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REVISED
11/10/11
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
NOVEMBER 11, 2011
FINANCE COMMITTEE
Friday, November 11, 2011
8:45 – 9:45 a.m.
Board Room, The Rotunda
Committee Members:
Mark J. Kington, Chair
A. Macdonald Caputo
The Hon. Alan A. Diamonstein
Glynn D. Key
Randal J. Kirk
Stephen P. Long, M.D.
George Keith Martin
Vincent J. Mastracco Jr.
Edward D. Miller, M.D.
Helen E. Dragas, Ex-officio
Daniel M. Meyers, Consulting Member
AGENDA
I.
II.
STRATEGIC PRIORITIES
A.
Report on the Internal Financial Model (Mr. Strine
to introduce Mr. John Simon; Messrs. Strine and
Simon to report)
B.
2012-2013 Academic Division Budget Planning and
Preliminary Assumptions (Mr. Strine to introduce
Ms. Colette Sheehy; Ms. Sheehy to report)
C.
Report on the Academic Division Staff Survey (Mr.
Strine to introduce Ms. Susan Carkeek; Ms. Carkeek
to report)
ACTION ITEMS
A.
Defined Contribution Retirement Plan Amendments
(Ms. Carkeek to report)
B.
Working Capital Investment Policy (Mr. Strine to
introduce Ms. Yoke San L. Reynolds; Ms. Reynolds
to report)
C.
Real Estate Transfer to University of Virginia
Foundation (Ms. Sheehy to report)
D.
Addition to the Annual Renovation and Infrastructure
Project Plan, Lawn, and Range Rooms – Chimney Repairs
and Fire Suppression (Ms. Sheehy to report)
III. REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Strine)
A.
Vice President’s Remarks
B.
Endowment Report – Market Value and Performance as
of September 30, 2011 (Written Report)
PAGE
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2
6
8
11
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15
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18
PAGE
C.
IV.
Miscellaneous Financial Reports
1.
Academic Division Accounts and Loans Receivable
2.
Capital Campaign
3.
Internal Loans to University Departments and
Activities
4.
Quarterly Budget Report
5.
Quasi-Endowment Actions
6.
Report on Endowment by School/Foundation
APPENDICES
A.
Defined Contribution Retirement Plan Amendments (11)
B.
University of Virginia’s Working Capital Investment
Policy
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
I.A.
ACTION REQUIRED:
None
Report on the Internal Financial Model
BACKGROUND: Executive Vice President and Chief Operating
Officer Michael Strine and Executive Vice President and Provost
John Simon will provide a report on the work to develop and
prepare to implement a new internal financial model to better
align resource allocation with academic decision-making, create
greater accountability, and incent and encourage
entrepreneurship among deans and the faculty. They will discuss
the progress made since the last report to the Finance Committee
at its September meeting, including consensus around the values
and design principles that will underpin decision-making. They
will also discuss changes to operations and systems, as well as
the change management and communications necessary for effective
implementation. The Board of Visitors will continue to receive
regular updates on the status of this work at each meeting as
the project proceeds from design through implementation.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
I.B. REVISED 2012-2013 Academic Division
Budget Planning and Preliminary
Assumptions
ACTION REQUIRED:
None
BACKGROUND: In previous years, the University has typically
begun development of its operating budget for the next fiscal
year in December. In recognition of our current work to develop
a new financial model that will be in place for the 2013-2014
budget, we are already implementing changes to the 2012-2013
budget process that will prepare us to migrate to the new model.
Primary among those changes is early participation by deans and
other unit heads in the underlying assumptions and decisions
that drive budget development.
DISCUSSION: The following budget planning assumptions begin
this migration to guide school-level planning under the new
internal financial model. We are presently in discussions with
the Deans and Associate Deans for Finance across Grounds, and
will present an updated version of the budget planning
assumptions at the February 2012 Finance Committee meeting. The
updated assumptions will be used in the development of the 20122013 operating budget, to be presented to the Board of Visitors
for action at its May 2012 meeting.
Revenue Assumptions
1. Tuition: For planning purposes, schools will develop plans
using undergraduate tuition and fees from the incumbent Six
Year Plan submittal to the State Council of Higher
Education for Virginia. Actual tuition and fee charges for
2012-2013 will reflect rates that will be approved by the
Board of Visitors. Further implementation of differential
tuition will be discussed with the Board.
2. Research: Grant and contract revenue will be based on
historical spending patterns and known new awards with the
presumption of no growth projected in base federal research
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spending together with a decrease related to one-time ARRA
(stimulus) funds. For planning purposes, the Facilities
and Administrative cost rates are 54%.
3. Auxiliary enterprises: Schools will develop plans using
student mandatory fees included in the incumbent Six Year
Plan submittal to the State Council of Higher Education for
Virginia for 2012-2013. Actual revenues and fee charges
for 2012-2013 will be based on activity volumes and will
reflect rates that will be approved by the Board of
Visitors at its April 2012 meeting.
4. State appropriations:
state appropriations.
We will assume no growth in the
5. Endowment and Interest Payout: The University’s approved
endowment spending policy will govern the endowment
distribution for 2012-2013. Return on cash balances
invested in the University short-term pool will reflect
market-based rates as described in the University’s
Internal Investment Program policy.
6. Philanthropy: Estimates for annual giving will be
projected for each school and unit based upon estimates
developed in consultation between University Development
and school officials.
Expenditure Assumptions
1. Enrollment: Schools should assume that planned enrollment
growth will be supported by allocating incremental revenue
related to enrollment growth to those schools with additional
students according to a formula that supports the cost of
faculty as well as academic, student and administrative
support.
