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The Oxford Funds
REPORT 2013
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The Oxford Funds Report 2013
Contents
THE OXFORD FUNDS
1
ENDOWMENT STEWARDSHIP
5
INVESTMENT REVIEW 11
GOVERNANCE 19
The Oxford Funds
The Oxford Funds is an investment vehicle unique to the University of Oxford, originally established
in 1943 under an Act of Parliament. This Act enables the collegiate University to pool assets held
on trust and invest them as one. OUem was set up in September 2007 to manage this pool and
since then has been working hard to optimise the structure of The Oxford Funds, refine the investment
objectives and distribution policies, and build an investment portfolio which reflects the extraordinary
time horizon of the collegiate University.
At 31 December 2013 The Oxford Funds held £1.7bn of assets
2013
£1,744m
2012
£1,519m
2011
£1,374m
2010
£1,290m
2009 £1,054m
2008 £636m
The Oxford Endowment Fund
The Oxford Capital Fund
Source: unless otherwise stated, data in this report is provided by OUem
1
The Oxford Endowment Fund has distributed £214m
since its inception
Over a five year period, the Oxford Endowment Fund
has returned 9.7% annualised
Over a five year period, the Oxford Capital Fund
has returned 6.6% annualised
Our Partners
Our investor Partners are limited to the University of Oxford, the
Colleges and associated charitable trusts. Our Partners are all
independent sovereign bodies, with sound governance and
experienced investment committees.
INVESTOR PARTNERS IN THE OXFORD FUNDS
Brasenose College
Christ Church
Corpus Christi College
Green Templeton College
Harris Manchester College
James Martin Foundation
Keble College
Kellogg College
Lady Margaret Hall
Linacre College
Mansfield College
Nuffield Dominions Trust
Oriel College
OU Law Foundation
OU Rugby Football Club
Pembroke College
Regent’s Park College
The Rhodes Trust
Somerville College
St Anne’s College
St Cross College
St Edmund Hall
St Hugh’s College
St Peter’s College
University of Oxford
Wadham College
Worcester College
3
The Oxford Funds Report 2013
KEBLE COLLEGE
ARTIST’S IMPRESSION OF KEBLE COLLEGE ACLAND SITE
Keble’s endowment is modest by Oxford standards, so we’re grateful for the opportunity to
benefit from the economies of scale that OUem offers. Endowments differ from other funds in
that the focus is on maximising total return over the long term. Given the strength of OUem’s
investment team and its advisory board, we’re happy to leave them to look after our money
whilst we concentrate on running the College.
Keble is determined to build its endowment, the income from which covers roughly 10% of
expenditure: 41% of it funds ‘deep’ maintenance of the buildings, 37% funds academic posts,
17% is applied to scholarships and bursaries and 5% supports College parishes.
We have recently begun using the Oxford Capital Fund as an investment vehicle for gifts
towards our major building project – the £50m redevelopment of the Acland site. Our aim is to
complete this highly ambitious project in time for our 150th anniversary in 2020.
Keble College
4
Endowment
Stewardship
Charitable Gifts
The University of Oxford is an institution which,
since its very beginning, has relied on philanthropic
support to advance its mission and to sustain
academic freedom. Over the centuries, many
buildings and institutions, teaching posts, research
posts and scholarships have been funded by the
generosity of donors. Such gifts make Oxford
the special place it is today.
The collegiate University receives gifts of all
sizes and from all around the world. Those gifts
are often endowment gifts – charitable funds
held on trust to be retained for the benefit of
the collegiate University. Endowment gifts can
be permanent, where the capital may not be
spent, or expendable, where the capital may be
spent if it is considered to be in the best interest
of the trust.
Held on Trust
Donors can make a variety of endowment gifts
ranging from unrestricted, to gifts restricted
to support specific activities such as endowed
chairs or scholarships. Gifts can be in a variety
of forms. Although usually money, other assets
may be gifted such as land, buildings or shares.
There may be some discussion around the
terms of the gift, and once agreed, the assets
will be transferred into a trust. At this stage,
responsibility for the assets passes from the donor
to the trustee, who becomes solely responsible
for managing the trust in accordance with the
agreed terms.
Financial Objective
The trustee is the steward and must always act
in the best interest of the trust. The trustee is
responsible for ensuring the existence of the
gift in perpetuity (permanent endowments), or
for the duration of the capital project (expendable
endowment). This is often referred to as the
financial objective of the trust.
