and the Investment Consultant on matters relating to funds within the Investments. The Vice President for Management and Business will serve as the primary contact for the investment managers, Investment Consultant, and Investment Custodian. Investment Consultant The Investment Consultant is responsible for assisting the Committee and Vice President for Management and Business in all aspects of managing and overseeing the Investments. The Investment Consultant will monitor the activities of each fund and provide the Committee with performance updates; identify and perform due diligence on prospective managers or funds; and provide investment education and investment manager information. Investment Custodian The Investment Custodian has the daily responsibility for the accurate and timely reporting of manager transactions and valuations.

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Investment Committee

John McGinley, Jr., Chair Member, Eckert Seamans Cherin & Mellott, LLC

Scott Lammie Chief Financial Officer, UPMC Health Plan

Anthony Carfang Partner, Treasury Strategies, Inc.

Brian Sullivan Regional Director, Putnam Investments

Charles A. Kennedy Chief Investment Officer, Carnegie Mellon University

Serving the Investment Committee

Matthew Frist Vice President for Management and Business, Duquesne University

William Hummel Investment Consultant Managing Principal, Fund Evaluation Group

Christopher Merlo Investment Custodian Senior Investment Advisor, PNC Institutional Asset Management

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Impact Primary Investment Objective The primary objective is to achieve an annualized total return (net of fees and administrative expenses) through appreciation and income, equal to or greater than the rate of inflation (as measured by the Higher Education Price Index) plus any spending thus, at a minimum, maintaining the purchasing power of the Investments. The assets are to be managed in a manner that will seek to meet the primary investment objective, while at the same time attempting to limit volatility.

Investment Spending Duquesne utilizes a spending policy that allocates a pre-specified percentage of the average market value of the Investments over the prior 16 quarters. In fiscal year 2016, the Board of Directors approved a 5.0% spending rate, which equated to $11.0 million.

The Investments supported 3.9% of the University’s operating budget with 751 unique endowed funds in the portfolio. Distributions are used to support the intended purposes of the donors. Duquesne strives to carefully preserve the original gift value so that future generations can be supported at the same level on an inflation-adjusted basis.

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Uses Of the $11.0 million distributed in fiscal year 2016, $3.6 million was used for scholarships, $1.4 million was used for salaries and benefits, and the remaining $6.0 million was used for general operations.

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Growth The graph below illustrates changes in Duquesne’s Investments1 from 2011 to 2016. During this period Investments have grown by 39% or $79.2 million and as of June 30, 2016, were valued at $280 million.

As highlighed in the chart below, Investments decreased during fiscal year 2016 owing to poor market performance ($11.4 million) and spending ($11.0 million), in accordance with University policy, which outpaced new gifts.

1 Duquesne’s Investments include Endowment and Working Capital Assets

New Gifts 5.3$ Transfer from Operating Surplus 0.5

Returns Net of Fees (11.4) Spending (11.0)

Other-Tamburitzans (0.2) Total (16.8)$

Endowment and Other Long-TermInvestments Activity

(Fiscal Year Ended June 30, 2016)

Dolla

rsin

Mill

ions

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Performance The chart below compares Duquesne’s Investments performance with various benchmarks as of June 30, 2016. The University’s returns lag compared with selected benchmarks.

10-Yr 5-Yr 3-Yr 1-Yr% % % %

Duquesne 4.3 4.4 3.8 -3.9Benchmark #1-Policy Portfolio 5.4 6.3 6.2 0.5Benchmark #2-NACUBO $101 Million to $500 Million 4.8 5.1 4.9 -2.4Benchmark #3-National Catholic 1 4.7 5.2 5.0 -2.4Aspirant Benchmark-NACUBO $501 Million to $1 Billion 5.3 5.7 5.4 -2.2Sources: 2016 NACUBO Endowment Study and Fund Evaluation Group

1. National Catholic Benchmark includes the 2016 investments returns of the institutions l isted on page 12

Benchmark Comparisons for Endowment and

(As of June 30, 2016)Other Long-Term Investments Returns

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Asset Class Strategies and Objectives

Asset allocation will likely be the key determinant of the Investments’ returns over the long-term. Therefore, diversification of investments across multiple markets that are not similarly affected by economic, political or social developments is highly desirable. A globally diversified Investments portfolio, with uncorrelated returns from various assets, should reduce the variability of returns across time. In determining the appropriate asset allocation, the inclusion or exclusion of asset categories shall be based on the impact to the Investments, rather than judging asset categories on a stand-alone basis. Target asset allocations should provide an expected total return equal to or greater than the primary objective of the Investments, while avoiding undue risk concentrations in any single asset class or category, thus reducing risk at the overall Investments portfolio level. The following chart provides trended asset allocation percentages by asset class from fiscal year 2007 to fiscal year 2016.