2. Financial aid: Full funding will be provided for the
projected cost of AccessUVa. To the extent that strategies
emerge from the Board’s Ad Hoc Committee on AccessUVa that can
be implemented for the 2012-2013 fiscal year, the impact of
those actions will be incorporated in the projected cost.
3. Compensation:
a. All budgets will account for the annualized cost of the
November 2011 Strategic Salary Action.
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b. State authorized changes, if approved by the 2012 General
Assembly, to classified staff compensation, whether
permanent changes to base salary or one-time bonuses, will
be funded from unit funds (for self-supporting activities)
or from central funds (for centrally-funded activities).
c. The budget contemplates a 2012 Strategic Salary Action to
retain and reward top performers. Self-supporting units
will reserve a pool of funds equal to X% of their salary
base for teaching and research faculty and equal to X% of
their salary base for University staff and Administrative
and Professional faculty.
d. 2012-2013 fringe benefit rates are estimated at:
Pooled Fringe Benefit Rates
Full-time and Part-time Faculty
and University Staff-Executive
Full-time and Part-time Classified
Staff, University StaffManagerial/Professional, and
University StaffOperational/Administrative
Part-time employees without
benefits
Wage employees
Approved
2011-2012
Projected
2012-2013
26.8%
26.8%
27.8%
35.2%
5.5%
5.5%
4. Academic commitments: Development of the current budget
contemplates the funding of prior-year commitments to faculty
hiring and strategic priorities.
5. Operations and maintenance costs: The University commits to
funding operating and maintenance costs for new facilities and
addressing proactively deferred maintenance. Debt service
includes principle payments as well as the blended internal
borrowing rate of 4.75%.
6. The Darden School and Law School financial self-sufficiency
models and the McIntire School and School of Continuing and
Professional Studies revenue-sharing agreements will continue
in 2012-2013.
7. Auxiliary enterprises, the Medical Center and the University
Physicians Group should anticipate a general and
administrative charge on the adjusted 2010-2011 expenditure
base to cover their share of central services.
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8. Self-supporting units will continue to comply with the Board
of Visitors Capital and Operating Reserves Policy established
in April 2006. Schools and units will also plan for
appropriate contingency reserves.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
I.C.
ACTION REQUIRED:
None
Report on the Academic Division Staff
Survey
BACKGROUND: In the Fall of 2010, President Sullivan commissioned
a staff survey to assist her and the University administration
in understanding the level of employee satisfaction at UVa. The
survey was intended to serve as a resource and catalyst for
discussion on improving the employee experience. A staff
advisory committee was formed to provide advice and oversight
throughout the process. The University of Virginia Center for
Survey Research (CSR), a unit of the Weldon Cooper Center for
Public Service, was retained to conduct the survey. CSR is a
full-service academic survey research facility and has recent
experience conducting employee engagement surveys in the public
sector.
The staff survey questionnaire was developed in
collaboration between CSR and the Staff Survey Advisory
Committee using previous organizational surveys conducted by CSR
and surveys done at other universities. The survey covered a
wide range of topics about the physical work environment, the
quality of work relationships, opportunities for training and
advancement, diversity and equal opportunity, and overall job
satisfaction. Staff members were asked to prioritize the areas
management should address. Open-ended questions provided staff
the opportunity to share what they consider the best things
about working at UVa, what things they would change, and what
President Sullivan should know that was not covered in the
survey.
All full- and part-time Academic Division staff members
were surveyed, including staff with the School of Medicine and
College at Wise. The survey did not include members of the
faculty, staff of the Darden School (who had recently
participated in their own survey), or employees of the Health
System. The survey was fully voluntary and anonymous, and
conducted completely on the web, with targeted outreach efforts
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focused on those employees without convenient access to
computers. The survey launched March 2, 2011, and closed March
25, 2011. More than 3,000 staff responded to the survey,
representing a 63% response rate.
DISCUSSION: At the November meeting, the Vice President and
Chief Human Resources Officer will share the results of the
survey and provide an update on the work being done in response
to the issues raised.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
II.A.
Defined Contribution Retirement Plan
Amendments
BACKGROUND: The University provides academic faculty and
managerial and professional staff a choice of two retirement
plans — a defined benefit plan (VRS) sponsored by the
Commonwealth and a defined contribution plan (ORP) sponsored by
the University. The University also sponsors a separate defined
contribution plan (MCRP) for employees of the University of
Virginia Medical Center.
DISCUSSION: To offer employees these retirement benefits, the
University maintains nine qualified retirement plans. Separate
plans are required, for example, to differentiate distinct plan
provisions, vesting or agency (Academic Division vs. Medical
Center). In an effort to respond more quickly to a fastchanging legislative environment, each of the nine plans is
being amended to designate the University’s Executive Vice
President and Chief Operating Officer as a designee with
delegated authority to amend the plans at any time on behalf of
the University’s Board of Visitors, when and if such amendment
is required to conform a plan to applicable changes in federal
or state law. The approval also includes the requirement for
the Executive Vice President and Chief Operating Officer to
provide prior notification of such amendments to the Board of
Visitors.
Two of the nine plans (The Supplemental Defined
Contribution Benefit Plan for Employees of the University of
Virginia and the Medical Center’s Optional Retirement Plan) have
an additional amendment. The Supplemental Defined Contribution
Benefit Plan for Employees of the University of Virginia is
being amended to add in mandatory employee contributions
required by recent legislation affecting employees in the ORP
hired or rehired on or after July 1, 2010 (“Plan 2” employees).
