Download June 6, 2014

June 6, 2014
MEMORANDUM
TO:
The Finance Committee:
Victoria D. Harker, Chair
John A. Griffin, Vice Chair
Frank B. Atkinson
Marvin W. Gilliam Jr.
Stephen P. Long, M.D.
Edward D. Miller, M.D.
Timothy B. Robertson
Linwood H. Rose
George Keith Martin, Ex Officio
Daniel M. Meyers, Consulting Member
Martin N. Davidson, Faculty Consulting Member
and
The Remaining Members of the Board and Senior Advisor:
Hunter E. Craig
Allison Cryor DiNardo
Helen E. Dragas
Kevin J. Fay
Frank E. Genovese
William H. Goodwin Jr.
Bobbie G. Kilberg
John L. Nau III
Blake E. Blaze
Leonard W. Sandridge Jr.
FROM:
Susan G. Harris
SUBJECT:
Minutes of the Finance Committee Meeting on June 6, 2014
The Finance Committee of the Board of Visitors of the University
of Virginia met, in Open Session, at 11:00 a.m. on Friday, June 6,
2014, in the Auditorium of the Albert & Shirley Small Special
Collections Library of the Harrison Institute; Victoria D. Harker,
Chair, presided.
Present were Frank B. Atkinson, Marvin W. Gilliam Jr., William H.
Goodwin Jr., Kevin J. Fay, John A. Griffin, Stephen P. Long, M.D.,
Edward D. Miller, M.D., John L. Nau III, Timothy B. Robertson, Linwood
H. Rose, George Keith Martin, Blake E. Blaze, Margaret N. Gould, and
Leonard W. Sandridge Jr.
Finance Committee
June 6, 2014
2.
Also present was Daniel Maxwell Meyers, the Consulting Member
from the Council of Foundations.
Present as well were Teresa A. Sullivan, Patrick D. Hogan,
Richard P. Shannon, M.D., John D. Simon, Paul J. Forch, Susan G.
Harris, J. Milton Adams, Melody S. Bianchetto, David J. Boling, Penny
Q. Cabaniss, Susan A. Carkeek, Larry J. Fitzgerald, Mark C. Hampton,
Donna Price Henry, Lawrence E. Kochard, Richard A. Kovatch, Megan K.
Lowe, David W. Martel, Marcus L. Martin, M.D., James S. Matteo, Nancy
A. Rivers, Colette Sheehy, Thomas C. Skalak, and Debra D. Rinker.
_ _ _ _ _ _ _ _ _ _
Action Item: Adoption of Vesting Schedule for the Academic Division
Optional Retirement Plan
Mr. Hogan said the University provides academic faculty and
executive staff, and managerial and professional staff a choice of
either the defined benefit plan (VRS) sponsored by the Commonwealth or
the defined contribution plan (ORP) sponsored by the University. The
University also manages a separate defined contribution plan for
employees of the University of Virginia Medical Center.
Currently, there is no vesting requirement in the ORP. VRS
includes a vesting requirement as does the University’s Medical Center
retirement plan. Legislation allowing higher education institutions
to adopt vesting schedules in defined contribution retirement plans
(ORP) was proposed by U.Va., passed both House and Senate, and was
approved by the Governor on April 7, 2014. Consistent with the
Medical Center retirement plan and with the growing trend among other
higher education institutions, the Finance Committee approved, and
recommended that the Board approve amending the U.Va. Optional
Retirement Plan to include a two year “cliff” vesting for employees
hired on or after July 1, 2014.
On motion, the committee approved the following resolution:
AMENDMENT TO THE DEFINED CONTRIBUTION PLANS
WHEREAS, the Optional Retirement Plan for Employees of the
University of Virginia (the “Plan”) was established effective July 1,
1989, and amended and restated effective January 1, 2010; and
WHEREAS, the University of Virginia intends to implement a
vesting schedule as provided by legislative authority (in Virginia
Code Section 51.1-126); and
WHEREAS, the Plan must be formally amended to provide for vesting
and forfeiture; and
WHEREAS, Section 7.1 of the Plan permits the University, through
affirmative action of the Board or its designee, to amend the Plan;
Finance Committee
June 6, 2014
3.
RESOLVED, in accordance with the foregoing, Section 4 of the Plan
is hereby amended as follows effective July 1, 2014:
1.
(a) A Participant hired prior to July 1, 2014 shall be 100%
vested in the portion of his or her Accumulation Account
attributable to Employer contributions made pursuant to
Section 3.1 starting from the date he/she commences
participation in the plan.
(b) A Participant hired on or after July 1, 2014 shall be 0%
vested in the portion of his or her Accumulation Account attributable
to Employer contributions made pursuant to Section 3.1 starting from
the date he or she commences participation in the Plan and shall
become 100% vested after completing two continuous years of
participation.
Delayed vesting under subsection 1(b) is not applicable when:
i. The Participant has less than two years of
participation in the Plan due to death or involuntary separation from
employment for a cause other than job performance or misconduct, as
determined by the University in its sole discretion; or
ii. A Participant transferred to U.Va. from another
state agency without a break in service and was enrolled in an
Optional Retirement Plan(ORP) prior to July 1, 2003, and maintained
continuous ORP enrollment.
(c) For purposes of this section, the two-year vesting period
shall be the continuous 24-month period that begins with the
Participant’s commencement of participation in the Plan.
(d) Any portion of a Participant’s Accumulation Account in
which he or she is not vested upon such Participant’s termination of
employment (a “forfeiture”) shall be used as follows:
i. Any forfeiture shall first be used to pay for Plan
expenses and then used to reduce the Employer’s contributions under
Section 3.1 for the Plan Year in which the forfeiture occurs. Any
remaining forfeitures shall be held unallocated in a suspense account
and used to reduce Employer’s contributions under Section 3.1 in the
following Plan Year.
_ _ _ _ _ _ _ _ _ _
Action Item:
Renovation
Capital Project Approval:
McCormick Road Residence Hall
The Finance Committee deferred action on the capital project
approval of the McCormick Road Residence Hall Renovation and will
consider it at the September meeting, as the Buildings & Grounds
Committee reviews potential alternatives, including demolition and
rebuild, together with the advantages and disadvantages of each.
_ _ _ _ _ _ _ _ _ _
Finance Committee
June 6, 2014
4.
Mr. Hogan introduced two walk-on resolutions that were approved
by the Medical Center Operating Board on June 5. Both George Keith
Martin and Frank B. Atkinson abstained from voting on both of these
resolutions due to a conflict of interest.
Walk-on Item: Approval for the Medical Center to Become the Sole
Member of Culpeper Regional Hospital
The Medical Center Operating Board (MCOB) approved the U.Va.
Medical Center becoming the sole owner of the Culpeper Regional
Hospital, and recommended it to the Finance Committee for approval.
The U.Va. Medical Center has had a 49% membership interest in the
Culpeper Regional Hospital since 2009. The Finance Committee and the
MCOB believe it is in the best interest of the U.Va. Medical Center to
become the sole member of the Culpeper Regional Hospital.
On motion, the committee approved the following resolution:
APPROVAL FOR THE MEDICAL CENTER TO BECOME THE SOLE MEMBER OF CULPEPER
REGIONAL HOSPITAL
WHEREAS, the University of Virginia Medical Center has a 49%
membership interest in Culpeper Memorial Hospital, Incorporated, d/b/a
Culpeper Regional Hospital (“Culpeper Regional Hospital”); and
WHEREAS, the Medical Center Operating Board and the Finance
Committee find it to be in the best interests of the University of
Virginia and its Medical Center for the Medical Center to become the
sole member of Culpeper Regional Hospital;
RESOLVED the University, on behalf of the Medical Center, is
authorized to become the sole member of Culpeper Regional Hospital;
and
RESOLVED FURTHER the Executive Vice President for Health Affairs
of the University, with the concurrence of the Chair of the Medical
Center Operating Board and the Chair of the Finance Committee, is
authorized to negotiate the terms of such transaction, including
execution of contracts and all other documents necessary for the
closing of the transaction, on such terms as the Executive Vice
President for Health Affairs deems appropriate, and to take such other
action as the Executive Vice President for Health Affairs deems
necessary and appropriate to consummate the foregoing.
_ _ _ _ _ _ _ _ _ _
Walk-on Item:
Joint Venture
Medical Center Participation in a Management Company
Mr. Hogan said the Board of Visitors approved a joint venture
with Centra in November 2013. The U.Va. Medical Center and Centra
have agreed to jointly own a management company that will manage a new
dialysis center in Farmville. This management company will be the
legal vehicle for future business ventures with Centra Health. The
Finance Committee
June 6, 2014
5.
MCOB and Finance Committee recommended the Full Board approve
establishing a management company, being formed as a LLC.