REAL RETURN
A real return is a return that is in excess of inflation. Inflation measures the change in the
value of goods and services in an economy versus the value of money. If inflation is generally
positive, the relative value of goods and services versus money is rising, and goods appear
more expensive. This is why endowments need to create positive real returns: so that their
purchasing power rises over time rather than falls.
5
The Oxford Funds Report 2013
Investment Objective
Once the trustee has determined the financial
objective, they then need to decide how the
monies will be invested to meet that objective.
For The Oxford Funds, a key role of the Investment
Committee is to advise its Trustee on appropriate
investment objectives for the permanent and
expendable endowments. In determining
appropriate investment objectives, the Investment
Committee has to consider time horizon and
liquidity requirements.
The period is key, as expendable trusts designed
to be spent in a short time horizon – say three
to five years – are intolerant of wide fluctuations
in value. In investment terms, we refer to this
as volatility. Those trusts which are permanent
have the ability to withstand higher levels of
volatility because each year only a portion of
the value is required to be spent by the trust.
There is a clear trade off between the requirement
for liquidity, volatility and investment return.
Investment Policy
For The Oxford Funds the investment policies
represent the mix of assets that the Investment
Committee believes gives the best chance of
achieving the long term investment objectives.
An investment objective is the targeted
average return of an investment over a
long period of time. It is not a guaranteed
return nor the return expected each year.
Over short and medium time frames, the
actual returns achieved will vary widely.
A long term study of UK bonds and
equities shows that, between 1900 and
2012, bonds returned an average of 1.5%
and equities 5.2%, after inflation. These
are long term average numbers and mask
the significant variance in year to year
returns. Over this time period volatility
has been 13.8% for bonds and 19.9% for
equities.
19.9%
13.8%
5.2%
1.5%
Equities
Real return
Bonds
Volatility
Source: Dimson, Marsh & Staunton, Credit Suisse Global Investment Returns Sourcebook 2012
6
The Oxford Endowment Fund
Investment Policy
%
Financial Objective
Global Equities
45
The Oxford Endowment Fund (OEF) gives our
Partners a place to invest their permanent
endowment gifts, helping them achieve their
financial objective of preserving the real value of
the underlying trust in perpetuity, while receiving
a sustainable income stream.
Private Equity
20
Non Directional
14
Real Assets
14
There is a tremendous responsibility associated
with managing investments in perpetuity and
the investment approach required is unlike any
other. This extraordinary timeframe enables us
to invest not only across regions and strategies,
but throughout the liquidity spectrum, investing
in assets that are inaccessible to many other
investors. In order to meet the expectations
of our Partners, our investment objective is
to produce an average (often referred to as
annualised) real return of 5% in excess of the
Consumer Price Index (CPI) over the long term.
Given the timeframe of this Fund, we aim to
achieve this equity-like return while experiencing
lower risk, as measured by volatility of returns,
than would be associated with an investment in
equities. The MSCI World Index is a broad index
of global equities and we use this as a guide.
In order to achieve the financial objectives of
our Partners, we follow a total return approach
to investment. This means that we manage
investments within the Fund to maximise the
investment return, irrespective of how this
return is obtained – through dividend income,
interest income or capital gains.
7
100
Annual Distribution
Every year part of the Oxford Endowment Fund
total return is distributed to Partners in order to
help them meet their spending obligations. The
balance is retained to protect the real purchasing
power of the Fund for future generations.
We understand that many of our Partners
depend on a consistent income stream from
their investment in the Oxford Endowment
Fund and try to ensure that the annual distribution
reflects this. However, we also have to ensure
that the distribution is directly linked to the
performance of the Fund, otherwise we could
eat into the capital originally invested by our
Partners.
50
Annual Distribution (£m)
Investment Objective
Cash & Short Term Bonds
£47m
£44m
40
£41m
30
£31m
£26m
20
10
0
2009
2010
2011
2012
2013
OEF FINANCIAL OBJECTIVE
Maintain the real value of underlying trusts while providing a sustainable distribution
OEF INVESTMENT OBJECTIVE
To generate an average 5% return over CPI with volatility not more than the MSCI World Index
7
OEF DISTRIBUTION POLICY
To distribute 4.25% of the average of the last 20 quarters’ NAV subject to a cap of
10%increaseandafloorofthelastyear’sdividend
The Oxford Funds Report 2013
ASHMOLEAN MUSEUM OF ART AND ARCHAEOLOGY
JAMES HUDSON
Established in 1683, the Ashmolean Museum is the oldest public museum in the UK. The
Ashmolean’s endowment funds are instrumental in supporting the Museum’s four core missions:
care and conservation of the great collections; teaching; research; outreach and public
engagement.