The employer contribution for Plan 2 employees is 8.4%. The
University exercised an option provided in the legislation to
supplement the employer contribution by an additional .5% to
make the total employer contribution 8.9%. For employees in
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Plan 2, the legislation requires an employee contribution of 5%,
resulting in a total contribution of 13.9%. This amendment to
the Supplemental Plan requires the employee contribution amount
be equal to 5% of the participant’s compensation.
The Medical Center’s Optional Retirement Plan (MCRP) is
being amended to incorporate employees of Hematology Oncology
Patient Enterprises, P.C. (HOPE). Under the MCRP vesting
schedule, a participant hired on or after September 30, 2002 is
not 100% vested until completing two years in the plan. Until
that time, the participant is 50% vested for employer
contributions. On behalf of the Medical Center, the University
intends to grant employees who became eligible employees as a
result of the Medical Center’s stock purchase of HOPE, effective
July 15, 2011, the right to apply months of service performed on
behalf of HOPE toward fulfilling the vesting period requirement.
To operationalize this grant-of-service credit, the University
must formally amend the benefit plan.
Appendix A includes the 11 plan amendments to implement
these changes.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
REVISIONS TO DEFINED CONTRIBUTION RETIREMENT PLANS
RESOLVED, the University’s Executive Vice President and
Chief Operating Officer is a designee with delegated authority
to amend the “Plans” (Optional Retirement Plan for Employees of
the University of Virginia, Defined Contribution Plan for
Executive Employees of the University of Virginia, Commonwealth
of Virginia Matching Contribution Retirement Plan for Salaried
Employees of the University of Virginia, Defined Contribution
Plan for Physicians of Community Medicine, Defined Contribution
Incentive Plan for Employees of the University of Virginia
Investment Management Company, Matching Contribution Retirement
Plan for the University of Virginia Medical Center, Supplemental
Defined Contribution Benefit Plan for Employees of the
University of Virginia, Optional Retirement Plan for Employees
of the University of Virginia Medical Center, and Supplemental
Defined Contribution Benefit Plan for Employees of the
University of Virginia Medical Center) at any time on behalf of
the University’s Board of Visitors, when and if such amendment
is required to conform a plan to applicable changes in federal
or state law, and with prior notification to the Rector and Vice
Rector; and
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RESOLVED FURTHER, the Supplemental Defined Contribution
Plan for Employees of the University of Virginia is amended such
that mandatory employee contributions required by recent
legislation affecting employees in the Optional Retirement Plan
(ORP) hired or rehired on or after July 1, 2010 (“Plan 2”
employees) will be an amount equal to 5% of the employee’s
compensation; and
RESOLVED FURTHER, the Optional Retirement Plan for
employees of the UVa Medical Center is amended to grant
employees who became eligible employees as a result of the
Medical Center’s stock purchase of Hematology Oncology Patient
Enterprises, P.C. (HOPE), effective July 15, 2011, the right to
apply months of service performed on behalf of HOPE toward
fulfilling the vesting period requirement.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
II.B.
Working Capital Investment Policy
BACKGROUND: At the September 2011 meeting of the Board of
Visitors, the Vice President and Chief Financial Officer
outlined for the Finance Committee the proposed Working Capital
Investment Policy and provided a draft redlined version of the
policy for the Board’s review. The draft policy contained
several revisions designed to broaden its coverage as it relates
to the policy on investments of working capital.
Guidance on investment of working capital had been provided
by the Current Funds Investment Guidelines, approved by the
Board in October, 2002. In 2007, the General Assembly enacted
legislation permitting the University to invest working capital
in a broader array of investment vehicles, and the Board of
Visitors approved the delegation of cash management authority to
the Vice President and Chief Financial Officer. In 2009, the
Board approved the Short-Term Investment Policy to replace the
Current Funds Investment Guidelines.
Since that time, the University has identified certain
revisions to the policy. First, the proposed policy has been
expanded to include intermediate and long-term investment of
working capital and working capital reserves. The Virginia
Auditor of Public Accounts offered two suggestions for the
University of Virginia to improve its investment policies, and
these have been incorporated in the proposed policy.
Additionally, the August 2011 downgrade of U.S. Government
debt brought to light the need to change the credit rating
standards and incorporate language related to split-ratings.
The market instability surrounding the U.S. Government downgrade
also underscores the need to introduce flexibility to allow
emergency decisions in a time of significant market stress in
order to protect the safety and/or liquidity of the working
capital portfolio.
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DISCUSSION: The Board of Visitors will be asked to approve the
University of Virginia Working Capital Investment Policy
(Appendix B) to replace the Short-Term Investment Policy.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL OF WORKING CAPITAL INVESTMENT POLICY
WHEREAS, the Board of Visitors finds it to be in the best
interest of the University of Virginia to strengthen the policy
guidance provided on the investment of working capital; and
WHEREAS, the existing Short-Term Investment Policy
addresses only the investment of working capital in fixed-income
vehicles with maturities no greater than two years, and does not
provide guidance on intermediate and long-term investments; and
WHEREAS, since the Short-Term Investment Policy was
approved by the Board of Visitors in September 2009, several
external events have occurred, including the unprecedented
downgrade of U.S. Government debt to a split “AA”/“AAA” rating;
and
WHEREAS, the 2010 Study of Commonwealth Investment
Practices, published by the Auditor of Public Accounts, contains
two recommendations for the University of Virginia which should
be incorporated into the policy; and
WHEREAS, conditions of significant market instability may
require a reallocation of the portfolio in order to protect the
safety and/or liquidity of the working capital portfolio;
RESOLVED, the Board of Visitors approves the Working
Capital Investment Policy to replace the existing Short-Term
Investment Policy.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
II.C.