On motion, the committee approved the following resolution:
APPROVAL OF MEDICAL CENTER PARTICIPATION IN A MANAGEMENT COMPANY JOINT
VENTURE
WHEREAS, the Medical Center Operating Board and the Finance
Committee find it to be in the best interests of the University of
Virginia and its Medical Center for the Medical Center to establish
and participate in a joint venture with Centra Health, Inc. or an
affiliate for the management of joint health care activities in the
Centra service areas; and
WHEREAS, Section 23-77.3 of the Code of Virginia grants authority
to the Medical Center to enter into joint ventures;
RESOLVED, the University, on behalf of the Medical Center, is
authorized to enter into a joint venture with Centra Health, Inc. or
an affiliate for the management of joint health care activities in the
Centra service areas, with the Medical Center’s ownership interest
expected to be 50% or greater; and
RESOLVED FURTHER, the Executive Vice President for Health
Affairs, with the approval of the Co-Chairs of the Medical Center
Operating Board and the Chair of the Finance Committee, is authorized
to negotiate the terms of such joint venture, including the execution
of an operating agreement, contracts, and all other documents
necessary for the creation and effectuation of the joint venture, on
such terms as the Executive Vice President for Health Affairs deems
appropriate, and to take such other action as the Executive Vice
President for Health Affairs deems necessary and appropriate to
consummate the foregoing.
_ _ _ _ _ _ _ _ _ _
Executive Vice President and Chief Operating Officer Remarks:
Mr. Hogan brought to the attention of the committee members the
written report from the Retirement Administrative Committee meeting on
the Defined Contribution Retirement Plan (see Attachment A), the
quarterly University of Virginia Investment Management Company report
(see Attachment B), and the miscellaneous financial reports provided
in their committee booklets. These reports can also be found attached
to these minutes.
_ _ _ _ _ _ _ _ _ _
The Chair adjourned the Finance Committee meeting at 11:13 a.m.
SGH:dr
These minutes have been posted to the University of Virginia’s Board of
Visitors website: http://www.virginia.edu/bov/financeminutes.html
WRITTEN REPORTS
Finance Committee
University of Virginia
June 6, 2014
ATTACHMENT A
Minutes
University of Virginia
Board of Visitors Finance Committee Appointee on Retirement
Administrative Committee
May 19, 2014
11:00 a.m.
Madison Hall President’s Conference Room
Board of Visitors Finance Committee Appointees (by phone):
Victoria Harker and John Griffin
Also in attendance: Pat Hogan, Executive Vice President and
Chief Operating Officer; Susan Carkeek, Vice President and Chief
Human Resource Officer; Barry Schmitt, CAPTRUST Financial
Advisors (by phone); Anne Broccoli, Director of Benefits (by
phone); Megan Lowe, Assistant Vice President and Chief of Staff
to the Executive Vice President and Chief Operating Officer; Jim
Matteo, Associate Vice President and Treasurer and Chair of the
Retirement Administrative Committee; Kristina Alimard, CFA,
Chief Operating Officer/Compliance Officer, UVIMCO and
Retirement Administrative Committee member
There were seven agenda items for this meeting: background of
Retirement Administrative Committee, the annual review of fund
performance, goals of the committee, excess revenue credits,
enhanced communication and education opportunities, adoption of
vesting amendments, and future initiatives being implemented.
1. Background of Retirement Administrative Committee: The
meeting began with a brief review of the governance
structure and responsibilities of the Board of Visitors
Finance Committee appointments and the Retirement
Administrative Committee (RAC). The BOV is the ultimate
fiduciary for the University’s defined contribution
retirement plans. These plans are referred to as the
“Optional Retirement Plans” by the Commonwealth of Virginia
as they represent an option to the state’s defined benefit
plan (the Virginia Retirement System or VRS). The BOV
delegates to the Finance Committee, which has carried out
its oversight responsibility through its Chair and one
additional Finance Committee member. The Chair and
appointee meet at least annually with the RAC to review
investment performance and other relevant issues. The
Chair then reports back to the full Finance Committee and
Board, typically through a written report provided at the
spring meeting.
Page 1 of 4
2. December 31st, 2013 Annual Performance Review: Barry
Schmitt, of CAPTRUST, serves as financial advisor to the
RAC. He provided an overview of the annual report on fund
performance, reminding the appointees that the RAC meets
quarterly with CAPTRUST to monitor fund performance. The
details of his report are provided in attachment A.
3. Goals of the Retirement Administrative Committee: Under
the leadership of the RAC chair, Jim Matteo, short-term,
intermediate, and long-term goals have been established for
the committee. Accomplishments against short-term goals
include appointment of a faculty representative on the RAC;
implementation of Roth 403(b), and introduction of a
vesting schedule on the Academic Division plan. For
intermediate and longer term goals, the committee is
consolidating fund line-ups and pursuing other improvements
to enhance administrative operations. The committee has
been engaged this past year in managing the excess revenue
credits, creating new communication/outreach programs, and
simplifying fund line-ups as will be discussed in
subsequent agenda items.
4. Cost Savings/Revenue Credits: With the assistance of
CAPTRUST, the RAC was able to achieve cost savings by
negotiating lower share class rates. For Fidelity, the
rates were reduced from .15% to .11%; and for TIAA-CREF,
from .17% to .15%. These “excess revenue credits” are
estimated to save approximately $700,000 per year. The
savings will be used to pay plan-related expenses and to
expand communication/outreach offerings (more on that
follows), with any remaining savings to be credited back to
participant accounts.
5. Communication, Education, and Advice Opportunities: Some
of the cost savings, will be used to enhance education and
outreach programs to help faculty and staff achieve better
financial outcomes with their retirement accounts.
Underway is the design of a comprehensive retirement
planning curriculum beginning with general education and
awareness programs to more advanced resources and services.
The plan is to incorporate “financial wellness” into the
University’s current wellness program offerings.
6. Optional Retirement Plan Vesting Amendments: Legislation
sponsored by U.Va. was passed by the General Assembly and
signed by the Governor allowing higher education
Page 2 of 4
institutions in Virginia to adopt vesting schedules in
their ORPs. The language in the legislation is permissive,
providing that institutions of higher education in the
Commonwealth “may” establish a vesting schedule in their
respective ORPs. The legislation is also permissive in the
type and length of the vesting requirement.
i.
"Vesting" refers to the employee’s ownership of the
employer contributions to the retirement plan.
Employees are always 100% vested in money they
contribute directly to their own retirement plan. There
are two types of vesting schedules - cliff vesting where
100% ownership transfers to the employee upon reaching
the established eligibility date and graded vesting
where the employee gradually increases ownership of
employer-contributed funds over time.
ii.
An action item is planned for the Finance Committee
consideration at the June 2014 meeting recommending the
ORP be amended to include a two-year cliff vesting
schedule for employees hired on or after July 1, 2014.
Forfeitures received from the return of non-vested funds
will be used to offset plan expenses and employer
contributions. It was noted that U.Va. is not the first
higher education institution to consider such a change.
In the region, similar schedules are already in place at
Duke and University of Kentucky. This would also be
consistent with the vesting schedule that is in place
for the U.Va. Medical Center.
7. Initiatives in Implementation (a) Closing/Mapping Funds and
(b) Introduction of a Brokerage Window: When a fund falls
below standards for approval, the RAC closes that fund for
future contributions and notifies employees to move their
individual assets. While it is common practice in the
private sector for the employer to map (or move) existing
assets in non-approved funds to an approved funds, it is
only a recent trend in higher education retirement plans
(using ERISA standards) to do so. As a result, U.Va. has
77 funds (approximately 10% of plan assets) holding
employee assets that are not being monitored. With
assistance from CAPTRUST, the RAC will be phasing-in a
closing and mapping strategy to pare down this fund
structure. We will begin by mapping assets in 33 funds
with assets of less than $100,000 invested in each. Based
on feedback received from this process, additional fund
assets will be mapped over the course of the year.
Page 3 of 4
i.
At the same time, U.Va. plans to offer a brokerage
window to allow faculty and staff access to a wide range
of investment options with no annual maintenance fee.
The combination of the strategies described above is
intended to simplify the fund line-up for the majority
of faculty and staff and at the same time providing
expanded choice for those sophisticated investors who
are seeking specific asset classes as part of their
individual overall financial strategy. This aligns with
the committee’s overall objective of providing a
comprehensive retirement program that attempts to
balance simplicity and choice in meeting the wide
ranging needs of our faculty and staff.
The meeting was adjourned at 11:45 a.m.