Last year the Ashmolean was successful in securing a £1m challenge grant from the Heritage
Lottery Fund’s (HLF) highly competitive Catalyst Endowment Scheme. This means that from
all donations to the Museum’s endowment, up to £1m will be matched pound for pound by
the HLF, resulting in an additional £2m for the Ashmolean’s overall endowment. We are
delighted to have raised £560,000 already.
The Ashmolean strives to be an open door to the excellence of Oxford, sparking in everyone
a curiosity for the beauty, diversity, and intellectual richness of our collections. The consistent
dividend distribution from the Oxford Endowment Fund assists our planning of programmes
to support this ambition. On reaching the Catalyst target, the dividend income from the
£2m endowment will support the delivery of the Museum’s public engagement activities, with
the aim to make our collections accessible and relevant to the largest possible audience.
Ashmolean Museum
8
The Oxford Capital Fund
Financial Objective
The Oxford Capital Fund (OCF) offers our
Partners who receive expendable endowment
gifts the opportunity to invest those gifts for
the medium term, over a three to five year period.
The nature of these gifts means that they are
likely to be spent over time, often on capital
projects and the investment strategy and liquidity
profile of the Fund reflects this.
Investment Objective
In order to meet the financial objectives and
liquidity expectations of our Partners, we seek
to produce an annualised real return of 3%
over the Consumer Price Index (CPI). Given the
timeframe of this Fund, we aim to achieve this
return with a carefully managed volatility of less
than half the MSCI World Index.
Investment Policy
%
Global Equities
30
Non Directional
20
Global Bonds
20
Real Assets
20
Cash & Short Term Bonds
10
100
9
OCF FINANCIAL OBJECTIVE
To preserve the real value of the underlying trusts for expendable capital
OCF INVESTMENT OBJECTIVE
To generate an average 3% return over CPI with volatility not more than
50% of the MSCI World Index
“We have recently begun
using the Oxford Capital Fund
as an investment vehicle for
gifts towards our major
building project”
Keble College
Investment Review
OEF annualised net returns to 31 Dec 2013
Nominal %
CPI %
Real %
16.7
2.0
14.7
3 years
7.9
3.0
4.9
5 years
9.7
3.1
6.6
1 year
The Oxford Endowment Fund
The Oxford Endowment Fund (OEF) exists to
preserve and grow the value of the perpetuity
capital of the collegiate University of Oxford. Its
specific investment objective is to appreciate at
an average of 5% per annum in real terms, and
to achieve this at a lower volatility than would
be experienced by investing solely in the public
equity markets.
Since inception
5.7
3.1
OEF cumulative net returns to 31 Dec 2013
Nominal %
CPI %
Long Term Performance
In global endowment terms, the OEF is young
and has a short history. It has been open to
Partners and operating in its current form since
1 January 2009. Since then, it has returned
6.6% annualised in real terms, ie after inflation,
at a volatility of 6.1%. The volatility of the MSCI
World, a proxy for global equity markets, has
been 14.4% over the same period. Since 1 January
2008, when OUem first began managing the
endowment, the annual rate of return has been
2.6% in real terms at a volatility of 8.5%, with
2008 containing the worst market falls of the
global financial crisis.
1 year
16.7
2.0
14.7
25.6
9.2
16.4
5 years
58.6
16.5
42.1
39.1
20.0
19.1
OEF inception 1 January 2008
Investment Approach
In accordance with producing long term,
sustainable growth, the Oxford Endowment
Fund invests in a range of different strategies
designed to produce returns in a variety of
investment climates. Equity investments are used
as a principle driver of returns: investments in
productive, growing companies with high
returns on capital employed are likely to give
the highest probability of achieving our real
return targets. Strategies uncorrelated to
equity are also used to give payoffs in periods
of equity weakness, and to lower the overall
volatility of the Fund compared to a simple
investment in listed equity.
For example, in 2008, world equity markets,
as represented by the MSCI ACWI, fell by 20%.
In the same period, the Fund’s Non Directional
investments rose 8.4% and the Fund’s agricultural
estates returned 30.4%. The effect of a diversified
approach is to have engines of return that
function across environments, which lower
volatility and sensitivity, or ‘Beta’, of the Fund’s
return solely to equity markets. In practical
terms, this has considerable value for our
Partners who rely on a predictable dividend
stream to fund their operations.
PERFORMANCE
All returns shown in this report are Time Weighted Returns calculated by OUem,
unless otherwise stated. Returns are quoted net of all fund expenses, including
custody, administration and OUem fees.