Real Estate Transfer to University of
Virginia Foundation
BACKGROUND: The University of Virginia Foundation is constructing
the Battle Building at the University of Virginia Children’s
Hospital (the “Battle Building”) adjacent to 1224 Jefferson Park
Avenue (the “JPA Building”) which is owned by the University. The
design of the Battle Building puts approximately 33 feet of the
western facing exterior wall too close to the JPA Building, which
violates the building code. Since it is anticipated that at some
point in the future the JPA Building will be demolished, the
University proposes to adjust the boundary line to accommodate the
Battle Building construction.
DISCUSSION: The relocation of the boundary line will result in
the transfer of approximately 507 square feet from the
University of Virginia to the University of Virginia Foundation.
The University has entered into a purchase contract with the
University of Virginia Foundation to acquire the Battle Building
upon the completion of construction and, upon settlement under
the contract, the University would reacquire the 507 square
feet.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL OF THE RELOCATION OF A PROPERTY LINE AND THE TRANSFER
OF 507 SQUARE FEET FROM THE UNIVERSITY OF VIRGINIA TO THE
UNIVERSITY OF VIRGINIA FOUNDATION, CITY OF CHARLOTTESVILLE,
VIRGINIA
WHEREAS, the University of Virginia has entered into a
purchase contract to acquire the Battle Building at the
University of Virginia Children’s Hospital (the “Battle
Building”) from the University of Virginia Foundation (the
“Foundation”); and
WHEREAS, to facilitate the construction of the Battle
Building, it is desirable to relocate the shared boundary line
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with 1224 Jefferson Park Avenue, property owned by The Rector
and Visitors of the University of Virginia, and to transfer
approximately 507 square feet of land to the Foundation;
RESOLVED, the adjustment of the boundary line and the
transfer of 507 square feet of land to the Foundation,
consistent with that certain plat entitled “Boundary Adjustment
Plat of Tax Map 10 Parcels 60 and 82” dated July 19, 2011, and
prepared by Timmons Group (the “Plat”), is approved; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized, on behalf of the University, to
approve and execute transfer agreements, contracts and related
documents, to approve revisions to the Plat, to incur reasonable
and customary expenses, and to take such other actions as deemed
necessary and appropriate to consummate the boundary line
adjustment and transfer; and
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 boundary
line adjustment and transfer, are in all respects approved,
ratified, and confirmed.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
II.D.
Addition to the Annual Renovation and
Infrastructure Project Plan, Lawn,
and Range Rooms – Chimney Repairs and
Fire Suppression
BACKGROUND: The Annual Renovation and Infrastructure Projects
Plan is approved each June and includes a detailed list of
renovation and infrastructure projects, expected to cost between
$2 million and $5 million, to be funded with non-general fund
cash (no debt), and expected to be initiated within the next
fiscal year.
DISCUSSION: The proposed project requests Board of Visitors
consideration to add a project to the Annual Renovation and
Infrastructure Project Plan, for completion in the current
fiscal year provided funding is available.
Lawn and Range Rooms Chimney Repairs and Fire Suppression
Gifts
$3.7 million
This project includes remediation of 105 fireplaces and
chimneys in the Lawn and Range rooms of the Academical Village.
Anticipated scope includes repairs to the hearths, fireboxes,
and chimneys, as well as replacement of the flue linings. The
project also includes design and installation of a fire
suppression system and improvements to the existing alarm and
detection system for these spaces.
The project will be fully funded from gifts. Additional
annual operating and maintenance costs associated with the new
fire suppression systems are expected to be $4,000 and will be
funded from housing revenues.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
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APPROVAL OF ADDITION TO THE ANNUAL RENOVATION AND INFRASTRUCTURE
PROJECT PLAN, LAWN, AND RANGE ROOMS - CHIMNEY REPAIRS AND FIRE
SUPPRESSION
WHEREAS, the University proposes to repair the hearths,
fireboxes, and chimneys, as well as replace the flue linings in
the Lawn and Range Rooms, and install a new fire suppression
system at an estimated project cost of $3.7 million;
RESOLVED, the Board of Visitors approves the addition of
the Lawn and Range Rooms - Chimney Repairs and Fire Suppression
project to the University’s Annual Renovation and Infrastructure
Project Plan.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
III.A.
ACTION REQUIRED:
None
Vice President’s Remarks
BACKGROUND: Executive Vice President and Chief Operating Officer
Michael Strine will report on several key issues about which
members of the Board of Visitors should be aware.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 11, 2011
COMMITTEE:
Finance
AGENDA ITEM:
III.B.
ACTION REQUIRED:
None
Endowment Report – Market Value and
Performance as of September 30, 2011
(Written Report)
BACKGROUND: The University of Virginia Investment Management
Company (UVIMCO) provides investment management to the Rector
and Visitors of the University of Virginia and its related
Foundations. Assets deposited in UVIMCO are held in the custody
and control of UVIMCO on behalf of the University and
Foundations within a long-term, co-mingled investment pool.
UVIMCO’s primary objective in managing the 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 managed benchmark
with similar asset allocation and risk. Recognizing that the
University must attract outstanding students, faculty, and staff
and provide them appropriate resources, UVIMCO attempts to
manage pool assets to provide long-term real returns that
compare favorably with the returns of endowments of other
outstanding schools. UVIMCO does not set spending rates.
UVIMCO communicates the Pool’s risk and return estimates to the
University and Foundations for their consideration in setting
spending rates.