Page 4 of 4
ATTACHMENT B
University of Virginia Investment Management Company Report
on the Long-Term Pool Market Value and Performance as of
March 31, 2014
Quarter-End March 2014
SUMMARY: The following commentary provides an update on the current
market environment as well as the asset allocation, performance
(unaudited), risk management, and liquidity position of UVIMCO’s Long
Term Pool as of and for periods ending March 31, 2014. The Long Term
Pool recorded a gain of 1.8% this calendar quarter, nearly matching
the 1.9% increase in our policy benchmark over the same time period.
The fiscal year-to-date return on the Long Term Pool is 10.4% versus
the fiscal year-to-date policy portfolio return of 11.6%, with most of
our private investments marked at December 31 values. While we report
and comment upon short-term performance, we encourage all of our
investors to focus most on longer-term performance. Over the twentyyear period ending March 31, 2014, the Pool’s annualized return was
12.2%, exceeding the policy benchmark return by 470 bps.
Each spring, we estimate the future long-term return of the Long
Term Pool by adding the nominal expected return of our policy
portfolio together with expected alpha from manager performance and
portfolio tilts. This year, the long-term (10 year) return forecast
for the Long Term Pool remains unchanged from last year’s estimate of
7.5%. As always, we expect this forecast of long-term average returns
will have little relationship to the actual market direction of the
upcoming fiscal year. That said, we believe that valuation-based
estimates of long-term expected returns are an important contributor
to the construction of a strategic asset allocation for a long-term
institutional portfolio.
We make a few observations about the 7.5% estimate for long-term
expected returns. First, assuming a 5.0% spending rate and a 2.5%
rate of inflation, the 7.5% expected return allows us to preserve the
real spending power of the endowment, but we project no real growth in
the Long Term Pool over the next 10 years. A second observation is
that active management will continue to be needed in order for the
Long Term Pool to keep pace with inflation over the next decade, and
increased competition could hamper UVIMCO’s ability to deliver the
same level of alpha as we have in the past. We certainly have a team
and portfolio capable of producing excellent results, but declining
alpha represents a big risk to our efforts falling short of a 7.5%
long-term return. Finally, although our analysis underlying the 7.5%
estimate is sound, there is much uncertainty surrounding the inputs
and this final figure. Actual returns will deviate from the estimate
in both the short and long term.
MARKET ENVIRONMENT: After a strong year in 2013, the first three
months of 2014 proved to be a challenging environment for U.S. equity
markets. Domestic markets sold off in January, rebounded in February,
Page 1 of 15
and experienced a sell-off in parts of the markets again in March.
The Dow Jones Index finished the first quarter of 2014 down 0.2%,
while the Russell 2000 Index finished up 1.1% and the S&P 500 Index
was up 1.8%. The Barclays U.S. Aggregate Bond Index ended up 1.8% for
the quarter.
Global investors continue to express concern about the potential
slowdown of GDP growth in China and other emerging markets. Emerging
market equities and currencies sold off in the first quarter of 2014,
and the MSCI Emerging Market Index ended down 0.4% for the quarter.
China had its first ever bond defaults at the end of March, with a
solar energy company and a manufacturer of construction materials both
defaulting on their obligations to investors. Although these defaults
were small, they highlight the increased liquidity pressure on Chinese
companies from the expected slowdown in growth, and negate the
assumption that all Chinese debt has an implicit government guarantee.
Investors also focused on Russia’s move into Crimea. On March
16th, Crimea yielded a referendum to leave Ukraine and become part of
Russia, sparking tension from Western countries that do not formally
recognize this move. As this situation continues to play out,
investors worry about the systematic risks to public markets.
In the U.S., Federal Reserve Chair Janet Yellen replaced Ben
Bernanke and began to reinforce the policies of her predecessor.
However, at her first post-FOMC news conference in March, the new
Chair made it clear that the current Fed Funds rate would probably
increase in mid-2015, an earlier date than market participants had
been expecting. Since then, she has tried to back off from this
statement. Meanwhile, President Obama signed legislation that extends
the federal debt ceiling through March 2015, buying another year
before having to face potential political backlash from related
negotiations.
During the first quarter of 2014, domestic equity markets
experienced the beginning of what may be a marked rotation from
expensive growth stocks to value stocks. Sectors with relatively
cheap price to estimated earnings measures including telecom,
financials and energy performed the best while biotech and consumer
discretionary stocks performed the worst. Although the exact stimulus
for the start of the rotation is unclear, extreme earnings are likely
a piece of the story. Research done by Leuthold Group showed that
Internet retail stocks had gained an average of 88.9% over the year
ending March 18, and biotech stocks were up 65.7%. Also, at that
point in time, Internet retailers traded at an average of 158 times
trailing 12-month earnings and biotech companies traded at 44 times
their earnings, compared to 21 times earnings for the broader market.
While we do not know if this rotation from expensive growth to value
stocks will continue, these sectors will be followed closely by our
managers and other market participants.
Page 2 of 15
Asset Allocation
UVIMCO’s policy portfolio continues to be an allocation of 60%
global public equity, 10% global public real estate, and 30% global
investment grade fixed income. This portfolio is designed to provide
long-term growth from equities, an inflation hedge from real assets,
and deflation hedge from fixed income.
The Long Term Pool’s actual allocation as of March 31, 2014 is
66.1% to equity managers, 12.4% to real asset managers, and 21.5% to
fixed income (including marketable alternatives, credit, and cash).
Looking through to our managers’ underlying investments, the Long Term
Pool has a 58.1% allocation to equities, 13.8% allocation to real
assets, and 28.1% allocation to fixed income (including credit) and
cash as of March 31, 2014. The market risk of the Long Term Pool
continues to be consistent with the risk of the policy portfolio
benchmark.
PERFORMANCE: The Long Term Pool returned 1.8% in the quarter ending
March 31, 2014 versus the policy benchmark gain of 1.9%. Fiscal yearto-date, the Long Term Pool has returned 10.4% versus 11.6% earned by
the policy benchmark. As expected, Pool performance has lagged the
benchmark over the past nine months in the face of rapidly rising
equity markets.
EQUITIES:
Public Equity
The public equity portfolio returned 0.8% during the quarter
ended March 31, 2014 versus 1.2% earned by the MSCI All Country World
Index (MSCI ACWI). Fiscal year-to-date, the Long Term Pool’s public
equities gained 16.0%, trailing the 17.4% return posted by the MSCI
ACWI.
Two notable trends underpinned a relatively muted return
environment for equities in the first quarter of 2014. First, while
emerging market equities generally continued to underperform developed
markets, performance was quite differentiated across the emerging
countries. India, Indonesia, and Brazil posted positive U.S. dollar
returns while Chinese and Russian markets fell, with Russian public
equities losing 15% due to unrest in the Ukraine. Against this
backdrop, UVIMCO’s emerging markets managers performed well,
particularly those focused on India and Brazil. The second trend was
the rotation described above, where the prices of many higher growth
consumer, technology, and biotech companies that led rising markets
during the past several years declined by double digit percentages in
the first quarter of 2014. Our public equity portfolio has long been
tilted towards higher quality, consumer-facing stocks including both
mature consumer staples companies and faster-growing ecommerce
retailers. This latter group was hit particularly hard during the
growth sell-off in March.
Page 3 of 15
While these short-term trends are newsworthy, our focus remains
on the long-term. The annualized return of the Long Term Pool’s
public equity portfolio outpaced the MSCI ACWI by 700 bps over five
years and by 540 bps over ten years, primarily driven by exceptional
stock selection and portfolio management by our managers. Of note,
our managers’ outperformance came on top of exceptionally strong
market performance over the past five years, with the MSCI ACWI up
18.4% and the S&P 500 up 21.1% per year since the market bottom in
March 2009. While we do not expect this level of outperformance to
continue unabated, we remain focused on maintaining long-term
partnerships with outstanding fundamental public equity managers.
However, given the continued appreciation in public markets, we have
begun to opportunistically reduce our public equity exposure and will
continue to do so as appropriate.
Long/Short Equity
The long/short equity portfolio declined 1.4% in the first
calendar quarter, compared to a 1.6% gain in the Dow Jones Credit
Suisse Long/Short Equity Index. Fiscal year-to-date, the portfolio
returned 7.7% versus 11.8% for the long/short index. The
aforementioned sharp decrease in consumer and technology growth equity
prices and commensurate outperformance of value stocks proved to be a
particularly difficult environment for our long/short managers.
Managers with a deeper value focus generally performed well in the
first quarter of 2014, but our overall long/short equity portfolio
lagged both the hedge fund index and broader global equity markets in
the period.
