Download Materials

REVISED
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
NOVEMBER 16, 2009
FINANCE COMMITTEE
Monday, November 16, 2009
1:30 – 3:00 p.m.
Board Room, The Rotunda
Committee Members:
Vincent J. Mastracco, Jr., Chair
Daniel R. Abramson
A. Macdonald Caputo
The Hon. Alan A. Diamonstein
Helen E. Dragas
Robert D. Hardie
Randal J. Kirk
Austin Ligon
Warren M. Thompson
John O. Wynne, Ex-officio
Daniel M. Meyers, Consulting Member
AGENDA
PAGE
I.
II.
CONSENT AGENDA (Mr. Sandridge)
A.
Purchase of 11th Street Garage Pedestrian Link and
Air Rights from the University of Virginia
Foundation
B.
Sale or Conveyance of Property Located at 608
Spruce Street, Appalachia, Virginia
C.
Creation of Quasi-Endowment for the School of
Engineering and Applied Science
ACTION ITEMS (Mr. Sandridge)
A.
Short-Term Investment Policy (Mr. Sandridge to
introduce Ms. Yoke San Reynolds; Ms. Reynolds to
report)
B.
Medical Center Joint Ventures with MediCorp Health
System for Stereotactic Head and Body Radiosurgery
III. REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Sandridge)
A.
Vice President’s Remarks
B.
Impact of State Budget Reductions (Mr. Sandridge
to introduce Colette Sheehy; Ms. Sheehy to report)
C.
Financial Model of the Future: Conclusions
D.
Endowment Report – Market Value and Performance as
of September 30, 2009 (Mr. Sandridge to introduce
Christopher Brightman; Mr. Brightman to report)
E.
Miscellaneous Financial Reports
1.
Academic Division Accounts and Loans
Receivable
2.
Capital Campaign Summary Report
3.
Internal Loans to University Departments and
Activities
1
1
3
6
8
10
11
12
14
23
25
26
PAGE
4.
5.
6.
IV.
Quarterly Budget Report
Endowment/Investments for University of
Virginia and Related Foundations
Quasi-Endowment Actions
APPENDIX
University of Virginia Short-Term Investment Policy
27
30
31
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS CONSENT AGENDA
A.
PURCHASE OF 11TH STREET GARAGE PEDESTRIAN LINK AND AIR
RIGHTS FROM THE UNIVERSITY OF VIRGINIA FOUNDATION: Authorizes
the Executive Vice President and Chief Operating Officer to
execute the documents necessary to purchase the 11th Street
Garage Pedestrian Link and air rights.
The Pedestrian Link from the 11th Street Garage to the East
Garage was completed in 2009. It provides covered and
convenient pedestrian access from the 11th Street Garage across
an active railroad line and hospital. It is appropriate that we
formally purchase the improvements and air rights from the
University of Virginia Foundation.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL TO PURCHASE 11th STREET GARAGE PEDESTRIAN LINK AND AIR
RIGHTS FROM THE UNIVERSITY OF VIRGINIA FOUNDATION
WHEREAS, the University of Virginia desires to purchase the
11 Street Garage Pedestrian Link and the associated air rights
from the University of Virginia Foundation.
TH
RESOLVED, the purchase of the 11th Street Garage Pedestrian
Link and air rights parcel from the University of Virginia
Foundation is approved; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized to execute any and all documents
pertaining to the purchase of the real estate.
B.
SALE OR CONVEYANCE OF PROPERTY LOCATED AT 608 SPRUCE
STREET, APPALACHIA, VIRGINIA: Authorizes the transfer of 608
Spruce Street, Appalachia, Virginia to the University of
Virginia Foundation for further disposition.
608 Spruce Street was bequeathed to the College at Wise by
Ms. Charlotte King on November 30, 1998. The gift was subject
to a life estate, the beneficiary of which has recently passed
away. The College at Wise is now responsible for the
maintenance and upkeep of the property. It is recommended the
property be transferred to the University of Virginia Foundation
for further disposition. The property – an approximately 2,454
1
square-foot, single family home situated on .521 acres – is
appraised at $70,000.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL TO SELL OR CONVEY PROPERTY LOCATED AT 608 SPRUCE
STREET, APPALACHIA, VIRGINIA
WHEREAS, by Last Will and Testament dated August 11, 1998,
Charlotte A. King devised to Clinch Valley College of the
University of Virginia (now known as The University of
Virginia’s College at Wise) her residence located at 608 Spruce
Street, Appalachia, Virginia (the “Property”), subject to a life
estate in favor of her sister, Louise Adams Minor; and
WHEREAS, Louise Adams Minor is now deceased such that title
to the Property is vested free and clear in the name of Clinch
Valley College of the University of Virginia (now known as The
University of Virginia’s College at Wise); and
WHEREAS, the Board of Visitors finds it to be in the best
interest of the University of Virginia to dispose of the
Property.
RESOLVED, the Board of Visitors approves the sale of the
Property to the University of Virginia Foundation (the
“Foundation”) or any other interested party; and
RESOLVED FURTHER, the Board of Visitors, in the
alternative, approves the conveyance of the Property to the
Foundation, subject to the conditions that (i) the Foundation
shall market and sell the Property for the benefit of the
University of Virginia, on such terms as are approved by the
Executive Vice President and Chief Operating Officer or his
designee, and (ii) the net proceeds of such sale shall be
returned to the University for its College at Wise, in
accordance with the instructions of the Executive Vice President
and Chief Operating Officer or his designee; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized, on behalf of the University, to
approve and execute agreements and related documents, to incur
reasonable and customary expenses, and to take such other
actions as deemed necessary and appropriate to consummate such
property sale or conveyance and to facilitate the Foundation’s
activities, if any, concerning the Property; and
2
RESOLVED FURTHER, all prior acts performed by the Executive
Vice President and Chief Operating Officer, and other officers
and agents of the University, in connection with such property
sale or conveyance and the Foundation’s activities, if any,
concerning the Property, are in all respects approved, ratified
and confirmed.
C.
CREATION OF QUASI-ENDOWMENT FOR THE SCHOOL OF ENGINEERING
AND APPLIED SCIENCE: Authorizes the creation of a quasiendowment account by the School of Engineering and Applied
Science to fund chaired professorships with monies to be
received from the State in support of the joint collaboration
between various State entities and Rolls-Royce North America.
In June 1996, the Board of Visitors delegated authority to
the Executive Vice President and Chief Operating Officer to
approve individual quasi-endowment transactions, including
establishments and divestments, of less than $2 million.
Individual quasi-endowment transactions of $2 million or more
require the approval of the Board of Visitors.
In February 2008, the Board of Visitors approved a
resolution to support an educational and research collaboration
among the University of Virginia, the Commonwealth of Virginia,
Virginia Polytechnic Institute and State University, the
Virginia Community College System, Rolls-Royce North America
(USA) Holdings Co., and related parties as set forth in a
Memorandum of Understanding dated November 20, 2007, and signed
by all parties.
An integral part of the collaboration was Rolls-Royce’s
interest in creating a partnership with the Commonwealth of
Virginia, the University of Virginia, Virginia Polytechnic
Institute and State University and the Virginia Community
College System for a number of joint research and education
initiatives related to business, mechanical engineering, and
aerospace technology.
One of the initiatives of the collaboration is the creation
of the Center for Aerospace Propulsion Systems (“CAPS”) – a
partnership among Rolls-Royce, the University of Virginia School
of Engineering and Applied Science and Virginia Tech's College
of Engineering to foster collaborative aerospace research while
creating new educational opportunities for students at both
schools.
