LICR NewsLink

December 2004

Introducing the LICR Fund

When the Ludwig Institute for Cancer Research was established, Mr. Daniel K. Ludwig endowed it with essentially all of his non-US holdings, which included interests in real estate, mining, shipping, and forestry. LICR is actually comprised of two parts: ‘the Institute’, which performs the scientific and medical research, and ‘the Fund’, which was established to further the charitable and scientific purposes of LICR by receiving, holding and investing funds on behalf of, and remitting funds to, the Institute. Both the Institute and the Fund share the same Board of Directors (see NewsLink June 2004 for more information on the Board).

The Fund commenced investment operations upon the receipt of an initial endowment of USD $500 Million in 1990. Further endowments of USD $24 million and USD $48 million were received in the following two years, respectively. As of October 2004, the Fund’s assets had increased to approximately USD $1.1 billion.

Investing the Fund

The Fund’s investment portfolio is managed by outside professional investment managers who are paid fees based on the market value and performance of the assets they manage. The Fund outperformed most of its peers during the period 2000-2003, ranking in the top quartile of the foundation and endowment universe in terms of return on endowment. Mr. David Fey, the Treasurer of the Fund, and his team (Box 1) oversee the selection and monitor the performance of the asset managers with whom the Fund invests.

The Fund is broadly invested in global equities (50%), global bonds (20%) and alternative investments, consisting of long-short hedge-fund strategies (15%) and market neutral, non-directional strategies (15%). In total, these investments are spread across a matrix of some 45 different investment managers. The disciplined structure of the endowment is calculated to capture the upside in a rising market, but to protect principal in down markets. Historically, most of the Fund’s outperformance has come during periods of deteriorating market conditions. As a result, the Fund has been able to maintain its worldwide purchasing power in any market environment.

“The Fund was placed in the top 25% of the Russell/Mellon Endowment and Foundation Universe Ranking for the three and five years ended September 30, 2004,” says Mr. Fey. “The LICR Fund earned average annual returns of 10.9% and 6.5% for the periods, respectively. In contrast, the Fund’s customized benchmark, which is comprised of a weighted index of two-thirds global equities and one-third global bonds, returned 8.2% and 1.9%, respectively.”

Institute Annual Budget

The Institute’s annual budget is funded 80% by the endowment and 20% by external sources, for example from grants or income from the licensing of intellectual property. The Fund transfers monies to the Institute, according to the directions of the Board of Directors, via the Office of Budget and Finance in the Zürich Office, which manages the accounting and distribution of funds.

According to Ed McDermott, President of the Ludwig Institute for Cancer Research and the LICR Fund, the past several years have been tough on endowment returns and thus on research budgets of organizations around the world. Looking forward he comments, “The markets have recovered from their low point in 2002. However, we do not foresee returns in the intermediate term approximating the double digit levels that were so familiar and comfortable in the late nineties. Consequently, although we expect the Fund to continue to rank with the top of its peers in performance, we anticipate only modest returns from the Fund in the next several years. This presents the Institute with a challenge because the Fund serves two masters. It must meet current operating needs of the Institute while at the same time preserving the purchasing power of the endowment for the next generation of scientists. Given the market and return environment we are forecasting, the portion of the LICR operating budget that is supplied by the Fund will be constrained. This will require us all to assess carefully our priorities and strengths and to pursue vigorously opportunities to augment the Fund’s support for the Institute with additional sources of funding.”