Longer-term results from the Long Term Pool’s long/short equity
managers continue to outpace the long/short index, with our managers
returning 10.1% and 9.3% over five and ten years, respectively, versus
gains of 9.3% and 6.8% for the index. Our long/short portfolio has
less market risk than the public and private equity portfolios, and
provides downside protection to the endowment in periods of market
distress. Therefore, we expect the long/short strategy to continue to
play an important role in the broader Long Term Pool. That said, the
outsized impact of the growth stock sell-off in March emphasizes the
importance of understanding the depth of our managers’ unique
fundamental research as well as the role of leverage in their returns.
We continue to evaluate these and other factors with both existing and
prospective relationships.
Private Equity
The quarterly return for the Long Term Pool’s private equity
portfolio was 6.2% while its benchmark, the MSCI ACWI, returned 1.2%.
Fiscal year-to-date, the portfolio increased by 15.1% versus a 17.4%
increase in the index. Separately, the buyout portfolio returned 5.0%
for the quarter ending March 31, 2014 and 8.8% for the first three
quarters of the fiscal year, while the venture portfolio returned
10.1% for the quarter and 39.3% fiscal-year-to-date. Over the last
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decade, the private equity portfolio performance has outpaced its
benchmark by a wide margin by generating a 12.4% annualized return for
the ten years ending March 31, 2014 versus the MSCI ACWI return of
7.5%. Separately, the buyout portfolio returned 13.1% and the venture
portfolio returned 10.7% for the past decade, both comfortably ahead
of the public markets.
On the M&A front, private equity firms invested $152.5 billion in
850 transactions during the first quarter of 2014, as reported by
Pitchbook. This level of activity is well above the $137 billion
invested in 956 transactions in the first quarter of 2013. Thomson
Reuters reported preliminary data on $710 billion in global M&A, up
54% compared to year to date 2013. However, eliminating the Time
Warner Cable deal causes the increase to fall to 35%. In addition, we
note that the number of deals is actually down 14% from 2013 and
represents the lowest level of deal making since 2003 despite
relatively easy credit, robust stock markets and large stockpiles of
cash in both private equity funds and on corporate balance sheets.
The venture capital industry is enjoying some of its best returns
in years and the big story is the red-hot IPO market. The first
quarter of 2014 represented one of the strongest environments in
recent memory for companies backed by venture capital firms, exceeded
only by times when large IPOs like Twitter and Facebook went public.
Seventy-two companies went public on U.S. stock exchanges during the
first quarter of 2014, representing the largest number of first
quarter IPO offerings since 2000. Of the 72 IPOs, 24 were life
sciences companies, which is not surprising given the run-up in biotech and health care stocks in 2013. In addition, the expected IPO of
Alibaba, a Chinese e-commerce company, garnered as much or even more
attention than any IPO that actually took place during the quarter.
Some analysts believe that the listing of Alibaba could be the
biggest-ever listing by a technology firm.
Does the wave of IPOs thus far in 2014 signal a bubble? While
the increase in IPO activity may reflect an elevated interest in
stocks and perhaps a frothy market, the seasoning of most firms coming
to market today is much higher than the IPOs of the late 1990s bubble
period. According to Renaissance Capital, the average age of a
company going public in 2014 is approximately 13 years, compared to an
average age of just over 5.5 years for companies that went public
between 1997 and 2001. In addition, while there are exceptions,
today’s IPO companies tend to be large and hold competitive positions
in their respective markets. A return to IPOs that are long on
concept but short on revenue and profits would be more of a “bubble”
signal.
The Long Term Pool’s private equity portfolio had cash
distributions of $43 million for the quarter and $48 million in
capital calls. Distributions for the fiscal year-to-date totaled $150
million, while capital calls were $93 million, resulting in net a cash
flow of $57 million.
Page 5 of 15
REAL ASSETS:
Real Estate
UVIMCO’s real estate portfolio returned 7.4% in the first quarter
of 2014, comparing favorably to the 5.1% return earned over the same
period by the weighted policy benchmark of publicly traded U.S and
international real estate securities. The real estate portfolio also
generated strong returns over the last nine months, up 12.4% versus
the policy benchmark of 3.9%. As we have noted many times in prior
commentaries, the public real estate benchmark is significantly
different from UVIMCO’s real estate portfolio in that the benchmark is
largely comprised of domestic and international real estate securities
and retail assets.
U.S. REITs performed well in the first quarter of 2014,
generating a 10.0% return and regaining all the losses suffered in the
fourth quarter of 2013 that had been driven by concerns over
additional interest rate increases. U.S. REITs traded at an 8%
discount to NAV at the beginning of 2014 (according to SNL
Securities), but ended the first quarter at only a 3% discount to NAV.
One of the key statistics in tracking the rebound in real estate
markets is the percentage of lost jobs during the recession that have
since been regained. Nationwide, this statistic currently stands at
approximately 92% but varies widely across metropolitan markets. Hot
markets such as Minneapolis, Austin, Washington, D.C., Ft. Lauderdale,
Seattle, and Durham have more than made up the lost jobs and have in
many cases created multiples of the jobs lost during the recession
(Austin has regained 454%). In contrast, weak cities such as Atlanta,
Cleveland, Philadelphia, Miami, Chicago, and Detroit have regained as
little as 33% of lost jobs.
During the first quarter, our real estate managers called $7
million of capital and distributed $14 million, resulting in a net
inflow to UVIMCO of $7 million. This marks the third quarter in a row
of net inflows from real estate, with fiscal-year-to-date total net
inflows totaling $30 million. Our real estate managers have been
taking advantage of attractive private capital markets and realizing
the latent value in their portfolios.
Resources
The resources portfolio returned 0.2% for the first quarter of
2014, underperforming the 5.1% return of the weighted policy benchmark
of publicly traded U.S. and international real estate securities. As
we have discussed in the past, the short-term performance of our
resources portfolio is not expected to mirror the benchmark in any
meaningful way. The Goldman Sachs Commodity Index, a broad-based
index of commodities, returned 2.9% in the first quarter and the S&P
North American Natural Resources Equity Index returned 2.7% over the
same time period. The SPDR S&P Oil and Gas Exploration and Production
ETF returned 5.0% in the first quarter of 2014, reflecting a strong
Page 6 of 15
IPO environment for exploration and production companies with oil or
natural gas assets in high returning basins. While it is typical for
UVIMCO’s resources portfolio to lag natural resource equities in the
short term, our resources portfolio has returned only 0.4% over the
past twelve months, lagging all three of the aforementioned public
equity benchmarks over the same time period. We believe that our
resources portfolio has latent value, but there are many natural gas
assets in our managers’ portfolios that it’s not economical to sell at
today’s natural gas prices.
The WTI crude oil price closed at $101.57 on March 31, 2014,
essentially unchanged from year end. However, crude oil prices
fluctuated during the quarter, ranging from $92 to $104 as domestic
oil production continued to expand, concerns lingered regarding
domestic processing capacity, and geopolitical concerns buoyed the
global oil price. Brent crude oil closed the quarter at $107.65, flat
versus the year end, and thus the WTI to Brent spread was relatively
constant.
The NYMEX Henry Hub Natural Gas spot price closed the first
quarter of 2014 at $4.48, also flat versus year end 2013. However,
natural gas prices were extremely volatile during the first quarter as
heavy storms and cold temperatures depleted inventories and caused
prices to spike to $5.47 in late January. By the end of March,
natural gas inventories had reached their lowest level in the past
eleven years. However, prices have moderated amid continued strong
production growth from shale plays.
Our natural resource managers called $15 million of capital in
the first quarter of 2014 and returned $32 million, resulting in a net
cash inflow of $17 million. Fiscal year-to-date, we have received net
inflows of $69 million from our resource investments.
FIXED INCOME AND MARKETABLE ALTERNATIVES:
Marketable Alternatives and Credit
For the first quarter of 2014, the marketable alternatives and
credit portfolio gained 2.4% versus a 3.0% return on the Barclays High
Yield Index and a 1.8% return on the Barclays U.S. Aggregate Bond
Index. Fiscal year-to-date, the portfolio appreciated 9.2%, exceeding
the two aforementioned benchmarks by 10 bps and 650 bps, respectively.
Credit markets were busy during the first quarter of 2013, with a
strong new issuance in high-yield bonds and credit spreads continuing
to tighten. The current yield for high-yield bonds averages 5.23%,
which represents tightening of approximately 40 bps since year end
2013. It continues to be a favorable environment for high-yield bonds
with rates staying low, demand for yielding assets remaining high, and
corporate defaults at trough levels. As yields drop, many of our
liquid credit managers have been reducing their participation in
domestic debt and finding more attractive opportunities in foreign
Page 7 of 15
debt. In addition, our credit and marketable alternative managers
continue to find interesting opportunities in illiquid credit. These
managers invest in a diverse mix of lending strategies, real assets,
claims, and structured loans. Our direct lending strategies have
benefited from the strong equity markets, and reduced bank
participation in the space has kept the pipeline full.