3
The University of Virginia’s School of Engineering and
Applied Science stands to benefit from the creation of these
endowed professorships. These new faculty members will have
expertise to conduct research of interest to CAPS, as well as
the Commonwealth Center for Advanced Manufacturing, an applied
research center associated with the partnership.
In support of this partnership, the Commonwealth of
Virginia will provide funding to the University of Virginia,
Virginia Tech, and the Virginia Community College System over a
five-year period beginning in fiscal year 2010. Of the money
provided by the State over the five-year period, $7,666,667 is
intended to fund chaired professorships in the University of
Virginia’s School of Engineering and Applied Science (SEAS).
The State funding provided to SEAS in fiscal year 2010 is
expected to be $3,666,667. SEAS will create a quasi-endowment
for the investment of this initial installment, as well as
future installments, from the State. The School will maintain
the quasi-endowment in perpetuity using distributions from the
quasi-endowment to support the chaired professorships.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL TO CREATE A QUASI-ENDOWMENT FOR THE SCHOOL OF
ENGINEERING AND APPLIED SCIENCE
WHEREAS, the University has entered into an educational and
research collaboration among the University of Virginia, the
Commonwealth of Virginia, Virginia Polytechnic Institute and
State University, the Virginia Community College System, RollsRoyce North America (USA) Holdings Co., and related parties as
set forth in the Memorandum of Understanding dated November 20,
2007; and,
WHEREAS, one of the initiatives of the collaboration is the
creation of the Center for Aerospace Propulsion Systems (“CAPS”)
– a partnership among Rolls-Royce, the University of Virginia
School of Engineering and Applied Science and Virginia Tech's
College of Engineering to foster collaborative aerospace
research while creating new educational opportunities for
students at both schools; and
WHEREAS, in support of this partnership, the Commonwealth of
Virginia will provide funding to the University of Virginia over
a five-year period beginning in fiscal year 2010, a portion of
4
which will fund chaired professorships in the School of
Engineering and Applied Science.
WHEREAS, it is expected that the State funding provided to
SEAS in fiscal year 2010 for chaired professorships will be
$3,666,667, and the School wishes to create a quasi-endowment
for the long-term investment of these monies;
RESOLVED, that the Board hereby authorizes the creation of
a quasi-endowment account by the School of Engineering and
Applied Science to fund chaired professorships with monies to be
received from the State in support of the joint collaboration
between various State entities and Rolls-Royce North America.
5
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 16, 2009
COMMITTEE:
Finance
AGENDA ITEM:
II. A.
Short-Term Investment Policy
BACKGROUND: At the Board of Visitors’ September 2009 meeting,
there was discussion of the new Financial Model of the Future
for Debt and Liquidity, accompanied by a white paper on the same
topic. The Board of Visitors was informed that policies for the
University’s Internal Bank (working capital) would be developed
for future review. The Short-Term Investment Policy is the
first of these policies, replacing the Board of Visitors’
Current Funds Investment Guidelines approved on October 5, 2002.
Since that time, the Governmental Accounting Standards
Board has mandated a new financial accounting model that, among
other changes, eliminated the use of the term “Current Funds.”
Additionally, at the request of the University, the General
Assembly enacted legislation that permits investment of working
capital in a broader array of investment vehicles.
Consequently, on October 5, 2007, the Board of Visitors approved
the delegation of cash management authority to the Vice
President and Chief Financial Officer, authorizing the
investment of “cash of and held by the University” in investment
vehicles as permitted by law. This action has created a need
for an updated short-term investment policy.
As recounted in the white paper on Debt and Liquidity, the
University, in July 2007, implemented its Internal Bank,
consolidating investment and cash management activities across
all segregated fund sources. To provide liquidity when needed,
the University’s Treasury Operations office manages the
investment of cash in various commercial bank accounts, a shortterm investment vehicle named the Aggregate Cash Pool – which is
outsourced to the Dreyfus Corporation – and the UVIMCO Long-Term
Pool. Investment policies for the UVIMCO Long-Term Pool are
approved by the UVIMCO Board of Directors. Investment policies
for the University’s short-term investments remain within the
purview of the Board of Visitors.
DISCUSSION: The Debt and Liquidity white paper contains an
explanation of our investment philosophy for working capital:
to maximize safety and to optimize liquidity of these assets,
6
which therefore earn market returns consistent with the
allocation. This philosophy was tested during the financial
market stresses of 2008 and served the University well. The
Board of Visitors will be asked to review and approve the
University of Virginia Short-Term Investment Policy (see
Appendix) that seeks to implement this philosophy.
The proposed policy formalizes current practices and
contains risk mitigation provisions including standards of care,
custody and control requirements, permitted investments and
concentrations, and standards for selecting external managers
for short-term investments. This policy would formalize current
practices.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL OF SHORT-TERM INVESTMENT POLICY
WHEREAS, the University wishes to replace the “Current
Funds Guidelines” approved by the Board of Visitors on October
5, 2002, to reflect several changes in external regulations.
RESOLVED, the Board of Visitors approves the investment
philosophy that the University’s working capital should be
allocated to investment instruments that maximize safety and
optimize liquidity; and
RESOLVED, the Finance Committee recommends approval of the
Short-Term Investment Policy attached as an Appendix.
7
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 16, 2009
COMMITTEE:
Finance
AGENDA ITEM:
II. B. Medical Center Joint Ventures with
MediCorp Health System for Stereotactic Head
and Body Radiosurgery
BACKGROUND: The University of Virginia Medical Center desires
to expand its stereotactic radiosurgery business by entering
into one or more joint ventures with Mary Washington Hospital or
its parent, MediCorp Health System (collectively “MediCorp
Health System”).
DISCUSSION: The University of Virginia Medical Center and
MediCorp Health System will establish one or more limited
liability companies for the purpose of providing stereotactic
head and body radiosurgery to patients at Mary Washington
Hospital in Fredericksburg, Virginia. University of Virginia
physicians will provide medical direction for the program.
ACTION REQUIRED: Approval by the Medical Center Operating
Board, the Finance Committee, and the Board of Visitors
MEDICAL CENTER JOINT VENTURES WITH MEDICORP HEALTH SYSTEM FOR
STEREOTACTIC HEAD AND BODY RADIOSURGERY PROCEDURES
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 one or more joint ventures with Mary Washington
Hospital or its parent, MediCorp Health System (collectively
“MediCorp Health System”), for purposes of providing
stereotactic head and body radiosurgery at Mary Washington
Hospital; 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 one or more joint ventures with
MediCorp Health System to provide stereotactic head and body
radiosurgery, with the Medical Center’s interest in each joint
venture not to exceed 20 percent; and
8
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer of the University, in consultation with the
Vice President and Chief Executive Officer of the Medical
Center, and 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 joint ventures,
including execution of contracts and all other documents
necessary for the establishment of such joint ventures, on such
terms as the Executive Vice President and Chief Operating
Officer of the University deems appropriate, and to take such
other action as the Executive Vice President and Chief Operating
Officer of the University deems necessary and appropriate to
consummate the foregoing.
9
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 16, 2009
COMMITTEE:
Finance
AGENDA ITEM:
III.A.
ACTION REQUIRED:
None
Vice President’s Remarks
The Executive Vice President and Chief Operating Officer
will inform the Board of Visitors of other recent events that do
not require formal action, but of which it should be made aware.
10
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 16, 2009
COMMITTEE:
Finance
AGENDA ITEM:
III.B.
ACTION REQUIRED:
None
Impact of State Budget Reductions
BACKGROUND: The University has experienced reductions in its
state appropriation during the past economic recessions.