DISCUSSION: The following quarterly commentary provides
information on the asset allocation, performance (unaudited),
risk management, and liquidity position of UVIMCO’s Long Term
Pool as of and for periods ending September 30, 2011. The third
quarter of 2011 provided a challenging investment environment as
macroeconomic fears dominated the markets and correlations rose.
Against this backdrop, UVIMCO continued to maintain the same
asset allocation and portfolio tilts that have served us well
for the past several quarters. The Long Term Pool is positioned
defensively versus the policy portfolio benchmark, with less
market risk. Current themes continue to be a relative
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overweight to quality equities, a low duration bond portfolio, a
relative underweight to real estate, and a meaningful allocation
to natural resources. The Long Term Pool lost 4.3% for the
quarter ending September 30, 2011, beating the policy portfolio
benchmark by 700 bps.
MARKET ENVIRONMENT
Macroeconomic fears dominated the markets during the third
quarter of 2011, and risky asset returns were the worst since
2008. The MSCI All Country World Index lost 17%, while certain
strategies did even worse; emerging market and European equities
fell by 22% and 23%, respectively. The quarter began poorly
with lingering concerns about European sovereign credit risk
followed by worries about a US Treasury default and US debt
downgrade and escalating fears regarding the soundness of most
European and some US financial institutions. Recent memories of
Lehman’s failure and the resulting financial collapse had
investors worried about a replay of 2008.
After the initial sell-off in early August, the markets
exhibited periods of “risk on” and “risk off.” Correlations
across equity markets and individual securities have been rising
for years, but reached or neared their all-time highs this
quarter. The following quotes help describe the current market
environment:
“As in previous rallies, there were few obvious catalysts
for Friday's surge... Friday's buying appeared to be
fueled by hope that European policy makers would come up
with clear solutions to the region's deepening debt crisis
at meetings over the weekend and next week.”
The Wall Street Journal
“Stocks pushed lower Tuesday afternoon, as hopes for a big
solution to Europe's debt crisis waned following the
cancellation of a scheduled meeting for European Union
finance ministers.” The Wall Street Journal
“At least for the foreseeable future this will be a
headlines-driven market.” CNBC
Security prices continue to react more to global macro news
than company fundamentals. The Washington Post’s Jason Zweig,
writing on the 10th anniversary of the 9/11 terrorist attack,
concluded that the event ushered in an age of macro investing.
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This macro-focus has been even more prevalent since the 2008
market collapse. Zweig wrote, “Ever since (9/11), investment
portfolios have seemed to be at the mercy of what professional
investors call "macro" forces: natural disasters, geopolitical
shocks and sudden, systemic failures of stock markets and
national economies, from Hurricane Katrina and the financial
crisis to the Japanese earthquake and, now, the unraveling
of Europe.”
As portfolio decisions have become more affected by macroevents, many investors have become more tactical. The return on
global equities over the ten years ended September 30, 2011 was
a dismal 2% per year, or zero after inflation. Unsatisfied with
a passive long-term approach to investing and armed with a fire
hose of information from hundreds of financial media sources,
investors have become shorter-term focused, attempting to time
the market. This temptation exists for both retail and
institutional investors.
I was asked the other day about my views on the current
economic environment and how it affects our management of the
Long Term Pool. My first response was that there is much to
worry about in the world. The list includes Europe, China, the
debt overhang in the developed world, policy mistakes by
multiple governments, demographics and conflicts in the Middle
East. For example, consider the debt overhang. Many financial
market commentators and investors have read the Rogoff and
Reinhart book, “It’s Different this Time,” and concluded that
the banking crisis of 2008 and resulting excessive leverage in
the developed world will lead to a prolonged period of slow
economic growth. I share this concern, and it should certainly
be considered when thinking about forward looking equity
returns. However, future returns are influenced by growth in
both domestic developed markets and underleveraged emerging
economies. In addition, returns are impacted by current market
prices, and unlike the late 90’s or mid-2000’s, the prices of
most risky assets are lower relative to future cash flows.
Although equity prices are not cheap, they are priced to deliver
single digit future returns that are still significantly above
the returns available on risk-free assets. Slow economic growth
combined with the remaining list of worries could lead an
investor to de-risk by buying “tail insurance” or implementing a
more conservative asset allocation. Although this may end up
being the correct decision, there is a pretty steep cost
associated with such movements. In today’s environment,
everyone has the same concerns, so insuring against risky
outcomes is expensive.
20
UVIMCO’s edge is partnering with extraordinary investment
managers and tilting the portfolio towards certain long-term
themes. Our other edge is an ability to be a long-term patient
investor. This will produce a larger payoff in the current
environment when many investors have shortened time horizons.
The higher correlations across securities and asset classes will
lead to greater opportunities for our managers to exploit
differences between fundamental value and price, but it takes a
long-term horizon, patience and the ability to bear liquidity
risk to capitalize on these mis-pricings.
What are we doing to respond to the current market
downturn? We are not suddenly abandoning our long-term approach
to investing or significantly changing the Long Term Pool’s
asset allocation. However, our investment process in 2011
reflects several actions related to the current market
environment. First, we continue to assess the health of the
companies in our managers’ portfolios, both public and private.
Unlike 2008, when businesses felt an immediate impact during the
market collapse, most of our underlying portfolio companies –
especially US companies – are performing quite well. Second, we
continue to rebalance the overall portfolio through funding
capital calls from private managers and adding to quality
consumer-oriented public equity managers. Finally, the downturn
has created opportunities for existing and new previously
“closed managers” to accept additional capital to take advantage
of mispriced securities. Since the market isn’t distinguishing
well between good and bad companies, our managers can exploit
these opportunities at the security and company level.