11
Real %
3 years
Since inception
This investment objective is long term, and
not a year by year measure. The Fund seeks
to achieve its objectives by investing across a
range of asset groups that give a diversified
stream of returns and which can function in a
variety of environments. At its heart is the aim
of providing sustainable growth and a regular
distribution to the collegiate University.
2.6
The Oxford Funds Report 2013
We can manage our sensitivity to equity
markets by altering both our overall equity
exposure and the nature of our underlying
equity investments. At the end of 2011, the
measured Beta of the Fund to MSCI ACWI was
0.35, and in 2013 it was 0.47. This was a direct
result of managing our equity exposures and
pre-emptively adjusting these during times of
crisis or opportunity. The Fund has produced
strong returns in years with robust equity
market returns, despite operating at a Beta of
less than 1. This means that gains are being
generated by significant underlying manager
skill as well as market exposure.
The effect of a diversified approach can be seen below, where equity like growth is achieved
for the Fund but at a much lower volatility than equity markets, and during times of significant
market stress the value of the Fund is preserved. Behind this lies the aim of consistently and
patiently compounding capital over time at attractive real rates, with some independence of
market backdrop.
Fed starts to taper
150
Fed scales up QE3
from $40bn to $85bn
monthly purchases
145
Eurozone crisis spreads to
Spain and Portugal.
Sovereign debt downgrade
140
135
130
125
Fanny Mae &
Freddy Mac
nationalised
Cumulative Return (%)
120
US sovereign
debt
Fed introduces QE3:
downgrade
“QE Infinity”
Lehman files for
bankruptcy
115
ECB cuts policy rate
110
105
100
Mario Draghi pledges to do “whatever it
takes” to prevent Eurozone collapse
95
90
85
Bernanke’s Jackson Hole speech
followed by $600bn QE2
80
75
Fed launches $600bn
purchase programme (QE1)
70
OEF
MSCI ACWI in Sterling
65
2008
2009
2010
2011
2012
2013
Source: OUem and MSCI
12
Managing Risk
Generating Returns
Alongside volatility and equity sensitivity, there
are other facets of portfolio risk which are
important to manage. The liquidity of the Fund
is carefully monitored and each year we retain at
least the expected value of next year’s dividend
in cash. This gives effective certainty to our
Partners of receiving their predicted income.
Furthermore, we do not borrow at the Fund
level to enhance returns.
Our Partners require tangible, real returns that
they can use to help meet their operational
requirements. Relative returns and benchmarks
are not consumable, and we do not focus on
them. We concentrate on the overall real return
of the Fund and we invest its capital holistically,
not as a collection of separate investments and
discrete asset classes.
Currency and geographic exposures of the
Fund are regularly assessed and, where
appropriate, non-Sterling exposure is hedged to
reduce currency risk. The Investment Committee
has set a range of 50% to 70% of the Fund to
be in Sterling or hedged back to Sterling at any
point in time, with the neutral position being 55%
of the Fund.
Currency Exposure
0.1%
7.7%
Sterling
Euro
30.0%
54.9%
US Dollar
Yen
Emerging markets
7.3%
Geographic Distribution
3.7%
12.6%
UK
31.4%
Europe
North America
Japan
39.7%
Emerging markets
12.6%
13
We direct our efforts by pursuing long term
themes where we believe tensions, changes or
inefficiencies in economies and markets provide
investment opportunities for our capital. Within
these, we can invest either passively or actively,
but most frequently we partner with world class
investment managers that have sustainable
competitive edges in their markets. With active
relationships we partner for the long term and
across market cycles, and focus on getting the
right alignment of interests between the Fund
and the manager. In contrast, while we monitor
world markets and economic events on a daily
basis, we spend little time on macro-economic
or political forecasting.
Thematic investing across asset groups yields
exciting opportunities for the Fund. For example,
using tensions in natural resource markets as
an investment theme we have spent considerable
time analysing public equity, private equity
and real asset approaches to solving tensions
around this area. Talent has been hard to find.
We have invested in a new group, Osmosis
Investment Management, which has a
proprietary method of analysing the resource
efficiency of quoted companies, where superior
returns arguably flow over the long term to the
most resource efficient companies in their use of
energy, water and waste.
The Oxford Funds Report 2013
The Oxford Endowment Fund has grown from
£497m at the start of 2008 to £1,285m at the
end of 2013, a rise driven by both new inflows
into the Fund and performance. As well as
investing considerable inflows, we actively
manage our asset allocation in a number of
ways.
While investing holistically we organise our
thinking around four main asset groups: Global
Equities, Private Equity, Non Directional and
Real Assets. Each has a particular role to play in
meeting our return and risk objectives.