However, with perhaps the exception of the Great Depression, the
current period is unprecedented in its severity of impact on the
economy in general and specifically on institutions of higher
education, both public and private. Governor Kaine has
responded to state revenue shortfalls totaling $7.1 billion from
August 2007 through August 2009. Public higher education
institutions have been among the state agencies hardest hit.
The University has experienced a cumulative general fund budget
reduction of $51.5 million over this period. If not for the
funds from the American Recovery and Reinvestment Act of 2009,
which have temporarily offset the cuts by about $20 million, the
impact on colleges and universities would be much more severe.
DISCUSSION: The Finance Committee will hear a report on the
current financial state of the University; ways in which the
University has adjusted operations to meet its reduced funding
level; and early predictions of what the next biennium (20102012) may bring.
11
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 16, 2009
COMMITTEE:
Finance
AGENDA ITEM:
III.C. Financial Model of the Future:
Conclusions
ACTION REQUIRED:
None
BACKGROUND:
Over the past 18 months, the University carefully
examined its cash flow in order to preserve liquidity and looked
for creative approaches to contain costs. At its 2009 Retreat,
the Board of Visitors began to develop a financial model of the
future, with the objective of establishing a better platform for
financial success coming out of challenging economic
conditions. As part of developing this model, the Board of
Visitors received necessary background on various sources of
revenue and cost containment. This background will help
determine how the University could thoughtfully and
intentionally maximize both revenue and cost containment to the
extent practicable and prudent.
At the Board of Visitors July 2009 Retreat, Vice President
for Management and Budget Colette Sheehy discussed General
Funds, focusing on what is realistic to expect from state
funding. Ms. Sheehy also reviewed in-state and out-of-state
tuition, looking at historical trends and future projections.
Executive Vice President and Provost Tim Garson, Vice President
for Research Tom Skalak, and Vice President and Chief Financial
Officer Yoke San Reynolds led a discussion of Sponsored
Research, an important revenue generator and resource consumer,
highlighting indirect cost recoveries and how they are used.
Executive Vice President and Chief Operating Officer Leonard
Sandridge provided an overview of where and how the University
has made permanent cost reductions.
At both the July and September Medical Center Operating
Board meetings, the Medical Center’s Vice President and Chief
Executive Officer Ed Howell and the Associate Vice President for
Business Development and Finance for External Business
Initiatives Larry Fitzgerald reviewed Medical Center revenues,
including increased support for the School of Medicine and the
expansion of the Medical Center.
12
In September, the Finance Committee reviewed debt and
liquidity and the endowment – both performance and
distribution. The Educational Policy Committee focused on
intellectual property and the Patent Foundation. The External
Affairs Committee discussed annual giving and the capital
campaign.
DISCUSSION: The work of the last six months underscores the
importance of diverse and reliable revenue streams. A key
strength of the University is that it is not overly dependent on
state funds, a source that has become less and less reliable
over time. Of the revenue streams examined by the Board of
Visitors, two in particular – tuition and private support
(including gifts and endowment) – hold both the potential for
growth and the promise for providing the amount of revenue
necessary to make a difference in the University’s future.
Tuition revenue is driven by two factors – the rates
charged and the size of the student body. Over the next several
months, it is likely that the Board of Visitors will carefully
consider alternatives to price appropriately our educational
product relative to the value received by students while
continuing to address financial need in a way that ensures a
University of Virginia education will be affordable for all.
The Board should also discuss a longer-term objective for
enrollment growth in the undergraduate population.
The University has a long history of success in raising
private support for restricted, expendable gifts and endowment.
The track record for raising unrestricted dollars, however, is
less impressive. Individual schools and major units have the
autonomy to raise their own funds to support self-identified
purposes. The University intends to expand private support by
focusing on fundraising that: 1) addresses institutional
priorities; 2) results in gifts for restricted purposes that
relieve commitments on the unrestricted endowment; and, 3)
provides a more efficient approach to ensure that private
support for particular purposes covers the full costs – e.g.,
operating and maintenance costs of new buildings.
The Board of Visitors’ analysis of the Financial Model of
the Future has identified key areas of revenue capable of
impacting the University’s future. Over the next 12 months, the
Board of Visitors’ Special Committee on Planning should address
the issues of tuition and enrollment growth as well as identify
priorities to which private funds should be applied.
13
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 16, 2009
COMMITTEE:
Finance
AGENDA ITEM:
III.D. Endowment Report – Market Value and
Performance as of September 30, 2009
ACTION REQUIRED:
None
BACKGROUND: The University of Virginia’s endowment is the
source of sustainable private support for instruction, service,
and research. The University's endowment consistently ranks
among the five largest endowments of public institutions and
among the 30 largest of all colleges and universities in the
nation. Equally important, the endowment per student has
consistently ranked among the largest in the nation for a public
university.
The University of Virginia Investment Management Company
(UVIMCO) is a University-related foundation that provides
investment management services to the University, independent
foundations and other entities affiliated with the University
operating in support of its mission. UVIMCO is governed by a
board of directors, three of whom are appointed by the Board of
Visitors and one of whom is appointed by the University of
Virginia President. Daily investment management is delegated to
UVIMCO's full-time staff.
UVIMCO’s primary objective in managing the endowment pool
is to maximize long-term real return commensurate with the risk
tolerance of the University. To achieve this objective, UVIMCO
actively manages the pool in an attempt to achieve returns that
consistently exceed the returns on a passively investable policy
benchmark with similar asset allocation and risk. Recognizing
that the University must attract outstanding students, faculty,
and staff and provide appropriate resources to them, UVIMCO
strives to manage pool assets to provide long-term returns that
compare favorably with the returns of endowments of other
outstanding schools.
UVIMCO follows a fundamental value investment philosophy
with an emphasis on long-term returns and alignment of
interests. UVIMCO believes that market prices for investment
securities sometimes deviate materially from reasonable
14
estimates of their intrinsic value. Because such mispricing
often persists and grows for long periods, UVIMCO recognizes
that consistently exceeding the return of investment markets
over short-term periods is unlikely. Nonetheless, UVIMCO is
convinced that a fundamental value discipline provides the
opportunity for superior long-term returns.
Process
The UVIMCO board has established a traditional policy
portfolio benchmark comprised of public market indices. At
present, this policy benchmark is 60 percent equity, 10 percent
real estate, and 30 percent fixed income. It represents the
investable global securities market, and its historical returns
closely track the average returns of the broad universe of
institutional investors. The board directs staff to manage
actively the endowment pool, primarily by employing external
investment managers, with the goal of pursuing returns
substantially in excess of this passively investable policy
benchmark.
Staff researches investment strategies seeking
opportunities to employ skilled managers within all asset
classes and regions of the world. Some of these managers focus
in niches while others have a global reach. Many use leverage
and/or sell securities short. Some invest in private markets.
While few of these individual investment strategies resemble the
market capitalization weighted indices that comprise the policy
benchmark, the mix of active strategies produces a set of asset
class exposures and risk similar to the policy portfolio
benchmark.
Performance
Long-term performance of the UVIMCO pool continues to
exceed the returns available through ownership of the passive
policy portfolio benchmark. Over the 10 years ended September
2009, the pool has compounded at a rate of 10 percent per annum,
strongly outperforming the 4 percent annualized return for the
policy benchmark. Over the five years ended September, the pool
compounded at 7 percent per annum, outperforming the 5 percent
return for the policy benchmark.