ASSET ALLOCATION
Our 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 September 30,
2011 is 61.8% to equity managers, 13.8% to real asset managers
and 24.4% to fixed income (including credit), cash and absolute
return managers. Looking through to our managers’ underlying
investments, the Long Term Pool has a 48.6% allocation to
equities, 15.2% allocation to real assets and 36.2% allocation
to fixed income (including credit) and cash as of June 30.
Therefore, the Long Term Pool continues to be positioned
21
defensively versus the policy portfolio benchmark, with less
market risk. Within the overall asset allocation, the current
investment themes continue to be a relative overweight to
quality equities, a low duration bond portfolio, a relative
underweight to real estate, and an allocation to natural
resources.
PERFORMANCE
The Long Term Pool lost 4.3% for the quarter ending
September 30, 2011 versus the policy benchmark loss of 11.3%.
Strong relative performance by the public and long/short equity
programs contributed to the Long Term Pool’s returns during the
quarter. Similar to the second quarter, the quality bias in
both equity programs helped provide the relative outperformance.
EQUITIES
Public Equity
The public equity portfolio fell 13.1% for the first three
months of the new fiscal year in a global equity market that
lost 17.3% as measured by the MSCI All Country World index.
Good stock selection by our managers and a bias toward high
quality businesses kept our portfolio from falling as hard as
the markets. The relative outperformance came despite a
significant and long-standing overweight to the emerging markets
(47% EM versus 14% EM for the index) which underperformed the
developed markets this past quarter by losing 22.5%.
While we accept that equity markets will be volatile and
that the portfolio will mark some periods with losses, we expect
to generate strong, positive absolute returns over the long
term. Over the trailing three-, five-, and ten-year periods the
portfolio has returned 10%, 5%, and 12% on an average annual
compound basis versus 1%, -1%, and 5% over the same periods,
respectively, for global equities. The significant
outperformance over all periods is the result of allowing our
portfolio to look very different than the index. The difference
is driven by the stock selection of our managers, a bias toward
quality and UVIMCO’s decision to concentrate the Long Term
Pool’s emerging markets exposure within public equities. We are
pleased that the stock selection of our managers has been able
to overcome the recent headwinds of our significant emerging
market bias within public equities, and over the long term we
expect this to be the case. We will continue to assess the
attractiveness of our biases on a long-term basis, and will
22
adjust our positioning if valuations become stretched. However,
we accept that the moods of the market may create headwinds that
result in unfavorable performance comparisons over short- to
medium-term periods.
Long/Short Equity
The long/short equity portfolio fell 5.3% for the quarter
versus -17.3% on global equities and -9.8% on the broad universe
of long/short managers as measured by the Dow Jones Credit
Suisse Long/Short Equity index. In these reports, we often talk
about our long/short returns as if the fourteen managers
comprising the portfolio were one monolith. This quarter, the
dispersion among manager returns was remarkably wide, ranging
from a low of -19% to a high of 20%. Managers with significant
net-long biases or those who found value in financials and other
more cyclical names fell in line with the market. Three
managers fall into this category. Four of our managers
generated positive returns in the down 17% market, generating
strong returns on the short side. Most of the long/short
managers had losses in the low single digits, adding value to
what a 45% to 50% net long bias would explain.
Our patience with the existing portfolio of long/short
managers continues to pay off. Over the past year, the
long/short equity portfolio outperformed the equity market by 10
percentage points and the broad universe of long/short equity
managers by 8 percentage points. Over the past five- and tenyear periods the 5.5% and 7.6% returns, respectively, have
outperformed the equity markets and the broad universe of
long/short managers. Given the high fees awarded to long/short
managers, we continue to be diligent yet patient in assessing
whether we have the most capable managers operating within sound
organizations.
Private Equity
For the quarter ending September 30, the private equity
portfolio had a return of -0.5% which outpaced the -17.3% of the
MSCI ACWI. The volume of buyout deals for the period was higher
than the same quarter of 2010. However, the market downturn
contributed to lower buyout activity in August ($6.6 billion)
compared to July ($13.7 billion).
Initial Public Offering (IPO) activity slowed considerably
since the April – July time period as a result of the market
volatility during August and September. In August, 24 companies
23
filed, and only 16 companies filed in September, down from the
21 that filed in September 2010. If the markets continue to
trend down or the pattern of volatility continues, IPO filings
will likely decline even more as we get closer to the end of the
calendar year.
On an individual basis, the buyout portfolio returned -0.3%
for the quarter and the venture capital portfolio returned -1.3%.
For the 10-year period, the private equity portfolio had a return
of 8.8% versus 5.0% for the MSCI ACWI. Over 20 years, the
private equity return of 21% significantly outperformed the 6.3%
return of the MSCI ACWI.
Cash distributions in the buyout and venture capital
portfolios for the quarter slowed somewhat from previous
quarters to $28 million, and lagged behind quarterly capital
calls of $44.5 million.
REAL ASSETS
Resources
UVIMCO’s resources portfolio fell 5.2% during the first
fiscal quarter versus a 16.1% loss on the real assets benchmark.
Heightened concerns over global growth hit commodity markets
hard. The WTI Crude Oil spot price reached an intra-quarter
high of $100.94 on July 22 and, in a little more than two
months, fell 22% to a quarter-low of $79.33 on September 30. The
NYMEX spot price for next day delivery of natural gas at the
Henry Hub likewise fell 20% from $4.60/MMbtu on July 20 to
$3.67/MMbtu on September 30. Copper prices fell roughly 30%.
The majority of our resources portfolio is invested in
privately-held companies that provide lagged valuation updates.