In Global Equities we consciously increased our
exposure across a period that had low valuations
during and coming out of the global financial
crisis. Within this we increased our long as
opposed to hedged equity exposure, and added
to regions that showed value at particular times,
including the UK, US small cap stocks,
Continental Europe and emerging markets.
We have grown the Private Equity asset group
from a small allocation to much closer to our
policy target, albeit being conscious of growing
this at a measured pace across vintage years:
Private Equity has moved from being 2.2% of the
portfolio at 1 January 2008 to 16.5% at
31 December 2013.
OEF asset allocation at 31 Dec 2013
%
Global Equities
52
Private Equity
16
Non Directional
12
Real Assets
12
Cash & Short Term Bonds
8
100
Asset Allocation at 31 December
100
75
%
Asset Allocation
50
25
0
2009
2010
2011
2012
2013
Global Equities
Private Equity
Non Directional
Real Assets
Cash & Short Term Bonds
Most recently we have been changing the mix
of equity investments based on a marked rise
in valuations, and we are currently focusing a
considerable amount of our intellectual efforts
on opportunities in emerging markets.
Funding for increases in equity investment has
come from both Real Assets and Non Directional
asset groups. In Non Directional we have been
reducing the size of our restructuring related
investments as the market has become more
crowded, and in Real Assets we have reduced
our commodity related investments. Despite
this, direct activity in property and agricultural
estates is likely to increase in the future as part
of an explicit strategy to grow this element of
the portfolio, should valuations be appropriate.
14
Global Equities
Private Equity
The Fund has substantial investments in public
equity which are a critical driver of long term
real returns. We invest in equity opportunities
on at least a 3-5 year view where we can see
significant value available for our capital. We
recognise the futility of predicting the short
term direction of equity markets, but we are
valuation sensitive and closely monitor
conditions across geographies and sectors for
contrarian ideas. Consequently, we invested in
Japan in 2011 and added further in 2012, seeing
value in this market ahead of the stimulus that
occurred in 2013. Similarly, in the last two years
we have added investments in Europe when
the Eurozone concerned shorter term investors.
Most recently we have focused our intellectual
time on emerging markets which have been
out of favour in global terms. We have added
capital to country specialists in markets which
have fallen considerably, where the nature of
their capital base allows them to take long term
views.
We believe that in most circumstances active
management, with the right partner, leads to
superior returns. We look to partner with
managers who have demonstrable edges on
their underlying market or sector based on
insights, skill and experience. We tend to
partner with those who have significant
proportions of their own personal wealth
invested alongside ours, and where gathering
assets is not a priority. We do not value time
spent on the assessment of benchmarks, and
concentrate on managers which are empowered
to focus capital in the best opportunities they
can find, wherever they might be. This tends to
produce attractive results in the long term. For
example, every equity manager that we have
been invested in for five years or longer is
comfortably ahead of the MSCI ACWI, by an
average of 3.1% per year which equates to over
16% cumulative outperformance.
In the OEF Private Equity is simply another
method of investing in corporate equity, but
where the companies involved are normally
outside of the scope of the public markets for
either a situational or strategic reason. Examples
are small, high growth businesses not yet ready
for public listing, or companies in need of long
term restructuring. Some sector specialisms
also lend themselves to a private equity approach.
For example, the Fund has investments in
technology, retail, media and transport
specialists, each of whom are at the apex of
information flows in their sectors. In every case
we follow the same principles in choosing our
investment partners: groups who have their
own capital at risk on the same terms as us;
where they seek capital gains and not growth
in assets under management; and where they
have constrained their focus to areas where
they have world class expertise.
Global Equities annualised net returns
to 31 Dec 2013
Private Equity annualised net returns
to 31 Dec 2013
We have steadily increased the Private Equity
exposure of the Fund since inception, with
16.5% of the Fund invested in the asset group at
the end of 2013. Several significant cash returns
have been made for the Fund in sales to strategic
buyers of small companies that were insulated
and funded during the recovery, including in
technology, industrial processing and consumer
retail in the US. We have also taken advantage
of our long time horizon to invest in a small
number of venture capital approaches where
high payoffs are possible but over longer time
horizons. Restructuring approaches have also
yielded strong cash returns, supporting businesses
into new and productive ownership.
The net IRR of this asset group has grown
strongly since inception and stands at 16% at
the end of 2013. This includes all cash flows
from inception in 2008 to the end of 2013, and
therefore includes cash invested in many strategies
that are too early to show meaningful returns.
