Asset Allocation The Investment Committee has worked with our consultant to position the endowment to weather near-term market volatility and still generate strong long-term returns through prudent asset allocation and astute manager selection. The current portfolio is broadly diversified with a strong orientation toward investments that seek to deliver equity-like returns over the long term and strategies that take advantage of market inefficiencies.

Mount Holyoke College Investment Committee: Governance and ManagementFiduciary responsibility for the endowment’s performance is entrusted to the Investment Committee of the Board of Trustees. The Investment Committee is charged with allocating the College’s investment assets and selecting and monitoring investment managers. The committee, comprising members of the Finance Committee and other alumnae and associates of the College with particular investment expertise, works closely with its investment consultant, Cambridge Associates.

Advisory Committees Fiscal Year 2013

Investment CommitteeBetsy Palmer ’76, ChairBarbara M. Baumann ’77, Vice Chair Barbara Byrne ’76, ex officio Maria Cirino ’85Mary Graham Davis ’65, ex officio Devon George-Eghdami ’81Phoebe McBee ’71Audrey A. McNiff ’80 Robin Chemers Neustein ’75 Lynn Pasquerella ’80, ex officioAndrzej Rojek P’12Carla Skodinski ’72Louise Wasso-Jonikas ’75Richard B. Worley

Financial Officers of the College (as of June 30, 2013)Ben Hammond, Vice President for Finance and Administration and TreasurerJanice Albano, Associate TreasurerEllen Rutan, Comptroller

Mount Holyoke CollegeInvestment Report | June 30, 2013

How the Endowment Supports the Mount Holyoke BudgetFor fiscal year 2013, income distributions from the endowment provided 23% of the $125 million of operating budget revenue. Prudent spending of the endowment affects the fund’s growth just as directly as does its management. Mount Holyoke’s endowment spending rule calls for distributing between 4.5 percent and 5.5 percent of a 12-quarter average market value of the endowment. The 12-quarter average balances the endowment distribution so that the operating budget is less subject to large swings in endowment valuation. The market value for the Mount Holyoke endowment was $640 million as of June 30, 2013.

Gifts to the EndowmentThe endowment is able to grow through two means: performance and gifts. Alumnae gifts to the endowment can cause dramatic increases in the total value of the fund. Since January 2004, alumnae, parents, and friends have committed $163 million in gifts and pledges to the endowment through The Campaign for Mount Holyoke, which concluded on June 30, 2013.

Looking AheadAlthough global economies appear on the mend, as central banks have remained accommodative, the prognosis for the global financial markets is not certain due to elevated valuations and persistent macroeconomic challenges. While political tensions in Washington seem to have abated somewhat recently, U.S. unemployment remains stubbornly high. Other unresolved macroeconomic headwinds that are likely to drive volatility in fiscal year 2014 include the European debt overhang and lack of financial and regulatory reform in the region, as well as a continued slowdown in China. However, market volatility could also be an opportunity for skilled managers to sow the seeds for future profitable investments. Mount Holyoke has benefited significantly in the past from diversifying the portfolio and by selecting talented money managers who have successfully navigated in challenging environments, and we expect to continue to do so in the future.

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Emerging Markets EquityInternational Developed Markets EquityU.S. Equity

Finance CommitteeBarbara Byrne ’76, Chair Barbara M. Baumann ’77Sarah Coulson ’75Mary Graham Davis ’65 Heather Harde ’91Mindy Lewis ’75, P’05Guy Martin P’05Betsy Palmer ’76Lynn Pasquerella ’80, ex officioPeggy Wolff ’76

Mount Holyoke is pleased to provide you with this report on endowment investments for the fiscal year ended June 30, 2013. The Investment Committee oversees the College’s investment portfolio, striving for long-term growth while dampening volatility and providing vital support for the operating budget.

PerformanceFiscal year 2013 was a strong year in which the externally managed endowment investment pool rose 11.5%, ending the year valued at $640 million. Over the last ten years, the endowment has compounded an 8.8% return per year, placing it in the top 13th percentile of more than 370 endowments in the Cambridge Associates universe. Over ten years, it has also outpaced its own custom benchmark by 80 basis points per year, delivering stronger performance with lower risk as measured by standard deviation. Continuing the theme from previous years, the endowment managed to post these strong returns.

The table below shows annualized returns for Mount Holyoke’s externally managed endowment over the past one, three, five, ten, and twenty years as of June 30, 2013.

U.S. and non-U.S. developed equity portfolios had an impressive year in both nominal and relative terms. The U.S. stock market rallied due to improving consumer confidence, employment, and a rebounding housing market. Other major foreign markets also performed well, driven by the perception that the bottom has been reached in both Japan and Europe. Emerging markets fell behind with the index up only 3.2%, and with some major markets such as Brazil and India posting negative returns. Despite the lagging returns in the last couple of years, emerging market exposure remains one of the growth engines for the portfolio, with the potential to deliver strong returns over the long term for investors who are able to withstand short-term volatility.