Therefore, the Long Term Pool’s performance for the third
quarter does not reflect updated values for most of the
resources portfolio. However, our managers have been
underwriting to long-term commodity prices below the levels of
mid-July, so it is not clear whether there will be any
markdowns. Recent commodity market rebounds in October have
also reduced this possibility.
The resources program was slightly cash flow negative
during the quarter; generating distributions of $13 million
compared to capital calls of $15 million.
24
Real Estate
The real estate portfolio gained 0.6% for the quarter
versus a -16.1% return for the real estate component of our
policy portfolio benchmark, which reflects a weighted index of
publicly-traded US and International real estate securities.
Calendar year to date, UVIMCO’s real estate holdings have
appreciated 3.9% against a -9.0% loss for the benchmark.
We have noted in past commentary that the composition of
our real estate portfolio and that of the benchmark are markedly
different, and the dissimilarity in their return patterns has
been pronounced over recent periods. We do not own any North
American REIT securities or publicly-traded real estate equities
in emerging markets, both of which have rallied significantly
over the past few years. However, these two sectors met stiff
headwinds in the most recent quarters due to investor concerns
related to valuation and global growth. US REITs have been a
rare source of yield for investors grappling with 0% interest
rates, despite lofty valuations. As investors moved to take
risk off this quarter, the MSCI US Real Estate Index fell 14.5%
bringing the calendar year-to-date return below par to -3.6%.
The MSCI World Real Estate Index, which includes a higher
proportion of emerging market exposure, fell 17.7% during the
quarter and is now down 14.1% for the calendar year.
We expect the performance of our portfolio to continue to
diverge from public real estate benchmarks in the years ahead.
REIT values react to a number of factors in addition to their
underlying fundamentals, including interest rates and yield
alternatives. On the other hand, our real estate managers seek
to buy properties in less efficient areas of the private real
estate market where they can add value through re-positioning or
re-development. Ultimately, there are links between valuations
in the public and private real estate markets, but these links
are typically not observable over short timeframes. We are
confident that our current real estate portfolio will outperform
the benchmarks over the long run.
The real estate program continues to grow with our managers
drawing more capital than they distribute. Distributions of $7
million were exceeded by the $18 million of capital calls over
the past quarter.
FIXED INCOME
Absolute Return and Credit
25
The absolute return portfolio gained 1.3% during the
quarter, versus 3.5% earned by the Barclays US Aggregate Bond
benchmark and 11.3% lost by the policy portfolio. The
dispersion between the benchmark returns highlights the mood of
the market during the quarter. The policy portfolio benchmark
is dominated by global equities, which fell precipitously as
investors sought shelter in US Government and high-quality
corporate bonds. The Federal Reserve’s activity also helped to
drive up prices of longer-duration low-risk assets, as evidenced
by the remarkable 25% gain recorded by the Barclays Treasury
Long Term index over the quarter. The impact of these
significant market moves had little effect on the portfolios of
the three distinct managers that comprise UVIMCO’s absolute
return portfolio, resulting in a flat return.
The credit portfolio returned -1.7% for the quarter versus
-6.1% on the Barclays High Yield index. The negative impact of
widening credit spreads was felt across each of the funds within
the portfolio but to a lesser extent than for the index. The
portfolio is comprised of drawdown structure funds, many of
which are in the distribution phase of the fund life cycle. We
expect the composition of the credit portfolio to continue to
evolve as these funds distribute capital and we consider the
opportunity to reallocate. Our private credit managers
continued to generate net cash during the quarter, as
distributions of $7 million outpaced capital calls of $2
million.
Bonds and Cash
Our cash and government bond portfolio is a source of
liquidity that allows us to rebalance and provide the dry powder
to invest in cheap assets in the event of a market selloff. We
have maintained a short duration (under one year) in the
government bond portfolio since there is little compensation for
taking duration risk. The negligible returns reported for these
short-term bonds and cash investments are consistent with an
environment in which current interest rates are near zero.
RISK MANAGEMENT
UVIMCO determines our investors’ risk tolerance by
balancing competing objectives of stable, current spending with
long-term growth. Investments with low risks and low returns
decrease the possibility of significant short-term depreciation,
and a corresponding reduction in spending, but also decrease
26
expected long-term growth. Investments with high risks and high
returns raise the possibility of a near-term decline in spending
but also raise expected long-term growth. UVIMCO measures and
controls for three primary risks: market risk, manager risk,
and liquidity risk.
Market Risk
Market risk is measured by the volatility of returns or
maximum drawdown in a portfolio. The largest risk factor
present in the Long Term Pool is equity market risk. UVIMCO
manages market risk by diversifying across three broad asset
classes: equity, fixed income, and real assets. By investing
the Long Term Pool in asset classes that perform differently
from each other, we can mitigate the Long Term Pool’s exposure
to any particular market condition. However, we recognize that
certain investments behave quite differently in an inflationary
environment versus a deflationary environment. During
inflationary periods, fixed-income securities may act more like
equities, and foreign currency and commodities may act less like
equities. On the other hand, during periods of deflation,
fixed-income securities may act less like equities, and foreign
currency and commodities may act more like equities. Today,
inflation is low and the global financial community has no
desire to see deflation. Given these market conditions, we
expect the returns of the Long Term Pool to have an average
future volatility of about 10% per annum versus the policy
portfolio benchmark’s annual volatility of 12%.
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 a thorough due diligence process. In addition,
we reduce manager risk by manager diversification, declining
certain partnership structures, and avoiding certain investment
strategies (e.g., highly-leveraged hedge funds). Most
importantly, we control manager risk by building close
relationships with managers who have unquestioned ethics and
integrity, and who align their interests with those of our
University and foundation shareholders.