For the quarter ended September the pool appreciated by 6
percent, lagging far behind the 14 percent return for the policy
benchmark. This recent underperformance is attributable to the
pool’s allocation to alternative investments. The 22 percent
15
allocation to public equity matched the 18 percent return of the
global equity market, and the 28 percent allocation to bond,
credit, absolute return, and cash strategies appreciated by 7
percent versus 4 percent for the bond market. The half of the
pool allocated to long/short, private equity, and real asset
funds, however, did not appreciate this quarter. These
alternative investments, which have provided very strong returns
over many years, do not closely track the short-term pattern of
public market securities prices.
For the past quarter, the public equity portfolio matched
the 18 percent return offered by the benchmark MSCI All Country
World Index. Emerging markets and smaller capitalization
securities outperformed the averages, but the assumption of
equity risk in all its flavors was broadly rewarded during the
quarter. Over the trailing 10-year period, the public equity
portfolio has compounded at a rate of 8 percent per annum,
strongly outperforming the 2 percent annualized rate of return
available through ownership of the passive benchmark.
The long/short equity portfolio returned 1 percent for the
quarter, underperforming both the 8 percent return of the
Tremont Long/Short Equity composite and the 18 percent return of
the global equity market. While manager returns varied
considerably over the past quarter, no manager outperformed the
global equity markets. UVIMCO’s long/short managers hold
substantial short positions in the stocks of smaller, more
expensive, less profitable and highly levered companies, the
prices of which have led the recent stock market rally. Over
longer periods, the long/short strategy has been very
profitable. Over the trailing 10-year period, the long/short
equity portfolio returned an annualized 12 percent while the
U.S. equity market was approximately flat and the global market
was up only 2 percent per annum.
For the one-year period ending September the private equity
portfolio was down 23 percent, real estate down 45 percent, and
resources down 24 percent. Losses in private funds are not
directly comparable to public market indices. Staff are using
net asset values reported on the most recent manager statements
(as of June at this writing) to value private funds and have not
marked up positions to take account of recent appreciation in
public markets. Over longer-term periods, the returns on
private funds have exceeded the returns provided by public
market indices.
16
The absolute return portfolio returned 7 percent for both
the quarter and the 10 years ending September. These results
are consistent with the objective for this idiosyncratic
strategy. Staff intends to achieve long-term returns at or
above the policy benchmark with low correlation to markets.
The credit portfolio returned 13 percent for the quarter
ending September, benefitting from appreciation of risky assets
across the distressed corporate and mortgage-related securities
that comprise the bulk of this portfolio. Over the trailing 10year period, the credit portfolio has provided a compound annual
return of 7 percent versus 6 percent for high yield and
investment grade bond indices.
A slight decline in government bond yields during the
quarter ending September produced a 2 percent gain in the value
of the government bond portfolio. Over the trailing 10-year
period, the internally directed government bond portfolio has
provided a compound annual return of 9 percent, versus the 6
percent return provided by investment grade and government bond
indices.
Peer Comparison
As displayed on the table below, UVMICO’s long-term returns
for periods ended June 2009 compare favorably with the returns
reported by other institutional investors including large
university endowments. For fiscal year 2009, large University
endowments recorded larger losses than smaller endowments, and
colleges and universities recorded larger losses than the broad
universe of institutional investors. Even after this difficult
year, large university endowments have achieved far higher
returns than other institutional investors over three-, five-,
10-, and 20-year periods.
17
Period Ending June 30, 2009
Long-Term Pool
1 YR
(21.0)
3 YR
1.6
5 YR
6.5
10 YR
9.5
20 YR
11.6
Peer Data
(1)
TUCS All Master Trusts Top Quartile
TUCS All Master Trusts Median
TUCS All Master Trusts Bottom Quartile
(2)
Cambridge Universe Top Quartile
Cambridge Universe Median
Cambridge Universe Bottom Quartile
(3)
Cambridge $2+ Billion Top Quartile
Cambridge $2+ Billion Median
Cambridge $2+ Billion Bottom Quartile
(1)
(12.9)
(17.0)
(23.6)
(0.8)
(2.5)
(5.8)
3.1
2.1
(0.3)
3.9
2.9
0.9
8.4
7.9
7.3
(17.9)
(19.9)
(22.3)
(0.6)
(1.5)
(3.0)
4.9
3.7
2.6
5.4
4.2
3.2
9.6
8.7
8.0
(18.2)
(21.2)
(23.2)
0.5
(0.4)
(1.2)
7.3
5.8
3.9
8.9
7.2
4.6
11.5
10.4
9.3
Trust Universe Comparison Service (TUCS) reports performance of nearly 1300 institutions representing $3.04 trillion in
assets under management.
(2)
Cambridge Universe consists of 168 colleges and universities. 145 of those institutions self-reported returns as of June 30, 2009.
An additional nine reported preliminary results for a total of 154 colleges and universities contributing to the displayed returns.
(3)
Represents data for 24 colleges and universities with more than $2 billion in assets as compiled by Cambridge Associates.
Nine of the 24 have not reported official Cambridge data; preliminary results and self-reported returns were used.
Position
The policy portfolio benchmark is comprised of 60 percent
equity, 10 percent real assets, and 30 percent fixed income. In
line with these policy allocations, 63 percent of the long-term
pool is invested in public, private, and long/short equity
strategies, 10 percent is invested in real estate and resource
strategies, and 28 percent is invested in bonds, credit,
absolute return, and cash. The pool remains defensively
positioned with 14 percent in cash and government bonds and low
borrowing.
Last year the pool became uncomfortably over-committed to
private funds as a result of a rapid pace of commitments in
2005, 2006, and 2007, an additional 10 percent tactical
allocation to private credit in 2008, and the collapse of
capital markets last fall. Over recent quarters, staff
significantly reduced commitments by transferring uncalled
commitments to other investors, selling fund positions in the
secondary market, negotiating fund size reductions, and ceasing
new commitments. The pool has now reached a more comfortable
level of uncalled commitments and is approaching the inflection
point where staff will stop reducing commitments and slowly
resume making new private fund investments.
18
19
20
21
This page intentionally left blank.
22
MISCELLANEOUS FINANCIAL REPORTS
Finance Committee
University of Virginia
November 16, 2009
UNIVERSITY OF VIRGINIA ACADEMIC DIVISION
FINANCIAL REPORT
ACCOUNTS AND LOANS RECEIVABLE AS OF SEPTEMBER 30, 2009
Summary of Accounts Receivable:
The University’s Academic Division’s total accounts
receivable at September 30, 2009, was $55,367,000 as compared to
$19,221,000 at June 30, 2009. The major sources of receivables
at September 30, 2009, were student accounts of $37,314,000 and
sponsored programs of $13,979,000.
The past due receivables over 120 days old were $1,978,000
as of June 30, 2009, or 3.57 percent of total receivables, which
is below the Commonwealth’s management standard of 10 percent.
Student
Accounts
Gross Accounts
Receivable
Sponsored
Programs
$ 37,314,000
Less: Allowance
for Doubtful
Accounts
$ 13,979,000 $
150,000
Net Accounts
Receivable
$
37,164,000
Accounts Receivable
Greater than 120
Days Past Due
$
375,000
Other
Receivables
465,000
$
$
SOURCE:
DATE:
23
$
176,000
13,514,000 $
1,162,000
4,074,000
Total
$
55,367,000
791,000
3,898,000
$
54,576,000
441,000
$
1,978,000
Financial Administration
October 12, 2009
UNIVERSITY OF VIRGINIA ACADEMIC DIVISION
FINANCIAL REPORT
ACCOUNTS AND LOANS RECEIVABLE AS OF SEPTEMBER 30, 2009
Summary of Loans Receivable:
The default rate for the Perkins Student Loan Program was
0.48 percent for the quarter ending September 30, 2009. This is
based on the cohort default calculation and is well below the 15
percent threshold set by federal regulations. The Health
Professions Loan Program default rate remained the same at 0.0
percent. The Nursing Undergraduate Student Loan Program default
rate increased by 0.37 percent to 1.88 percent. Both medical
loan programs are well below the 5 percent federal threshold.