During the quarter, our credit managers who employ a private
equity fund structure called $4 million of capital and distributed $11
million. Fiscal year to date, cash distributions have totaled $31
million versus capital calls of $26 million, resulting in a net inflow
of $5 million.
Bonds and Cash
Our bond and cash portfolios continue to be managed as a source
of liquidity. As of March 31, 2014 our bond and cash portfolio made
up 10.2% of the Long Term Pool. Over time, we continue to expect the
sum of the liquid U.S. Treasury bond and cash portfolios to vary
between 8% and 12% of the Long Term Pool. Although this is a drag on
returns especially in a low interest rate environment, it provides
insurance against future turbulent markets and will allow us to fund
attractive investments that will more than make up for the return
drag.
Our government bond portfolio has been in short-term U.S.
Treasury notes and bonds with maturities under three years. The
average duration of this portfolio as of quarter-end was 1.08 years.
We maintained our position in shorter duration bonds, as we feel that
the small additional return for longer duration bonds does not
compensate us for the risk of higher rates in the near future. Our
cash portfolio is invested in U.S. Treasury bills and notes with
maturities less than one year. The duration of the cash portfolio as
of quarter-end was 0.43 years. The negligible returns reported for
the short-term cash investments are consistent with an environment in
which current interest rates remain near 0%.
RISK MANAGEMENT: Investors may be willing to bear risk if they are
adequately compensated with future higher returns. At UVIMCO, we are
willing to bear certain risks, but others must be eliminated if we are
unable to absorb the downside losses or if we do not earn a sufficient
risk premium from assuming those risks. We consider three broad
portfolio risks when managing the Long Term Pool – market risk,
manager risk, and liquidity risk – and evaluate these factors relative
to the risk tolerance of the Long Term Pool shareholders.
Market Risk
The largest risk factor present in the Long Term Pool is equity
market risk. On a long-term basis we manage this exposure through our
investments in managers. On a short-term basis we monitor our equity
Page 8 of 15
exposure with portfolio overlays through the option and futures
markets.
A common definition of market risk is the standard deviation or
volatility of a portfolio’s return. Volatility provides a useful
proxy for market risk if returns are normally distributed. However,
it is clear that both the broad market as well as individual
investment strategies are not normally distributed, but rather are
subject to a much higher probability of negative “tail” events. Since
investment returns are subject to “tail risk”, it is useful to
complement the standard deviation statistic with an estimate of
drawdown risk.
We manage market risk in the Long Term Pool by diversifying
across three broad asset classes: equity, fixed income, and real
assets. Our objective is to maintain estimated market risk in the
Long Term Pool that is less than or equal to the estimated market risk
of the policy portfolio. Our current estimate of the volatility of
the Long Term Pool returns is 10.9% versus 11.6% for the policy
portfolio. In addition, the one-percentile tail annual drawdown on
the Long Term Pool is estimated to be -26.6%, less than the drawdown
estimate of -29.4% on the policy portfolio.
Manager Risk
The Long Term Pool invests with more than one hundred external
managers. We seek to maintain a portfolio of managers that generates
sufficient returns to compensate us for bearing both market risk and
the additional risk inherent in working with individual managers.
Manager risk includes tracking error or active bets away from the
benchmark, operational or business risks, lack of transparency, and
leverage. UVIMCO mitigates manager risk by diversification and
employing extensive and ongoing due diligence to assess both the
investment and operational aspects of our external fund managers. Our
Investment Policy Statement ensures a minimum level of diversification
by limiting our exposure to any single manager to 7.5% of the Long
Term Pool. As of March 31, 2014, our largest manager exposure was
4.62% of the Long Term Pool, well within the 7.5% maximum.
Over time, UVIMCO has been well compensated for assuming manager
risk. Attribution analyses suggest that manager selection is the
largest contributor to the Long Term Pool’s long-term outperformance
versus the policy benchmark and peers.
Liquidity Risk
At UVIMCO, we define liquidity risk as an inability to meet any
of the following four primary liquidity requirements: (i) withdrawals
by the University and Foundation investors, (ii) the excess of capital
calls over expected capital distributions from private funds, (iii)
the need to rebalance exposures following a market decline, and (iv)
the ability to deploy cash opportunistically as new investment
Page 9 of 15
opportunities arise. We manage this risk by maintaining a portfolio
of Treasury bills and bonds, maintaining sufficient liquidity with our
public equity and hedge fund managers, and managing the pace of
commitments to private investments.
Given our four primary liquidity requirements, we believe that an
appropriate target for liquidity is to have 10% of the Long Term Pool
invested in assets that are safe and highly liquid, and at least 30%
of the Pool should be available for conversion to cash in any twelvemonth period. As of March 31, 2014, we had 10% of the Long Term Pool
invested in Treasuries, 34% of the Long Term Pool that could be turned
to cash within one quarter, and 45% of the Pool that could be turned
into cash within one year. We also limit our unfunded commitments to
private investments to be no more than 25% of the Long Term Pool. Our
goal is to have 15% unfunded commitments outstanding on average. As
of quarter-end, our unfunded commitments were 16.3% of the Long Term
Pool.
Page 10 of 15
INVES TMENT MANAGEMENT COMPANY
Board Report
March 31, 2014
Investment Activity
FYTD 2014 (1)
Month
$6,514,315,139.66
862,284.86
Beginning Net Asset Value (NAV)
Beginning Shares
$5,959,541,292.05
872,182.57
$7,554.71
$13,404,547.48
($2,724,306.10)
($9,690,498.67)
($1,085,719.19)
NAV Per Share at Beginning of Period
+ Contributions
– Redemptions
+ Investment Return
– Fees
$6,832.91
$43,136,948.19
($91,886,902.92)
$617,326,581.63
($13,898,755.77)
$6,514,219,163.18
863,556.76
$7,543.48
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
$6,514,219,163.18
863,556.76
$7,543.48
Shareholder Summary
Long Term Pool
% of NAV
$3,843,488,083.59
$1,460,296,653.61
$1,210,434,425.97
$6,514,219,163.18
University of Virginia Endowment
Affiliated Organizations
University Operating Funds
Total
59.0%
22.4%
18.6%
100.0%
Performance
Market Value (2)
$ Millions %
Long Term Pool
Total Equity
MSCI All Country World Equity
Real Assets
Real Estate
Resources
Total Real Assets
MSCI Real Estate (4)
Fixed Income, Cash & MAC
Marketable Alternatives & Credit
Government Bonds
Cash & Currency
Total Fixed Income, Cash & MAC
Barclays Aggregate Bond
3 YR
Annualized
5 YR 10 YR
100.0
(0.1)
1.8
10.4
13.0
11.8
15.1
10.0
12.2
100.0
0.3
1.9
11.6
10.3
7.8
15.0
7.0
7.5
1,588
1,537
861
316
24.4
23.6
13.2
4.9
(0.4)
(3.6)
2.7
1.5
0.8
(1.4)
5.0
10.1
16.0
7.7
8.8
39.3
17.8
11.0
11.5
47.5
15.9
11.7
13.2
29.9
25.4
10.1
19.4
24.1
12.9
9.3
13.1
10.7
12.4
9.9
-20.5
4,303
66.1
60.0
(0.9)
0.5
1.4
1.2
12.7
17.4
15.5
17.2
14.6
9.1
17.9
18.4
11.5
7.5
14.4
7.5
541
268
8.3
4.1
4.6
(1.4)
7.4
0.2
12.4
3.0
18.7
0.4
12.1
7.7
809
12.4
2.5
4.9
9.0
11.4
10.6
12.4
11.7
11.4
10.0
0.2
5.1
3.9
(0.2)
8.1
23.9
7.3
8.3
736
444
223
11.3
6.8
3.4
1.0
(0.0)
(0.0)
2.4
0.1
(0.1)
9.2
0.3
(0.1)
13.8
0.3
(0.2)
10.0
0.2
(0.1)
14.9
1.5
0.1
7.0
4.3
--
7.7
6.5
--
1,403
21.5
0.5
1.2
4.8
6.8
4.8
8.4
5.5
7.1
30.0
(0.0)
1.9
2.7