While the U.S. equity market rose 20.6% for the fiscal year, the endowment’s U.S. equity managers outpaced this by 2.7%. The non-U.S. developed markets portfolio rose 26.8%, beating its benchmark by 8.2%. The emerging markets equity managers surpassed their benchmark return by 6.0%, posting a 9.3% return for the fiscal year. Global equity managers in aggregate underperformed their benchmark by 3.4%, though long-term returns versus the benchmark have been strong. The hedge fund portfolio was up 17.3%, surpassing the hedge fund index by 10%. The inflation-hedging portfolio failed to match its benchmark return of inflation +5% mostly due to its exposure to gold-related equities. While the U.S. bond index declined by -0.7%, the bond portfolios bested it by 0.5%.

Growth of the Mount Holyoke Endowment

Period Mount HolyokeCambridge Associates

Endowment Median80/20 Stock/Bond

Portfolio1 Inflation2

1 Year 11.5% 11.3% 13.5% 1.8%

3 Year 10.3% 9.7% 11.3% 2.3%

5 Year 3.2% 3.7% 3.7% 1.3%

10 Year 8.8% 7.4% 7.7% 2.4%

20 Year 9.3% 8.6% 7.0% 2.4%

1. 80/20 Stock/Bond Portfolio represents 80% MSCI All Country World Index and 20% Barclays Aggregate Bond Index.2. Inflation represents Consumer Price Index–All Urban Consumers.

Asset ClassAllocation 6/30/2012

Allocation 6/30/2013

FY13 Portfolio Return

Fiscal 2013 Asset Class Commentary

U.S. Equity 8.2 8.7 23.3 S&P 500 saw a steady increase over the past 12 months, returning 20.6% for the fiscal year and eclipsing its previous nominal peak in 2007. The active managers in Mount Holyoke's U.S. Equity portfolio returned 23.3% for the fiscal year, out-performing the S&P 500 Index by 2.7%.

International Developed Markets Equity

4.8 5.5 26.8 Developed markets equities reversed the losses of fiscal year 2012 with significant gains in fiscal year 2013 as the MSCI EAFE Index returned 18.6%. Mount Holyoke's International Developed Markets Equity portfolio returned 26.8%, outper-forming the MSCI EAFE Index by 8.2%.

Emerging Markets Equity

5.9 6.8 9.3 Emerging markets equities performed strongly in the first half of the fiscal year, but have sustained losses since the start of 2013, particularly in May and June. Mount Holyoke's Emerging Markets Equity portfolio added significant value, outper-forming the MSCI EM index by 6%.

Global Mandate Managers

11.4 11.2 15.8 The three managers in the portfolio with uncon-strained global mandates posted a strong return of 15.8% but underperformed the MSCI World Index by 3.4% as global equity markets rallied.

Marketable Alternatives

23.9 25.2 17.6 Mount Holyoke's Marketable Alternatives portfo-lio returned 17.6% for the fiscal year, outperform-ing the HFRI Fund of Funds Diversified Index by 10.4%. Given the modestly low beta of the Mar-ketable Alternatives allocation, this performance represents very strong risk-adjusted returns. Managers in most strategies had strong perfor-mance—most notably in long/short equity. After a difficult 2011, many equity long/short funds rebounded in 2012 and the first half of 2013. The distressed investing environment remains benign, as the high-yield markets have continued their frenzied pace of new issuance. However, managers investing primarily in credit have been able to take advantage of select opportunities in structured credit, liquidations, and equity-related investments. Overall, managers have generally increased their cash balances, even going so far as to return cash to investors in some instances, as they wait for more attractive opportunities to present themselves.

Liquid Inflation Hedging

5.8 4.1 -21.2 The MSCI World Natural Resources Equity Index returned 3.1% for the fiscal year. Energy equities returned 9.6%, and mining shares -20.3%. The portfolio was hurt by the bias toward mining companies as well as by exposure to TIPS.

Private Investments

29.0 26.1 10.1 Includes private equity, venture capital, and other illiquid investments. For the fiscal year, distributions for private investments exceeded capital calls by $19.2 million.

Fixed Income and Cash

11.1 12.4 -0.2 The Barclays Aggregate Bond Index returned -0.7% as fears of Fed tapering negatively affected the performance of most fixed income managers. Mount Holyoke's Fixed Income portfolio outper-formed the Barclays Aggregate Bond Index by 0.5%.

Investment Performance

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004

11.5% -0.2% 20.6% 11.2% -21.5% 8.0% 21.1% 15.1% 15.6% 14.2%

Longer-Term PerformanceOver the past 27 years, the value of Mount Holyoke’s endowment has grown from $130 million to $640 million. This growth can be attributed to strong returns from the portfolio coupled with gifts to the endowment.

Annual Investment Returns: Fiscal Year 2004–Fiscal Year 2013

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