The University Loan Program default rate increased by 0.59
percent to 3.63 percent for the quarter ending September 30,
2009.
Current
Default Rate
Inc./(Dec)
From Last
Quarter
19,794,000
0.48%
(5.45)%
11,000
0.00%
0.00%
1,435,000
1.88%
(0.37)%
14,209,000
3.63%
0.59%
Gross Loans
Receivable
Perkins Student
Loans
$
Health
Professions Loans
Undergraduate
Nursing Loans
University Loans
Total Student
Loan Outstanding
$
35,449,000
24
SOURCE:
DATE:
25
Financial Administration
October 14, 2009
UNIVERSITY OF VIRGINIA
CAPITAL CAMPAIGN SUMMARY
As of September 30, 2009
All Units
Gifts and Pledge Payments
Outstanding Pledge Balances
Deferred Gifts
Private Grants
Gifts in Kind
Expendable
807,350,778
201,291,036
88,945,550
164,082,204
66,559,771
Endowment
384,723,088
72,728,797
25,189,818
0
1,325,517
Total
1,192,073,866
274,019,833
114,135,368
164,082,204
67,885,288
Gift and Pledge Total
Future Support
1,328,229,339
165,451,316
483,967,220
47,262,704
1,812,196,559
212,714,020
Campaign Total
1,493,680,655
531,229,924
2,024,910,579
43,720,661
1,371,950,000
1,144,082,780
1,628,050,000
1,187,803,441
3,000,000,000
Additional Amounts To Be Raised(1)
Total
Rector & Visitors Gift Accounts Only
Expendable
291,742,129
46,511,678
57,409,383
0
27,312,322
Endowment
222,167,941
18,418,308
9,562,646
0
10,587
Total
513,910,070
64,929,986
66,972,029
0
27,322,909
Gift and Pledge Total
Future Support
422,975,512
107,567,069
250,159,482
3,592,539
673,134,994
111,159,608
Campaign Total
Additional Amounts To Be Raised
Total
530,542,581
TBD
530,542,581
253,752,021
TBD
253,752,021
784,294,602
TBD
784,294,602
Gifts and Pledge Payments
Outstanding Pledge Balances
Deferred Gifts
Private Grants
Gifts in Kind
Rector & Visitors Unrestricted Giving
Gifts and Pledge Payments
Deferred Gifts
Outstanding Pledge Balances
Total
NOTE:
3,904,282
200,000
327,086
4,431,368
0
3,904,282
200,000
327,086
4,431,368
(1) Excludes future or revocable support
SOURCE: Office of Development and Public Affairs
DATE:
September 9, 2009
26
UNIVERSITY OF VIRGINIA
INTERNAL LOANS TO UNIVERSITY DEPARTMENTS AND ACTIVITIES
As of September 30, 2009
INTEREST
RATE 2
Cocke Hall
06/30/06
4.75%
1,941,787
1,212,128
729,659
June 2011
ITC ISIS Software
06/30/06
4.75%
1,575,000
1,230,107
344,893
July 2010
National Radio
Astronomy
Observatory Piping
09/01/06
6.25%
706,833
410,643
296,190
August 2011
Varsity Hall
06/30/07
4.75%
1,517,726
716,649
801,077
March 2012
Wilsdorf Hall
11/01/06
4.75%
3,311,328
2,924,288
387,040
November 2011
Wise Football Facility
10/01/07
4.75%
629,171
98,662
530,509
October 2022
PURPOSE
26
Total Internal Loans Subject to
$15M Limit Established by BOV 1
ORIGINAL
LOAN AMOUNT
PRINCIPAL
PAYMENTS
MADE TO DATE
DATE OF
LOAN
$
9,681,845
$
6,592,477
OUTSTANDING
PRINCIPAL
$
APPROXIMATE
FINAL PAYMENT
3,089,368
NOTES:
1. Per January 1990 Board of Visitors resolution establishing the internal loan pool at $10 million, and per April 2003 Board
of Visitors resolution approving the expansion of the internal loan pool from $10 million to $15 million. All internal loans
are subject to the approval of the Executive Vice President and Chief Operating Officer.
2. The University’s blended borrowing rate for tax exempt financing is 4.75 percent.
charged for the National Radio Atronomy Observatory Piping project.
A taxable rate of 6.25 percent is being
SOURCE:
DATE:
Financial Administration
October 10, 2009
QUARTERLY BUDGET REPORT
As of September 30, 2009
This report compares the actual results for the sources and
uses of funds to the Academic Division annual budget (excluding
the Medical Center and the University of Virginia’s College at
Wise). At the end of the first quarter of 2009-2010, 43 percent
of the budgeted sources were collected and 31 percent of the
budgeted uses were expended.
The operating budget is developed using differing rules and
conventions from the audited financial statements, which are
developed in accordance with generally accepted accounting
principles (GAAP). In some cases, similar descriptions are used
in both reports even though the precise definitions and the
specific amounts are not identical. However, both sets of
figures are accurate for their particular purposes, and both are
drawn from the University’s financial applications. Outlined
below are several of the differing conventions used in the
operating budget and the actual results presented on the
accompanying statement:
The operating budget is prepared on a cash basis.
The operating budget presents tuition and fees as gross
income and the full amount of student aid as an expense.
In the operating budget, depreciation is not funded and
non-capital outlay purchases are recognized as expensed
rather than spread over the useful life of the purchase.
Debt service, major repair or renovation expenditures occur
within the capital outlay accounts – and off the operating
budget.
The Federal Family Education Loan Program is excluded from
the operating budget.
Sources of funds are shown net of transfers to capital
reserves/projects in the operating budget.
Fringe benefit expenditures are included in the operating
budget using pooled benefit rates.
The operating budget recognizes recoveries of indirect
costs only upon distribution of those revenues, and not
when billed to granting agencies.
A definition of terms is included to explain the categories
for the sources and uses of funds.
SOURCE:
DATE:
28
University Budget Office
October 26, 2009
University of Virginia Academic Division
2008-2009 Operating Budget Report
As of September 30, 2009
(in thousands)
2009-10
Original
Budget
Sources of Available Funds, net of transfers to capital reserves
Tuition & Fees for Operating Plan
State General Fund Appropriation for Operating Plan
Sponsored Research for Operating Plan
Endowment Distribution
Net Gifts Available for Operating Plan
Sales, Investment & Other
American Recovery and Reinvestment Act of 2009
Net Auxiliary Enterprises for Operating Plan
Total Sources of Available Funds
Uses of Available Funds
Direct Instruction
Research and Public Service
Library, Information Tech., & Academic Administration
Student Services
General Administration
Operation & Maintenance of Physical Plant
Scholarships, Fellowships, & Other Graduate Support
Athletics
Bookstore
Housing and Conference Services
Other Auxiliary Operations
Total Operating Expenses
Total Operating Reserves and Temporary Allocations
Total Uses of Available Funds
Net Sources and Uses of Operating Funds
29
9/30/2009
Actual
Results
Variance
9/30/2009
Results
Percentage
$374,647
$141,011
$299,200
$134,960
$88,702
$28,261
$11,173
$151,595
$1,229,549
$205,444
$131,829
$84,723
($877)
$14,453
$14,789
$1,703
$76,779
$528,843
$169,203
$9,182
$214,477
$135,837
$74,249
$13,472
$9,470
$74,816
$700,706
54.8%
93.5%
28.3%
(0.6%)
16.3%
52.3%
15.2%
50.6%
43.0%
$312,604
$304,256
$118,148
$32,404
$74,918
$82,031
$136,316
$65,819
95,235
40,859
8,422
18,918
44,434
55,888
$246,785
209,021
77,289
23,982
56,000
37,597
80,428
21.1%
31.3%
34.6%
26.0%
25.3%
54.2%
41.0%
$42,788
$29,173
$21,669
$58,179
$1,212,486
14,573
12,782
5,937
15,106
$377,973
28,215
16,391
15,732
43,073
$834,513
34.1%
43.8%
27.4%
26.0%
31.2%
$16,663
$1,229,149
2,845
$380,818
13,818
$848,331
17.1%
31.0%
$400
$148,025
($147,625)
DEFINITION OF TERMS
Sponsored Research -- primarily research projects, but also
includes activities restricted to institutional and service
programs.