0.6
4.1
4.7
4.4
6.0
(0.0)
0.0
0.0
(0.0)
(0.1)
--
--
--
--
--
6,514
Policy Benchmark (3)
Equity
Public
Long / Short
Buyout
Venture Capital
Portfolio Overlays (6)
Time-Weighted Returns
MO
CYTD FYTD
1 YR
(5)
(1)
Page 11 of 15
(1.1)
20.5
(0.2)
21.4
20 YR
3.7
--
Board Report
March 31, 2014
Short-Term Liquidity(7)
Actual Liquidity (Cumulative Total % of NAV)
Weekly
Public Equity
Monthly
Quarterly
Semi-Annually
Annually
5%
7%
13%
15%
15%
Long / Short Equity
-
0%
10%
11%
15%
Marketable Alternatives & Credit
-
-
0%
0%
5%
Government Bonds
7%
7%
7%
7%
7%
Cash
3%
3%
3%
3%
3%
Total
15%
18%
34%
37%
45%
Available Liquidity ($ in Millions)
1,007
1,161
2,220
2,384
2,933
Private Funds Market Values and Commitments (8)
($ in Millions)
Market Value of Private Investments
Amount
Public Equity
% of NAV
Uncalled Commitments
Amount
% of NAV
Private Aggregate
Amount
% of NAV
159
2%
52
1%
211
13
0%
35
1%
48
1%
1,177
18%
409
6%
1,586
24%
Real Estate
541
8%
190
3%
731
11%
Resources
268
4%
224
3%
492
8%
Marketable Alternatives & Credit
256
4%
154
2%
410
6%
2,415
37%
1,064
16%
3,478
53%
North
America
Europe
Asia
LAMA(10)
Long / Short Equity
Private Equity
Total
3%
Market and Currency Exposure Estimates (9)
(% of NAV)
Equity
Policy Ranges
Actual
Exposure
40 - 70
58.1
32.7
10.2
12.2
3.0
Real Assets
5 - 20
13.8
11.5
1.7
0.5
0.2
Credit
0 - 20
4.8
3.7
0.5
0.0
0.6
Government Bonds
5 - 20
6.9
6.9
-
-
-
Total Market Exposure
70 - 100
83.7
54.8
12.5
12.7
3.8
Policy Ranges
Cash & Currency
Currency Exposure
Policy Ranges
--
--
25 - 75
0 - 40
0 - 40
0 - 20
0 - 30
16.3
17.0
(2.0)
(0.3)
1.6
---
100.0
--
71.8
50 - 100
10.4
0 - 30
12.4
0 - 30
5.4
0 - 20
Page 12 of 15
Short Term Pool
March 31, 2014
Investment Activity
FYTD 2014 (1)
Month
NAV Per Share at Beginning of Period
+ Net Contributions / (Redemptions)
+ Investment Returns
– Expenses
$292,128,653.54
291,819.32
$1,001.06
($24,498,604.97)
$34,188.58
($10,695.04)
$81,260,692.60
81,195.76
$1,000.80
$186,313,766.75
$155,298.39
($76,215.63)
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
$267,653,542.11
267,348.78
$1,001.14
$267,653,542.11
267,348.78
$1,001.14
Short Term Pool
% of NAV
$168,806,992.38
$18,830,144.51
$80,016,405.22
$267,653,542.11
63.1%
7.0%
29.9%
100.0%
Beginning Net Asset Value (NAV)
Beginning Shares
Plan Account Summary
Long Term Pool Cash
Affiliated Organizations
University Operating Funds
Total Short Term Pool
Performance
MO
Time-Weighted Returns
CYTD FYTD
1 YR
Since Inception (Oct 2012)
Annualized Cumulative
Yield to
Maturity
Short Term Pool
0.01
0.01
0.04
0.06
0.08
0.12
0.05
3-Month Treasury Bills
0.00
0.01
0.04
0.07
0.08
0.12
0.03
Portfolio Composition
Maturity Distribution
70%
60%
U.S. Treasury
Bills
93.4%
50%
41.1%
43.0%
90-179
Days
180-364
Days
40%
30%
20%
Overnight
Funds
6.6%
10%
6.6%
5.6%
0.0%
0.0%
3.7%
0%
0%
20%
40%
60%
80%
100%
0-4
Days
Page 13 of 15
5-14
Days
15-29
Days
30-59
Days
60-89
Days
Investment Report
March 31, 2014
Endnotes
(1)
UVIMCO's fiscal year runs from July 1 through June 30.
(2)
All investments are recorded at estimated fair market value in accordance with UVIMCO's valuation policy.
(3)
The Policy Benchmark is the geometrically linked monthly average of the underlying asset classes' benchmarks, weighted by
the Fiscal Year 2014 policy target allocations: 60% Equity, 10% Real Assets, 30% Fixed Income.
(4)
The Real Estate component of our Fiscal Year 2014 policy portfolio is comprised of 50% MSCI U.S. Real Estate Index and
50% MSCI All Country World Real Estate Index. Prior to January 1995, the benchmark is comprised of 100% FTSE National
Association of Real Estate Investment Trusts Equity Index.
(5)
The Fixed Income component of our Fiscal Year 2014 policy portfolio is comprised of 50% Barclays Capital U.S. Aggregate
Bond Index and 50% Barclays Capital Global Aggregate Bond Index (Hedged in U.S. Dollars). Prior to January 1990, the
benchmark is comprised of 100% Barclays Capital U.S. Aggregate Bond Index.
Represents the current market values and performance of overlay positions designed to change the Long Term Pool exposures.
Performance is calculated to reflect the impact of overlays relative to the entire Long Term Pool
(6)
(7)
Represents securities and funds that may be readily sold for cash within the designated time periods.
(8)
Represents the market values of investments where distributions are at the sole discretion of the managers, plus all uncalled
commitments.
(9)
Market and currency exposures are estimated by looking through managers and funds to the underlying security positions.
Policy ranges express the expected variation in asset class, regional, and currency exposures during normal market
circumstances. Totals may not add due to rounding.
(10)
Latin America, Middle East, and Africa.
Page 14 of 15
Page 15 of 15
MISCELLANEOUS FINANCIAL REPORTS
Finance Committee
University of Virginia
June 6, 2014
UNIVERSITY OF VIRGINIA
Endowment/Long-Term Investments, Including Related Foundations
March 31, 2014
(in thousands)
Endowment/Long Term Investments for UVa and Related Foundations
March 31, 2014
Unaudited
(in thousands)
The University of Virginia Medical School and related foundations
Rector and
Visitors Funds
Related
Foundation
Funds Invested
by UVIMCO
Alumni
Association
Funds Invested
by UVIMCO
Related Foundation
Funds Invested by
Direction of
Foundation Board
$
$
$
$
The College of Arts and Sciences and related foundations
908,377
51,153
10,421
-
Total
$
969,951
413,193
78,007
12,522
2,050
505,772
49,479
261,166
-
119,437
430,082
Darden School and related foundation
125,228
249,696
-
10,705
385,629
Batten School of Leadership and Public Policy
124,473
-
-
-
124,473
School of Engineering and related foundation
106,353
11,035
-
1,938
119,326
The McIntire School of Commerce and related foundation
52,406
-
47,879
697
100,982
University of Virginia's College at Wise and related foundation
51,452
8,686
2,668
1,612
64,418
Graduate School of Arts and Sciences
60,458
-
-
-
60,458
School of Nursing
49,682
-
2,672
-
52,354
Curry School of Education and related foundation
14,939
10,476
-
1,570
26,985
School of Architecture and related foundation
19,360
2,858
452
923
23,593
School of Continuing and Professional Studies
2,281
-
55
-
2,336
University of Virginia Medical Center and related foundations
501,136
66,350
1,465
25,753 **
594,704
Centrally Managed University Scholarships
197,952
-
-
-
197,952
-
-
89,243
40,822
130,065
45,460
66,110
474
166
112,210
103,707
-
-
-
103,707
-
81,198
-
178
81,376
58,264
11,198
-
-
69,462
-
61,670
-
-
61,670
61,223
-
230
-
61,453
University - Unrestricted but designated
352,651
-
-
-
352,651
University - Unrestricted Quasi and True Endowment
185,613
-
-
-
185,613
University - Unrestricted Other
170,579
-
-
-
170,579
All Other
243,605
257,594
14,105
566,873
219,956
$ 5,554,674
The University of Virginia Law School and related foundation
Alumni Association
Athletics and related foundation
Provost
University of Virginia Foundation and related entities
Miller Center and related foundation
Alumni Board of Trustees
University Libraries
$
3,897,871
$
1,217,197
51,569 *
$
219,650
$
*Includes funds on deposit for other areas/schools not individually listed.
**Excludes approximately $67.6 million of board designated pension funds.
Source: Associate Vice President for Finance
Date: May 5, 2014
UNIVERSITY OF VIRGINIA
INVESTMENT OF WORKING CAPITAL
AS OF MARCH 31, 2014
Source: Associate Vice President and Treasurer
Date: May 5, 2014
UNIVERSITY OF VIRGINIA
Interim Academic Division Financial Report as of March 31, 2014
The unaudited financial report for the University’s Academic Division for the nine months ended
March 31, 2014 follows and includes:



statement of net position compared to June 30, 2013;
statement of revenues, expenses, and changes in net position compared to the nine
months ended March 31, 2013; and
cash-basis operating sources and uses, budget versus actual results through March 31,
2014.