%
%
1 year
22.6
1 year
26.3
3 years
10.7
3 years
15.8
5 years
12.7
5 years
11.4
Since inception
5.7
OEF inception 1 January 2008
15
Since inception
9.5
OEF inception 1 January 2008
The Oxford Funds Report 2013
Non Directional
Real Assets
The Fund’s Non Directional investments seek
to make gains that are not correlated to the
broader equity cycle. This helps diversify the
return drivers of the Fund and lower overall
volatility. Over the last five years this asset
group has returned 9.4% annualised, with a
Beta to equity markets of just 0.1.
Real Assets are investments in hard assets that
have a tangible value in times of financial stress,
and which can include some sensitivity to
inflation inputs. The Fund holds investments in
property, direct agricultural land and commodity
related investments.
During the global financial crisis and coming
out of it, we invested significantly in contrarian
debt strategies that have helped reorganise
challenged businesses. This has been a
significant driver of returns to the Fund since
inception. More recently we have tilted this
type of debt exposure to specialist lending,
where we have supported groups that lend to
small businesses and unpopular sectors in the
wake of banks retrenching from many aspects
of commercial lending. This has included activity
in stressed geographies: Continental Europe
has been a fruitful area for direct lending, and
we have committed to a strategy in Asia as that
region potentially cools in growth terms.
Agricultural estates have been a significant
driver of performance. Since inception in 2008,
these have returned 16.3% annualised due to
significant uplifts in rural land valuations in the
UK over this period and by specific value
enhancements in the individual estates. We
continue to look for opportunities in this area
where a deep history of rural estate investing
and our perpetual time horizon enables us to
take advantage of long dated opportunities. For
example in November 2011, the Fund acquired
1,000 acres off-market in a quick transaction
where we moved swiftly to satisfy a seller’s
particular needs.
We have found opportunities in event strategies,
where nimble groups can invest in specific
corporate events to produce returns that are
not related to overall market movements. This
area has been consciously increased over the
last few years and has benefited from an
increase in corporate activity such as spin-offs,
IPOs and mergers & acquisitions. We continue
to search for niche opportunities where returns
are unrelated to standard equity or debt.
Commodity related investments have been
more challenging, and these have diluted the
exceptional returns from agricultural estates.
Commodities and related equities theoretically
have inflation hedging properties, but frequently
this factor is overshadowed by other influences
on price. We are increasingly sceptical of the
full-cycle returns available to investments in the
commodities complex, and the implicit cost that
they incur for what can often be weak inflation
hedging properties. We continue to monitor the
area for opportunities, but it is likely that we
will increasingly focus our attention on property
and estates as a tangible driver of real returns.
Non Directional annualised net returns
to 31 Dec 2013
Real Assets annualised net returns
to 31 Dec 2013
%
1 year
13.9
%
1 year
0.7
3 years
6.9
3 years
0.4
5 years
9.4
5 years
4.6
9.2
Since inception
Since inception
OEF inception 1 January 2008
3.5
OEF inception 1 January 2008
16
The Oxford Capital Fund
The Oxford Capital Fund (OCF) exists to invest
expendable capital on a 3-5 year time horizon.
Typically this capital is for building projects
which have a known liability at a fixed point in
the future. Accordingly, the OCF seeks to operate
at a much lower risk tolerance than the OEF,
with a lower return objective. Specifically, the
OCF seeks to achieve a 3% real return at a
volatility of only half that of the equity
markets, as represented by the MSCI World
Index.
The OCF’s structure and underlying investments
are also, by necessity, much more liquid than
the OEF. There are no investments in Private
Equity strategies, and Global Bonds is used as
a liquid, lower risk asset with a low correlation
to the equity markets. The ability of the OCF to
invest in long term, less liquid strategies in Real
Assets is also significantly constrained.
OCF asset allocation at 31 Dec 2013
%
Global Equities
35
Global Bonds
17
Non Directional
23
Real Assets
16
Cash & Short Term Bonds
9
100
The OCF has achieved its investment objective
since inception, returning 3.5% annualised in
real terms.
OCF annualised net returns to 31 Dec 2013
Nominal %
CPI %
Real %
1 year
7.4
2.0
5.4
3 years
4.3
3.0
1.3
Since inception
6.6
3.1
3.5
OCF cumulative net returns to 31 Dec 2013
Nominal %
CPI %
Real %
7.4
2.0
5.4
3 years
13.6
9.2
4.4
Since inception
37.5
16.5
21.0
1 year
OCF inception 1 January 2009
Global Equities has been a significant driver of
these returns, principally from investments in
liquid, developed equity markets. Non
Directional investments have also contributed
meaningfully, and these have included credit
related investments, event strategies, hedged
17
equities, convertible bonds and insurance linked
securities. These have all been successful in
producing attractive returns that are not correlated
to the broader equity cycle.