Auxiliary Enterprises -- those activities which are supported
entirely through fees charged to users, such as housing,
athletics, dining services, the telephone system and the
bookstore.
Instruction -- expenditures for the primary mission of the
University, which includes teaching faculty, support staff,
instructional equipment, and related routine operating costs.
Research -- includes expenditures for activities such as support
for research faculty and sponsored research. Activities include
the Center for Public Service, the State Climatologist, and the
Center for Liberal Arts.
Public Service -- includes activities such as the Miller Center
of Public Affairs, the Virginia Foundation for the Humanities,
and that portion of the medical school's clinical physicians’
salaries and fringe benefits related to patient care.
Library, Information Technology and Academic Administration -encompasses the libraries, the activities of the deans of the
schools, and other related expenditures.
Student Services -- activities whose primary purpose is to
contribute to the students' emotional and physical well-being
and to their intellectual, cultural, and social development
outside the classroom.
General Administration -- includes the financial,
administrative, logistical, and development activities of the
University.
Operation and Maintenance of Physical Plant -- includes
expenditures for activities related to the operation and
maintenance of the physical plant, net of amounts charged to
auxiliary enterprises and the Medical Center.
30
Endowment/Long Term Investments for UVa and Related Foundations
September 30, 2009
Unaudited
(in thousands)
Rector and
Vis itors Funds
The University of Virginia Medical School and related foundations
$
The College of Arts and Sciences and related foundations
617,088
Related
Foundation
Funds Inves ted
by UVIMCO
$
28,044
Related
Foundation Funds
Inves ted by
Direction of
Foundation Board
Alum ni
As s ociation
Funds Inves ted
by UVIMCO
$
5,659
$
Total
-
$
650,791
274,906
32,933
8,383
3,648
319,870
The University of Virginia Law School and related foundation
36,406
165,933
-
80,139
282,478
Darden School and related foundation
92,536
173,498
-
4,987
271,021
The McIntire School of Commerce and related foundation
65,458
-
18,844
437
84,739
Batten School of Leadership and Public Policy
82,056
-
-
-
82,056
School of Engineering and related foundation
65,576
245
2,186
1,460
69,467
University of Virginia's College at Wise and related foundation
35,095
3,612
1,699
8,013
48,419
Graduate School of Arts and Sciences
39,670
-
-
-
39,670
School of Nursing
32,531
-
1,382
-
33,913
Curry School of Education and related foundation
10,544
5,887
-
1,538
17,969
School of Architecture and related foundation
13,640
-
336
480
14,456
61
-
41
-
102
University of Virginia Medical Center and related foundations
315,321
50,355
3,640
18,373
Centrally Managed University Scholarships
126,595
-
-
-
126,595
Athletics and related foundation
32,947
50,795
310
580
84,632
Provost
78,332
-
-
-
78,332
Alumni Association
-
-
41,582
9,797
51,379
University of Virginia Foundation and related entities
-
51,182
-
154
51,336
44,322
6,514
-
-
50,836
-
42,680
-
-
42,680
40,442
-
38
-
40,480
University - Unrestricted but designated
256,960
-
-
-
256,960
University - Unrestricted Quasi and True Endowment
154,419
-
-
-
154,419
University - Unrestricted Other
125,487
-
-
-
125,487
All Other
161,807
10,037
189,188
-
361,032
129,606
$ 3,726,808
School of Continuing and Professional Studies
30
Miller Center and related foundation
Alumni Board of Trustees
University Libraries
$ 2,702,199
*Includes funds on deposit for other areas/schools not individually listed.
**Excludes approximately $34.4 million of board designated pension funds.
$
621,715
$
273,288
*
$
Source:
Date:
**
387,689
Financial Administration
October 26, 2009
UNIVERSITY OF VIRGINIA
QUASI-ENDOWMENT ACTIONS
July 1, 2009, through September 30, 2009
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 Vice President and Chief Financial Officer, 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 quasiendowment 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
Amount
Berger, Roger Fellowship in French Quasi-Endowment*
$
Hecht, Sidney M. Fellowship in Chemistry*
226,249.87
250,000.00
President's Fund for Excellence Unrestricted Quasi-Endowment
49,677.97
University Quasi-Endowment Fund (1)
339,205.83
Total Additions from Gifts to Quasi-Endowments
31
$
865,133.67
Additions from Endowment Income (Capitalizations)
Antrim, Lottie C. Income Capitalization Quasi-Endowment
$
Corcoran, W. W. Chair in History Restricted Quasi-Endowment
7,746.66
103,000.00
Corcoran, W. W. Chair in History Income Capitalization
50,000.00
School of Medicine Fund for the Future Quasi-Endowment
523,266.59
Total Additions from Endowment Income to Quasi-Endowments
$
684,013.25
Divestments
McIntire School of Commerce Operations Fund
905,331.47
Total Divestments from Quasi-Endowments
$
905,331.47
Notes:
*Quasi-endowment newly established or originally funded since July 1, 2009.
(1) 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.
SOURCE:
DATE:
32
Financial Administration
October 7, 2009
APPENDIX
Short-Term Investment Policy
Table of Contents
I. Governing Authority ..............................................................................................................3
II. Scope ......................................................................................................................................3
III. General Objectives ..............................................................................................................3
1. Safety .........................................................................................................................3
2. Liquidity.....................................................................................................................3
3. Yield ...........................................................................................................................4
IV. Standards of Care ................................................................................................................4
1. Prudence ....................................................................................................................4
2. Ethics and Conflicts of Interest ...............................................................................4
3. Delegation of Authority ............................................................................................4
V. Custody, Trust, and Controls...............................................................................................4
1. Custody /Trust...........................................................................................................4
2. Internal Controls .......................................................................................................4
VI. Suitable and Authorized Investments ................................................................................5
1. Investment Types ......................................................................................................5
2. Duration .....................................................................................................................5
3. Collateralization ........................................................................................................5
4. Permitted Investments ..............................................................................................5
VII. Portfolio Risk Management ..............................................................................................7
1. Interest Rate Risk .....................................................................................................7
2. Credit Risk .................................................................................................................7
3. Liquidity Risk ............................................................................................................8
VIII. Investment Parameters & Diversification .......................................................................8
1. Portfolio Diversification ...........................................................................................9
2. Security Downgrades ................................................................................................9
3. Selection of Broker/Dealers ......................................................................................9
4. Engagement of Investment Managers .....................................................................9
IX. Portfolio Benchmarks .......................................................................................................10
I. Governing Authority
The University‟s investment program shall be operated in conformance with applicable
federal, state, and other legal requirements, including, but not limit to, that certain
Management Agreement dated November 15, 2005, by and between the Commonwealth
of Virginia and The Rector and Visitors of the University of Virginia, as amended
(Chapter 3 of Chapter 943 of the 2006 Virginia Act of Assembly) (including Exhibit R,
Policy Governing Financial Operations and Management, thereto); the Security for
Public Deposits Act, Chapter 44 (§ 2.2-4400 et seq.) of Title 2.2 of the Code of Virginia,
as amended; the Investment of Public Funds Act, Chapter 45 (§ 2.2-4500 et seq.) of Title
2.2 of the Code of Virginia, as amended; the Uniform Prudent Management of
Institutional Funds Act, Chapter 15, Article 1.2 (§ 55-268.11 et seq.) of Title 55 of the
Code of Virginia, as amended; and § 23-76.1 of the Code of Virginia, as amended,
concerning the University‟s investment of endowment funds, endowment income, and
gifts.