Statement of Net Position
This statement, on the following page, provides Academic Division’s net positions as of March
31, 2014 and June 30, 2013. The unaudited statement is developed based on Generally Accepted
Accounting Principles (GAAP).
The $43 million in current receivables are primarily comprised of sponsored research ($24.8
million), tuition ($5.5 million), and auxiliary operations ($2.2 million). Past due receivables over
120 days are only $2 million, just under 1% and well within the Commonwealth of Virginia’s
management standard of 10%.
Endowment and other long-term investments are up $386.9 million, on the strength of the 8%
return on investments through the third quarter of 2014. Further information on the
endowment’s performance this year is included in the written report from the University of
Virginia Investment Management Company (UVIMCO) beginning on page 12.
Student loan receivable programs, depending on payment schedules, are included in accounts
payable and long-term debt. Student loan receivables of $41.4 million include $21 million
through the Federal Perkins Loan Program, $1.0 million through the Federal Nursing Student
Loan Program, and $19.4 million through loan programs managed by the University using
philanthropy given for this purpose. The default rates by University students on the federal loan
programs are below required thresholds: 4.4% for Perkins versus the federal requirement of
15.0% and 2% for Nursing versus the 5.0% federal threshold. Collectively, the default rate on
University managed loan programs stands at 2.1%.
Net position is up $520 million, or 9.3%, due primarily to the timing of the state appropriation,
tuition, and auxiliary revenue recognition, as well as the strong performance of the University’s
endowment and other long-term investments, which show an 8% return through the first nine
months of FY14. At March 31, 2014, state appropriations, tuition, and auxiliary revenues have
been recognized for the full year, while expenses are spread throughout the fiscal year.
UNIVERSITY OF VIRGINIA - Academic Division Only
Statement of Net Position (Unaudited)
ASSETS
Current Assets
Cash and short term investments
Receivables (accounts, notes, other)
Inventories, prepaids and other
Total current assets
As of 3/31/2014
As of 6/30/13
(in 000s)
$
Noncurrent Assets
Endowment and other investments
Receivables (pledges and notes)
Deposits with bond trustees & other
Capital assets, net
Total noncurrent assets
Total assets
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Unearned revenues and deposits
Commercial Paper
Internal deposits held for Wise, SWVHEC and agencies
Total current liabilities
$
4,410,310
23,059
64
2,174,579
6,608,012
495,297
48,695
266
544,258
4,023,415
21,166
22
2,161,194
6,205,797
$
7,220,430
$
6,750,055
$
24,451
92,878
193,393
4,978
315,700
$
17,150
152,071
139,593
9,873
318,687
Noncurrent Liabilities
Long-term debt
Other long-term liabilities
Total noncurrent liabilities
Total Liabilities
NET POSITION
Net investment in capital assets
Restricted:
Nonexpendable
Expendable
Unrestricted
Total Net Position
Total Liabilities & Net Position
569,122
43,030
266
612,418
$
768,406
460
768,866
815,078
494
815,572
1,084,566
1,134,259
1,282,424
1,220,059
510,342
2,649,743
1,693,355
6,135,864
498,277
2,541,985
1,355,475
5,615,796
7,220,430
$
6,750,055
Statement of Revenues, Expenses, and Changes in Net Position (SRECNP)
Shown on the following page, this statement outlines the Academic Division’s revenues,
expenses, and other changes in net position as of March 31, 2014 as compared to the same period
last year. It is developed based on GAAP but is unaudited.
The March 31, 2014 net position is up $520 million due to the performance of the endowment
and other investments, as well as the recognition of the major unrestricted revenues for the full
year.
Operating Revenues:
Total operating revenues for the period ended March 31, 2014 were $1.05 billion, up 2.1% over
the prior year. Student tuition and fees are reported net of discounts and allowances, and are up
5.9% as compared to last year, due to undergraduate enrollment growth and increases in
undergraduate, graduate, and professional tuition and fees approved by the Board of Visitors in
April 2013.
As anticipated, the federal budget uncertainty with Continuing Resolutions and Sequestration
that occurred in calendar year 2013 has adversely affected federally funded grant activity which
is down $17.4 million, or 9.1%. State, local, and industry/foundation grants are down as well, by
a combined $7.8 million.
State appropriations increased $5.4 million or 3.8%, with the additional funding coming to
support the July 2013 faculty and staff salary increase and employee benefits.
Investment income is $424.2 million, reflecting the investment performance on the UVIMCO
Long Term Pool through March 31, 2014. Additions to permanent endowments are up slightly
at $9.3 million.
Operating Expenses:
Operating expenses were down $11.8 million, or 1.2% for the period ended March 31, 2014
compared to the same period in Fiscal Year 2013. A decline in sponsored programs expenditures
is the single biggest reason for the decrease. Modest increases were seen in the public service,
depreciation, and auxiliary expense categories.
UNIVERSITY OF VIRGINIA - Academic Division Only
Statement of Revenues, Expenses, and Changes in Net Position (Unaudited)
OPERATING REVENUES AND EXPENSES:
Operating Revenues
Student tuition and fees, net
Grants and contracts (federal, state, nongovernmental)
State appropriations
Gifts
Sales and services of educational departments
Auxiliary enterprises revenues, net
Pell grants
Total operating revenues
Nine Months
Nine Months
Ended 3/31/2014 Ended 3/31/2013
(in 000s)
$
459,413
212,397
145,491
108,009
22,447
93,373
8,337
1,049,467
$
433,988
237,550
140,104
105,552
12,676
90,317
7,773
1,027,960
Operating Expenses
Instruction
Research
Public service
Academic support
Student services
Institutional support
Operation of plant
Student aid, net
Auxiliary
Depreciation
Other
Total operating expenses
Operating revenues less operating expenses
247,009
205,857
28,681
109,291
30,585
59,777
65,313
53,687
97,704
82,933
8,254
989,091
60,376
255,620
219,343
25,331
108,339
29,099
58,149
64,163
58,286
93,380
76,353
12,868
1,000,931
27,029
NONOPERATING REVENUES AND EXPENSES
Nonoperating Revenues
Capital appropriations, grants and gifts
Investment income
Additions to permanent endowments
Other
Total nonoperating revenues
44,177
424,231
9,346
5,842
483,596
58,345
326,440
8,053
6,260
399,098
Nonoperating Expenses
Interest on capital asset related debt, net
Loss on capital assets
Total nonoperating expenses
Nonoperating revenues less nonoperating expenses
23,151
753
23,904
459,692
24,664
1,999
26,663
372,435
1,533,063
1,012,995
520,068
1,427,058
1,027,594
399,464
Total Revenues
Total Expenses
Increase (decrease) in net position
NET POSITION
Net position - July 1 (beginning)
Net position -- March 31 (ending)
$
5,615,796
6,135,864
$
5,141,004
5,540,468
Cash-Basis Operating Sources and Uses, Budget vs. Actual
This report, on the following page, reviews actual results as of March 31, 2014 compared to
budgeted outcomes for the sources and uses of funds of the Academic Division. The cash-based
operating plan differs from the GAAP SRECNP in the following ways:
•
External debt service, U.Va. Health Plan activity, and endowment investment
performance are excluded, while repayments of debt to the internal bank and the
expendable endowment distribution are included.
•
Depreciation is excluded and most equipment purchases are reported as a use of funds,
and are not capitalized.
•
Only gifts received and available for the operating plan are included. Pledges, non-cash
gifts, gifts transferred to the endowment or capital program, and gifts held at foundations
are excluded.
•
The operating plan nets financial aid funded from tuition from gross tuition, but does not
exclude financial aid funded from other sources (gifts, endowments, and grants).
•
The operating plan reflects mandatory fees collected for auxiliaries and internal revenues
collected from internal departments as other tuition and fee and sales, investment, &
other revenue.
•
The operating plan excludes unrealized gains.
Through March 31, 2014, actual net sources exceeded uses by $187.5 million due to the
collection of all expected operating revenue (regular session tuition and the state general fund
appropriation) for the year by the end of the third quarter, while normal annual operating
expenses (compensation primarily) will continue to be incurred through the remaining quarter.
Sources of Funds:
Actual available sources of funds for the Academic Division as of March 31, 2014 were $1,271.1
million, or 0.9% greater than the $1,259.9 million budgeted for the period, related to the higher
than projected gifts transferred in from affiliated foundations and the revenue sharing
contribution from the Medical Center to the School of Medicine.