Global Bonds has achieved acceptable returns
against the backdrop of low interest rates
driven by central bank monetary policy in these
markets. We deliberately increased exposure
to corporate credit from 2009, to benefit from
investors looking for risk as a result of this
monetary stimulus. This was successful in
adding to returns over and above a simple
sovereign bond strategy.
Real Assets has been a weaker part of the Fund.
Inflation linked bonds have given attractive returns
but these have been dampened by holdings in
liquid commodity related investments. These
have suffered from a benign inflation backdrop
and some specific issues in supply and demand
in those markets.
Overall the OCF has navigated a volatile period
in macro-economic and political events, and has
met its real return and volatility objectives.
Appropriate governance
is central to the
investment success of
The Oxford Funds
Governance
The Oxford Funds has no legal personality; however, the charitable status of our Partners and our
closeness with the collegiate University has enabled us to ensure that the Fund is recognised as
a charity for tax purposes in both the UK and the US. The Fund is governed by its Scheme Rules
which set out at a high level how it must be operated.
The Investment Committee of The Oxford Funds guides and supports both the Trustee and OUem.
The Investment Committee is assisted by two subcommittees: The Valuation Committee is chaired
by Sir Alan Budd. It oversees the valuation process of The Oxford Funds and is responsible for
approving the year-end valuations. The Estates Committee provides advice on investment strategy
concerning real property investments.
OUem is a subsidiary of the University of Oxford and provides investment management services to
The Oxford Funds.
The Trustee
The Council of the University of Oxford
Investment
Committee
OUem Ltd
Regulated
by the FCA
The Oxford Funds
The Oxford Endowment Fund
The Oxford Capital Fund
Partners
The
University
19
Colleges
Collegiate
Charities
The Oxford Funds Report 2013
Investment Committee
Mr Richard Oldfield is Chairman of the Investment
Committee. He is Chief Executive of Oldfield
Partners LLP, an investment management firm.
He is a Director of Witan Investment Trust and
trustee of Canterbury Cathedral Trust, the Clore
Duffield Foundation, and the Royal Marsden
Cancer Charity.
Professor Andrew Hamilton has been the
Vice-Chancellor of the University of Oxford
since October 2009. Prior to his appointment
he was Provost of Yale University where his
achievements included the significant enhancement
of the Yale undergraduate curriculum. He is a
Professor of Chemistry at Oxford.
Mr Jeremy Bennett is Chief Executive Officer at
Nomura International Plc. He is Vice Chairman
at Disasters Emergency Committee. He has
been a regulator, a banker, a charity worker and
amongst other things designed the successful
asset protection scheme for HM Treasury which
bailed out the banks in 2008.
Sir Ronald Cohen is Chair of the Social Impact
Investment Taskforce established by the G8 and
The Portland Trust. He is a Director of Social
Finance USA, Social Finance Israel and Harvard
Management Company. He was a co-FounderDirector of Social Finance UK, Bridges Ventures
and Big Society Capital, and was a Founding
Partner of Apax Partners. Sir Ronald retired
from the Investment Committee in February 2014.
Mr Francis Finlay, a resident of the US, is a
Director or Trustee of several internationally-based
investment and philanthropic organisations.
Francis retired from the Investment Committee
in November 2013, having served as a member
since January 2007.
Mr Ian Kennedy was formerly Director of Research
at Cambridge Associates. He has served as primary
consultant to a number of major endowment
funds, foundations, pension funds and international
organisations. He is a member of the Howard
Hughes Medical Institute’s Investment Advisory
Committee and chairs the finance committee of
the Academy of American Poets.
Mr Jason Klein is Senior Vice President and
Chief Investment Officer of Memorial Sloan
Kettering Cancer Center in New York, where he
is responsible for long-term investment assets
of $4 billion; he was previously the Chief Investment
Officer for The Museum of Modern Art in New
York and a principal in private equity.
Mr Michael McCaffery is Chairman of Makena
Capital Management which has over $18 billion
assets under management, and he was formerly
President and CEO of Stanford Management
Company. He is currently a Trustee of the Rhodes
Trust and Chair of the Rhodes Trust Finance and
Investment Committee.
Mr Nick Ritblat was an Executive Director of British
Land for 19 years and President of the British
Property Federation in 2005. In 2006, he started
a business consultancy and two capital markets
hedge funds. He now sits on three endowment
investment committees and chairs the Residential
Property Forum of The Bank of England.