II. Scope
The purpose of this policy is to set guidelines for the parameters, responsibilities, and
controls for the short term (24 months or less) investment of University funds. Proceeds
from tax-exempt bond issues, endowment assets, and money held in bank demand
deposit accounts are not covered under this policy.
Except for cash in certain legally restricted and special accounts, the University will
consolidate cash and reserve balances to optimize University-wide liquidity
management and investment earnings and to increase efficiencies with regard to
investment pricing, custody/trust and administration.
III. General Objectives
The primary objectives of the policy are to set short-term investment parameters,
establish limits consistent with the University‟s risk tolerance, and provide appropriate
benchmarks for performance. Investment activities shall be guided by the following
priorities, listed in order:
1. Safety - Safety of principal is the foremost objective of the investment program.
Investments shall be undertaken in a manner that seeks to ensure the preservation of
capital in the overall portfolio by mitigating credit risk and interest rate risk.
2. Liquidity - The investment portfolio shall remain sufficiently liquid to meet all
operating requirements that may be reasonably anticipated.
Appendix
Page 3 of 11
3. Yield - The investment portfolio shall be designed with the objective of attaining a
market rate of return throughout budgetary and economic cycles.
IV. Standards of Care
1. Prudence - The standard shall be the "prudent person" standard, except as may
otherwise be prescribed by applicable laws or regulations now or in the future. Under
the "prudent person" standard, investments shall be made with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent person
acting in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.
Investment officers acting in accordance with written procedures and this investment
policy and exercising due diligence in good faith shall be relieved of personal
responsibility for an individual security's credit risk or market price changes,
provided deviations from expectations are reported in a timely fashion.
2. Ethics and Conflicts of Interest - The University‟s officers and employees involved
in the investment process shall refrain from personal business activity that could
conflict with the proper execution and management of the investment program, or that
could impair their ability to make impartial decisions or otherwise be in violation of
state law and/or University policy.
3. Delegation of Authority - Authority to manage the investment program in accordance
with this investment policy is granted to the University‟s Vice President and Chief
Financial Officer, who shall act and may further delegate in accordance with any
procedures and internal controls for the operation of the investment program consistent
with this investment policy.
V. Custody, Trust, and Controls
1. Custody/Trust - The University will not take physical possession of investment
securities. Securities will be held by an independent third-party custodian selected by
the University as evidenced by custody/trust receipts in the University‟s name. The
custody/trust institution shall annually provide a copy of their most recent report on
internal controls (Statement of Auditing Standards No. 70, or SAS 70).
2. Internal Controls - Treasury Operations is responsible for establishing and
maintaining an internal control structure designed to ensure that the assets of the
University are protected from loss, theft, or misuse.
Appendix
Page 4 of 11
VI. Suitable and Authorized Investments
1. Investment Types - USD-denominated securities, issued by entities with
capitalization of at least $250 million that are in compliance with the Investment of
Public Funds Act and the Security for Public Deposits Act will be permitted under
this policy. However, from time to time, more stringent requirements may be
imposed and approved by the Vice President and Chief Financial Officer in order to
ensure that the University‟s goals, as set forth in this policy, are met.
2. Duration - The average duration of any short-term investment portfolio must not
exceed nine months. Any individual security may not have a maturity longer than 24
months.
3. Collateralization - Where appropriate and allowed by state law the University may
require full collateralization of any investment assets.
4. Permitted investments - Subject to the foregoing, the University may invest in the
following investment vehicles:
U.S. Treasury Obligations - Bills, notes, and any other obligation or security
issued by or backed by the full faith and credit of the United States Treasury.
Federal Agency Obligations - Bonds, notes, and other obligations of the United
States, and securities issued by any AAA-rated federal government agency or
instrumentality or government sponsored enterprise except for collateralized
mortgage obligations.
Negotiable Certificates of Deposit, Bank Deposit Notes and Non-Negotiable
Certificates of Deposit / Time Deposits - Negotiable and non-negotiable
certificates of deposit, time deposits and negotiable bank deposit notes of
domestic banks and domestic offices of foreign banks with a rating of at least A-1
by Standard & Poor‟s, Inc., and P-1 by Moody‟s Investor Service, Inc., for
maturities of one year or less, and a rating of at least AA by Standard & Poor‟s,
Inc., and Aa by Moody‟s Investor Service, Inc., for maturities over one year. The
final maturity may not exceed a period of five years from the time of purchase.
Bankers’ Acceptances - Issued by domestic banks or domestic offices of foreign
banks, which are eligible for purchase by the Federal Reserve System with a
maturity of 180 days or less. The issuing corporation, or its guarantor, must have
a short-term debt rating of no less than “A-1” (or its equivalent) by at least two of
the Nationally Recognized Statistical Rating Organizations (“NRSRO‟s”).
Corporate Debt Obligations - High quality corporate notes with a rating of at
least Aa by Moody's Investors Service, Inc., and a rating of at least AA by
Appendix
Page 5 of 11
Standard and Poor‟s, Inc., and a maturity of no more than two years from the date
of purchase.
Commercial Paper - “Prime quality” commercial paper, with a maturity of 270
days or less, issued by domestic corporations (corporations organized and
operating under the laws of the United States or any state thereof) provided that
the issuing corporation, or its guarantor, has a short-term debt rating of no less
than “A-1” (or its equivalent) by at least two of the NRSRO‟s.
Municipal Obligations - Bonds, notes, and other general obligations of a
municipal authority organized within the United States upon which there is no
default and having a rating of at least AA by Standard & Poor‟s, Inc., and Aa by
Moody‟s Investor Service, Inc. and maturing within two years of the date of
purchase.
Repurchase Agreements - Overnight, term, and open repurchase agreements
provided that the following conditions are met:
the contract is fully secured by deliverable U.S. Treasury and federal agency
obligations as described above (with a maximum maturity of two years),
having a market value at all times of at least 102 percent of the amount of the
contract;
a master repurchase agreement or specific written repurchase agreement
governs the transaction and which in each case contains terms qualifying each
transaction as a securities loan for purposes of Section 512 under the Internal
Revenue Code, and provides for master netting of obligations;
the securities are free and clear of any lien and held by an independent thirdparty custodian acting solely as agent for the University, provided such third
party is not the seller under the repurchase agreement;
a perfected first security interest under the Uniform Commercial Code in
accordance with book entry procedures prescribed at 31 C.F.R. 306.1 et seq.
or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the
University;
for repurchase agreements with terms to maturity of greater than one day, the
University will have the collateral securities valued daily and require that if
additional collateral is warranted, then that collateral must be delivered within
one business day (if a collateral deficiency is not corrected within this time
frame, the collateral securities will be liquidated);
the counterparty is a:
Appendix
Page 6 of 11
-
-
primary government securities dealer who reports daily to the Federal
Reserve Bank of New York, or
a bank, savings and loan association, or diversified securities brokerdealer having at least $5 billion in assets and $500 million in capital and
subject to regulation of capital standards by any state or federal regulatory
agency; and
the counterparty meets the following criteria:
1. a long-term credit rating of at least „AA‟ or the equivalent from an
NRSRO; and
2. has been in operation for at least five years.