The increase in alternative investments along with the corresponding decrease in domestic equities is evidence of the University’s strategy to achieve a more diversified Investment portfolio.

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The following graph compares Duquesne’s asset class allocation as of June 30, 2016 to NACUBO Benchmarks and the National Catholic Benchmark.

Source: 2015 NACUBO Endowment Study *National Catholic Benchmark includes the 2016 asset allocations of the institutions listed on page 12

In fiscal year 2016, Duquesne’s Investments portfolio was more heavily weighted in domestic and international equities than both NACUBO Benchmarks and the National Catholic Benchmark. Duquesne began executing its rebalancing plan in fiscal year 2015, which shifted assets from equities to alternative strategies. The allocation to alternative strategies is currently about 29%.

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Liquidity Liquidity is measured by the time it takes to convert an investment to cash. Duquesne’s Investments are highly liquid with 80.7% of its assets being able to be converted to cash on a daily basis. Of the remaining liquid assets, 3.4% can be converted to cash within a month and 6.2% can be converted on a quarterly basis, all under normal circumstances. Some of Duquesne’s Investments assets are classified as illiquid, meaning it would take longer than a year to convert these assets to cash. These assets make up 9.7% of the total in the Investments.

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Competitive Benchmarking Analysis The 2016 NACUBO Commonfund Study of Endowments included the investment market values of 805 schools with an overall average market value of $639.9 million as of June 30, 2016. The following tables compare Duquesne’s Investments against the National Catholic Benchmark, Regional Catholic Benchmark, and Key Competitors. FTE data represents Fall 2015 figures as reported to IPEDS by each institution. The tables are sorted by Investments per FTE student and Investments are reported in thousands.

Institution

2016 Investments

($000) FTE StudentsInvestments Per Student

University of Notre Dame 1 $8,374,083 12,178 $687,640Boston College 2 2,064,300 13,493 152,990Georgetown University 3 1,483,502 15,956 92,975Saint Louis University 4 1,053,035 12,953 81,297Villanova University 5 551,036 8,681 63,476Catholic University of America 6 314,956 5,164 60,991University of San Diego 7 449,795 7,402 60,767University of St. Thomas (MN) 8 429,199 8,069 53,191Marquette University 9 550,106 10,562 52,084Fordham University 10 614,871 13,381 45,951University of Dayton 11 473,122 10,427 45,375St. John's University New York 12 643,376 16,071 40,033Loyola University of Chicago 13 535,117 14,625 36,589Duquesne University 14 280,034 8,850 31,642Seton Hall University 15 242,675 8,044 30,168University of San Francisco 16 300,350 10,104 29,726DePaul University 17 420,056 20,342 20,650

Duquesne vs. National Catholics(As of June 30, 2016)

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Institution

2016 Investments

($000) FTE StudentsInvestments Per Student

Fairfield University 1 $310,278 4,521 $68,630Mount Saint Mary's University 2 122,465 2,010 60,928Le Moyne College 3 157,569 2,998 52,558Assumption College 4 93,937 2,337 40,196Loyola University (MD) 5 192,806 5,088 37,894University of Scranton 6 164,998 4,613 35,768Canisius College 7 110,515 3,322 33,268Saint Joseph's University 8 202,181 6,314 32,021Duquesne University 9 280,034 8,850 31,642St. Bonaventure University 10 57,944 1,873 30,936Manhattan College 11 79,431 3,756 21,148

Benchmarking AnalysisDuquesne vs. Regional Catholics

(As of June 30, 2016)

Institution

2016 Investments

($000) FTE StudentsInvestments Per Student

University of Pittsburgh 1 $3,524,904 26,515 $132,940Pennsylvania State University 2 3,602,312 46,036 78,250Ohio State University 3 3,578,562 53,514 66,872University of Delaware 4 1,261,790 21,318 59,189John Carroll University 5 187,663 3,352 55,985University of Dayton 6 473,122 10,427 45,375Saint Joseph's University 7 202,181 6,314 32,021Duquesne University 8 280,034 8,850 31,642Drexel University 9 650,252 20,995 30,972West Virginia University 10 511,384 26,357 19,402Gannon University 11 56,566 3,657 15,468Temple University 12 494,187 34,181 14,458Robert Morris University 13 30,128 4,431 6,799Indiana University of Pennsylvania 14 59,136 12,514 4,726James Madison University 15 79,977 20,101 3,979West Chester University 16 12,538 14,610 858

Benchmarking AnalysisDuquesne vs. Key Competitors

(As of June 30, 2016)

Duquesne University of the Holy Spirit 600 Forbes Avenue, Pittsburgh, PA 15282