Mr George Robinson is a partner of Sloane
Robinson LLP, an investment management business specialising in global equities, which he
co-founded in 1993. He is also an active investor
in early stage technology and biotech companies
and co-founded Technikos, a private equity
partnership which invests in spin-out companies
from the Oxford University Institute of Biomedical
Engineering.
Mr Thomas Seaman is the Estates Bursar of All
Souls College and Chair of The Oxford Funds’
Estates Committee. His previous experience
includes Managing Director of Merrill Lynch
where he headed the Asia Pacific team and was
part of the International Financial Institutions and
Japan Investment Banking Groups.
Ms Anne West was formerly Chief Investment
Officer of Cazenove Capital Management and,
until the end of 2012, a Director of the Private
Wealth Management division. During her career
she specialised in Asia and emerging markets, as
well as working as Head of Global Equities. Anne
also sits on the Valuation Committee.
Mr Giles Kerr – Director of Finance of the
University – and Ms Sandra Robertson – Chief
Investment Officer and Chief Executive Officer
of OU Endowment Management – both attend
Investment Committee meetings.
OUem Ltd
The Directors of the company are Sandra
Robertson, Giles Kerr, Professor Andrew Hamilton,
Jeremy Bennett and the Chairman is Richard
Oldfield.
The Company’s Remuneration Committee
members are Richard Oldfield (Chair), Giles Kerr,
Professor Andrew Hamilton, Jeremy Bennett and
Bernard Taylor. Their role is to set and review
the remuneration policies for the senior team.
20
Responsible Investment Policy
OUem manages The Oxford Funds on behalf
of its Partners which include the University
of Oxford, as well as a number of the Oxford
colleges and educational trusts associated with
the collegiate University. We take very seriously
our responsibility to protect and to enhance
the wealth entrusted to us which is intended to
ensure the long-term promotion of education,
learning and research as a legacy for future
generations. The basis from which we operate,
therefore, is a commitment to responsible aims
and professional management of the wealth of
current and future generations within the
collegiate University of Oxford.
OUem is committed to responsible investment
and we undertake in all our activities to pursue
an investment approach that is mindful of social,
environmental and political responsibility.
In order to achieve our aims and fulfil our
mission, the investment policy OUem pursues
must be responsible. The key points to ensure
this include:
1. We are investing for the long term
Since we are not looking for quick returns, but
rather a sustained involvement with investments
that we expect to grow in value over decades, it
is imperative that the investments are responsibly
managed; this is only possible if they are also
responsibly sourced.
2. Rigorous investigation of the investment
managers and the funds they manage prior to
any commitment on our part to invest
OUem commits significant time and resources
to screening and analysing prospective
managers and the corporate strategies of the
funds being considered. This scrutiny includes
comprehensive site visits and a full process of
due diligence so that we have the complete
picture of the management of the funds,
including the fund manager’s attitude towards
responsible investment. We actively monitor
corporate governance that includes, but is not
limited to, how social, environmental and
political responsibilities are managed. It is
crucial that we fully assess each investment’s
appropriateness as part of the portfolio of
high-profile UK education charities; the
integrity of our investment policy is fundamental
to achieving our aims.
3. Active engagement with the conduct of funds
This includes closely monitoring investments
and voting where appropriate, which can give
us the opportunity to influence and make a
21
difference to the management of the funds in
which we invest. We see this high level of
involvement as a key aspect of responsible
investing. We view disinvestment as a last resort
and will strive to maintain engagement, however
we will withdraw from an investment if our
standards are not upheld.
4. Providing transparency
We maintain clear guidelines about our
investment process and corporate governance
structure which are publicly available through
our website. We also provide detailed Annual
Reports for all our stakeholders.
5. Governance and accountability
OUem is accountable to our Investment Committee
and we are regulated by the Financial Conduct
Authority. We also adhere to the principles of
the UK Financial Reporting Council Stewardship
Code. In addition, OUem operates under the
guidelines of the Charity Commission which
include the requirement to follow an appropriate
investment policy for charitable funds.
The Oxford Funds Report 2013
Investing for the long term
Rigorous investigation of investment managers
prior to any commitment to invest
Active engagement with the conduct of funds
Providing transparency
Governance and accountability
23
DESIGNED BY ANNA MACKEE
www.annamackee.com
The Oxford Funds Report 2013
King Charles House
Park End Street
Oxford
OX1 1JD
+44 (0) 1865 614970
www.ouem.co.uk