Collateral under repurchase agreements with a maturity of 14 calendar-days or
less may be held by the agreement counterparty. Collateral under repurchase
agreements with a maturity of over 14 calendar days must be held by an
independent custodian.
Money Market Mutual Funds (Open-Ended Investment Funds) - Shares in
open-ended, no-load, money market investment funds, provided such funds are
registered under the Federal Investment Company Act of 1940 and rated at least
“AAAm” or the equivalent by an NRSRO. The mutual fund must comply with
the diversification, quality, and maturity requirements of Rule 2a-7, or any
successor rule, under the Investment Company Act of 1940, provided the
investments by such funds are restricted to investments otherwise permitted by
the Code of Virginia for political subdivisions.
Local Government Investment Pool (LGIP) - A specialized money market fund
created in the 1980 session of the Virginia General Assembly designed to offer a
convenient and cost-effective investment vehicle for public entities. The Fund is
administered by the Treasury Board of the Commonwealth of Virginia and is
rated AAA by Standard & Poor‟s, Inc.
VII. Portfolio Risk Management
The University evaluates the following primary risks as part of its short-term investment
management:
1. Interest Rate Risk - The University seeks to manage the impact of interest rates on
the market value and cash flows of its short-term investments. The University
develops an annual cash flow forecast and, through the use of sensitivity modeling,
determines its tolerance for interest rate risk.
2. Credit Risk - The University will invest in securities with a short-term rating of no
lower than A-1 by Standard and Poor‟s, Inc., and P-1 by Moody‟s Investors Service,
Inc. Government obligations and municipal securities must be rated AAA. Corporate
Appendix
Page 7 of 11
obligations must be rated no lower than AA by Standard and Poor‟s, Inc., and Aa by
Moody‟s Investors Service, Inc.
3. Liquidity Risk - The University assesses its need for liquidity by (a) using its cash
flow forecast to predict periods of greater liquidity needs and (b) by providing for
sufficient liquidity to support outstanding debt as prescribed by the rating agencies.
VIII. Investment Parameters & Diversification
It is the policy of the University to diversify its investment portfolios to eliminate risk of
loss resulting from the over-concentration of assets in a specific maturity, issuer, or class
of securities. The portfolio should consist largely of securities with active secondary or
resale markets. The University will diversify its short-term investments within the
following categories:
1. Portfolio Diversification - The Investment Portfolio shall be diversified by security
type and institution. The maximum percentage of the portfolio permitted in each
eligible security is as follows:
Permitted Investment
U.S. Treasury Obligations
Federal Agency Obligations
Municipal Obligations
Commercial Paper
Bankers‟ Acceptances
Corporate Notes
Negotiable Certificates of Deposit
and Bank Deposit Notes
Non-negotiable Certificates of
Deposit
Virginia Local Government
Investment Pool (LGIP)
Collateralized Bank Deposits
Repurchase Agreements
Money Market Mutual Funds
Sector Limit
100%
100%
25%
35%
35%
20%
20%
Issuer Limit
100%
50%
5%
5%
5%
5%
5%
10%
5%
100%
100%
50%
Limited by
underlying asset
limits above
Limited by
underlying asset
limits above
50%
10%
25%
The Sector Limit and Issuer Limit shall be applied to the total Investment Portfolio
value at the date of acquisition. For all pooled investments (e.g., mutual funds, etc.)
the University‟s holding must represent no more than 10 percent of the net assets of
the pool.
Appendix
Page 8 of 11
2. Security Downgrades - In the event that any security held in the Investment
Portfolio is downgraded below the rating required by this investment policy, the
security shall be sold within 60 days of such downgrade.
3. Selection of Broker / Dealers - All broker/dealers, and their affiliates, who desire to
provide investment services to the University shall be provided with current copies of
this investment policy. Before an organization, or its affiliates, can provide
investment services to the University, it must confirm in writing that it has received
and reviewed this investment policy and is able to comply with it.
Broker/dealers, and their affiliates, shall supply the University with information
sufficient to adequately evaluate their financial capacity and creditworthiness. The
following information shall be provided:
audited financial statements;
regulatory reports on financial condition;
proof of Financial Institution Regulatory Authority (“FINRA”); certification
and of state registration;
a sworn statement by an authorized representative of the broker/dealer
pledging to adhere to “Capital Adequacy Standards” established by the
Federal Reserve Bank and acknowledging the broker/dealer understands that
the University has relied upon this pledge; and
any additional information requested by the University in evaluating the
creditworthiness of the institution.
Only firms meeting the following requirements shall be eligible to serve as broker/dealers
for the University:
“Primary” dealers and regional dealers that qualify under Securities and
Exchange Commission Rule 15C3-1 (uniform net capital rule);
Capital of at least $10,000,000;
Registered as a dealer under the Securities Exchange Act of 1934;
Member of FINRA;
Registered to sell securities in the Commonwealth of Virginia; and
Engaged in the business of effecting transactions in U.S. government and
agency obligations for at least five consecutive years.
4. Engagement of Investment Managers - The Vice President and Chief Financial
Officer of the University of Virginia may engage one or more qualified firms to
provide investment management services for the University. All investment
management firms who desire to provide investment management services to the
University shall be provided with current copies of this investment policy. Before an
organization can provide investment management services to the University, it must
Appendix
Page 9 of 11
confirm in writing that it has received and reviewed this investment policy and is able
to comply with it.
Only firms meeting the following requirements will be eligible to serve as investment
manager for the University:
a)
Registered with the Securities and Exchange Commission under the
Investment Advisers Act of 1940;
b)
Must have provided to the University an annual updated copy of Form
ADV, Part II;
c)
Must be registered to conduct business in the Commonwealth of Virginia;
and
d)
Must have proven experience in providing investment management
services under the Investment of Public Funds Act.
Any firm engaged by the University to provide investment services shall:
a)
select security brokers/dealers who meet the requirements defined under
this policy;
b)
provide monthly reports of transactions and holdings to the University;
c)
provide performance reports at least quarterly;
d)
report on performance in comparison to the University‟s investment
benchmarks and provide evidence that the manager has solicited at least
three bids for any security purchased or sold on behalf of the University;
and
e)
not collect any soft dollar commissions or credits, from mutual funds or
others, in exchange for services directly provided to a customer.
IX. Portfolio Benchmarks
The University structures a portfolio benchmark that is consistent with the security types
and duration, or weighted average maturity, guidelines established under this policy. The
University will use the Merrill Lynch 6-month T-Bill Index as its benchmark.
Appendix
Page 10 of 11
A copy of this policy and related procedures manual will be placed on file in the Treasury
Operations Department and an electronic version will be posted on the University‟s website.
This statement of investment policy is adopted on __________________, ___ 20___ by
______________________________
______________________________
______________________________
______________________________
______________________________
______________________________
______________________________
______________________________
Appendix
Page 11 of 11