Uses of Funds:
Total uses of available funds for the Academic Division through March 31, 2014 totaled
$1,083.6 million, which is 1.8% below the $1,103.7 million budgeted for the period, primarily
related to the timing of expenses and faculty hiring, as well as efforts to reduce operational costs.
UNIVERSITY OF VIRGINIA - Academic Division Only
Comparative Statement of Sources and Uses of Funds, Year to Date
2013-14
Quarterly
Budget
2013-14
Annual Budget
Sources of Available Funds
Tuition and Fees
Undergraduate
Less: Tuition to financial aid
Net Undergraduate
Actuals Over Actuals as a
(Under)
% of
Quarterly
Quarterly
Budget
Budget
266,871 $
(32,624)
234,247
267,000 $
(33,000)
234,000
269,220 $
(33,716)
235,504
2,220
(716)
1,504
0.8%
2.2%
0.6%
Graduate
Less: Tuition to financial aid
Net Graduate
41,662
(27,231)
14,431
42,000
(26,000)
16,000
42,201
(25,647)
16,554
201
353
554
0.5%
-1.4%
3.5%
Professional (Law, Darden, McIntire & SEAS Exec.)
Less: Tuition to financial aid
Net Professional
103,123
(7,813)
95,310
103,000
(7,800)
95,200
102,812
(6,933)
95,879
(188)
867
679
-0.2%
-11.1%
0.7%
School of Medicine
Less: Tuition to financial aid
Net School of Medicine
29,007
(510)
28,497
29,000
(510)
28,490
28,742
(510)
28,232
(258)
(258)
-0.9%
0.0%
-0.9%
Other
Less: Tuition to financial aid
Net Other
Total Net Tuition & Fees
97,996
(1,193)
96,803
469,288
97,000
(570)
96,430
470,120
97,057
(478)
96,579
472,748
57
92
149
2,628
0.1%
-16.1%
0.2%
0.6%
State Appropriations
Grants & Contracts
Facilities & Administrative Cost Recoveries
Endowment Distribution & Fee
Gifts-Via Affiliated Foundations
Expendable Gifts
Sales, Investment & Other
Operating Cash Balances
144,890
229,328
63,200
158,422
100,571
25,434
184,911
39,199
145,000
177,000
48,500
157,000
78,500
18,800
165,000
-
145,491
177,116
46,608
158,301
81,680
19,103
170,040
-
491
116
(1,892)
1,301
3,180
303
5,040
-
0.3%
0.1%
-3.9%
0.8%
4.1%
1.6%
3.1%
n/a
11,167
0.9%
Total Sources of Available Funds
$
Actuals
Through
03/31/2014
(in 000s)
$
1,415,243
$
1,259,920
$
1,271,087
$
$
368,937
300,526
146,912
42,976
76,256
110,261
101,517
156,508
$
274,000
234,000
110,000
30,000
62,000
90,000
98,700
130,000
$
262,078
232,768
108,433
29,725
60,342
88,916
100,353
127,794
73,223
(1,777)
-2.4%
Total Uses of Available Funds
$
1,412,920
$
1,103,700
$
1,083,632
$ (20,068)
-1.8%
Net Sources in Excess of Uses
$
2,323
$
156,220
$
187,455
$
20.0%
Uses of Available Funds
Direct Instruction
Research & Public Service
Academic Support
Student Services
General Administration
Operation & Maintenance of Physical Plant
Scholarships, Fellowships, & Other
Auxiliary Enterprises
Internal Debt Service/Transfers
109,028
75,000
$ (11,922)
(1,232)
(1,567)
(275)
(1,658)
(1,084)
1,653
(2,206)
31,235
-4.4%
-0.5%
-1.4%
-0.9%
-2.7%
-1.2%
1.7%
-1.7%
UNIVERSITY OF VIRGINIA
Quasi-Endowment Actions
January 1, 2014 – March 31, 2014
The quasi-endowment actions listed below were approved by either (1) the Executive Vice President and Chief Operating Officer, under the
following Board of Visitors' resolutions or (2) the Assistant Vice President for Finance and University Comptroller, under the delegation of authority
from the Executive Vice President and Chief Operating Officer:
In October 1990 and June 1996 the Board of Visitors approved resolutions delegating to the Executive Vice President and Chief Operating Officer
the authority to approve quasi-endowment actions, including establishments and divestments of less than $2,000,000, with regular reports on such
actions.
In February 2006, the Board of Visitors approved a resolution permitting approval of quasi-endowment transactions, regardless of dollar amount, in
cases in which it is determined to be necessary as part of the assessment of the business plan for capital projects. Additionally, to the extent that the
central loan program has balances, they may be invested in the long term investment pool managed by UVIMCO or in other investment vehicles as
permitted by law.
Additions from Gifts
Access UVA Scholarships
Darden, Barbara B. Endowed Scholarship
Gaden, Elmer L. Jr. Endowed Award for Excellence in Doctoral Studies 1
President's Fund for Excellence Unrestricted Quasi-Endowment
Research Activities Quasi-Endowment Fund
Strategic Investment for Anesthesiology Research Chair Quasi-Endowment 1
University Quasi-Endowment Fund 2
Total Additions from Gifts to Quasi-Endowments
Additions from Endowment Income (Capitalizations)
Antrim, Lottie C. Income Capitalization Quasi-Endowment
Athletics General Operations Quasi-Endowment
Chrysler, W. P. Fund for Engineering Library
Dermatology General Investment Fund
Hecht, Sidney M. Fellowship in Chemistry
Hecht-Cruachem Chemistry Quasi-Endowment #3
HOPE Physician Incentive Quasi-Endowment
Hughes Endowment Income Capitalization Quasi-Endowment
Jordan, Harvey E. Lectureship
Low, Emmet F. and N. Alyce Chair Quasi-Endowment
McIntire, Howard Quasi-Endowment in Neurology
Medical Center Capital Assets Quasi-Endowment 3
Miller, Mae W. Cancer Research Quasi-Endowment
Moyston, Vernah Scott Professorship in Ophthalmology Investment Quasi-Endowment
Plastic Surgery Quasi-Endowment Fund
Radiology Fund Special Diagnostic
Samuels, Bernard Ophthalmology Library Quasi-Endowment
School of Medicine Quasi-Endowment
Shea, Eleanor Quasi-Endowment Professorship in Music
Shea, Eleanor Quasi-Endowment Professorship in Art History
Southwest-Dishner Gift Quasi-Endowment Fund
Taylor, Henry N. Fund
Virginia Quarterly Review - Anonymous
Total Additions from Endowment Income to Quasi-Endowments
Divestments
Thaler, Myles H. Quasi-Endowment for HIV Research
Total Divestments from Quasi-Endowments
Amount
293,500
55,000
25,815
196,422
250,000
1,000,000
619,615
$
2,440,352
$
$
$
9,582
87,524
1,782
32,733
9,214
1,521
67,448
1,995
1,500
1,287
23,669
7,103,688
6,353
4,574
19,360
4,613
2,614
92,344
7,031
6,764
17,203
339
587
7,503,725
$
$
50,000
50,000
Notes:
1
2
Quasi-endowment newly established or originally funded since January 1, 2014.
Includes current unrestricted gifts to the University which, under a standing Board of Visitors resolution, are required to be added to the University's
Unrestricted Endowment Fund.
3
On February 7, 2008, the BOV authorized additional amounts up to $300 million without further BOV approval.
UNIVERSITY OF VIRGINIA
Write-off of Non-Patient Bad Debts
Fiscal Year 2014
The University's write-off of non-patient bad debts for the fiscal year 2014 is $579,189. The
largest category, tuition and fees, represents only 0.08 percent of the fiscal year 2013 tuition and
fee revenue. The below write-offs do not constitute a compromise, settlement, of discharge of the
debts, but rather an acceleration of the use of collection agencies, state tax liens, and the court
system for the collection of these debts. For the past ten years, the University is averaging a
collection rate of approximately 48% on previously written off student debts.
FY
2013-14
FY
2012-13
FY
2011-12
FY
2010-11
FY
2009-10
$ 285,297
$ 306,609
$ 229,970
$ 599,950
$ 327,460
137,085
139,391
129,545
80,430
46,005
Other Charges
73,327
82,104
82,012
19,215
27,413
Auxiliary Services Fines and Charges
40,759
27,864
32,457
92,674
69,173
Uncollectible Salary Overpayments
21,234
52,785
58,671
13,039
7,094
University Student Loans
10,759
15,944
8,319
38,460
23,784
Library Fines and Charges
10,727
12,688
8,609
16,855
6,111
$ 579,189
$ 637,385
$ 549,583
$ 860,623
$ 507,040
Tuition and Fees
UVA's College at Wise
TOTAL
Source: Associate Vice President for Finance
Date: May 6, 2014