27
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 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. In addition, we require the Long Term Pool to have at
least 30% of its assets available for conversion to cash in any
twelve-month period. At any moment, the amount of liquidity we
have available is a function of the size and nature of our
private portfolio and the terms governing our public
investments.
The Long Term Pool’s liquidity at September 30, 2011
continued to exceed our targets. Cash and government bonds
decreased from $626 million at the end of last fiscal year to
$524 million on September 30, 2011. Cash was used to fund new
investments and redemptions from the Long Term Pool. Total
private investment distributions for the quarter were $54
million versus capital calls of $80 million. Total private
investment distributions for the 12 months ending September 30,
2011 were $450 million, versus capital calls of $379 million.
We expect that distributions will continue to exceed capital
calls unless the economy slips back into a recession. Unfunded
private investment commitments decreased from $975 million or
18% of the Long Term Pool as of June 30, 2011 to $879 million or
17% of the Long Term Pool as of September 30, 2011.
28
The percentage of the Long Term Pool that can be turned
into cash has remained relatively constant over the past year.
As of September 30, 2011, 37% of the Long Term Pool can be
turned into cash within one quarter and 44% of the Pool can be
turned into cash within one year.
29
INVESTMENT MANAGEMENT COMPANY
Investment Report
September 30, 2011
Investment Activity
Month
Beginning Net Asset Value (NAV)
FYTD 2012
$5,264,985,707.44
$5,346,502,216.17
931,029.92
932,765.04
Beginning Shares
$5,731.89
$6,536,628.55
($20,285,242.29)
($230,277,221.29)
($2,665,321.15)
$5,655.01
$1,334,091.52
($7,003,537.77)
($158,627,703.58)
($877,497.62)
NAV Per Share at Beginning of Period
+ Contributions
- Redemptions
+ Investment Return
- Fees
$5,099,811,059.99
929,836.23
$5,484.63
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
(1)
$5,099,811,059.99
929,836.23
$5,484.63
Shareholder Summary
Long Term Pool
% of NAV
$3,177,905,817.42
$1,111,434,961.19
$810,470,281.38
$5,099,811,059.99
University of Virginia Endowment
Affiliated Organizations
University Operating Funds
Total
62.3%
21.8%
15.9%
100.0%
Performance
(2)
Market Value
$ Millions %
Long Term Pool
Policy Benchmark
Equity
Public
Long / Short
Buyout
Venture Capital
5,100
Total Real Assets
Barclays Aggregate Bond
(5)
20 YR
(4.3)
5.6
11.6
6.8
6.8
8.9
12.0
100.0
(6.6)
(11.3)
(7.3)
(2.1)
3.4
1.3
5.8
6.9
969
1,123
903
157
19.0
22.0
17.7
3.1
(9.0)
(3.1)
(0.7)
(0.4)
(13.1)
(5.3)
(0.3)
(1.3)
(1.7)
(0.2)
19.0
26.5
6.0
4.2
27.9
35.7
9.7
2.8
6.4
4.9
5.1
5.5
9.1
6.5
11.8
7.6
14.7
(2.6)
11.4
--18.2
3,152
61.8
60.0
(4.2)
(9.4)
(6.4)
(17.3)
5.2
(13.2)
12.1
(5.5)
7.0
1.1
7.0
(1.1)
9.4
5.0
13.9
6.3
330
376
6.5
7.4
(1.1)
(2.4)
0.6
(5.2)
3.9
22.0
3.0
43.2
(24.2)
19.2
(15.8)
22.2
(5.3)
24.8
---
706
13.8
(1.8)
(2.6)
14.3
25.7
(0.8)
3.8
9.9
--
10.0
(11.4)
(16.1)
(9.0)
(2.4)
(1.3)
(4.0)
7.4
8.1
9.2
4.9
8.5
1.8
(0.5)
(2.2)
(0.0)
(0.0)
1.3
(1.7)
0.1
0.0
2.3
4.9
0.1
0.2
5.2
7.4
0.1
0.2
12.6
9.9
6.4
6.3
8.5
6.0
6.4
5.7
7.6
9.9
6.8
--
--7.6
--
24.4
(0.6)
0.1
1.9
3.7
9.4
7.2
7.1
7.9
30.0
0.7
3.4
5.6
4.0
7.1
5.9
5.3
6.6
471
249
432
92
Total Fixed Income, Cash & AR
Annualized
5 YR 10 YR
(3.0)
(4)
MSCI Real Estate
Fixed Income, Cash & AR
Absolute Return
Credit
Government Bonds
Cash & Currency
3 YR
100.0
(3)
Total Equity
MSCI All Country World Equity
Real Assets
Real Estate
Resources
Time-Weighted Returns
MO FYTD CYTD
1 YR
1,243
30
Investment Report
September 30, 2011
Short-Term Liquidity(6)
Actual Liquidity (Cumulative Total % of NAV)
Weekly
Public Equity
Monthly
Quarterly
Semi-Annually
Annually
2%
6%
14%
16%
16%
Long / Short Equity
-
2%
11%
13%
15%
Absolute Return
-
-
1%
3%
3%
Resources
0%
0%
0%
0%
0%
Government Bonds
8%
8%
8%
8%
8%
Cash
Total
Available Liquidity ($ in Millions)
2%
2%
2%
2%
2%
12%
18%
37%
43%
44%
633
927
1,907
2,181
2,253
Private Funds Market Values and Commitments (7)
($ in Millions)
Market Value of Private Investments
Amount
Public Equity
Uncalled Commitments
Amount
% of NAV
Private Aggregate
Amount
% of NAV
120
2%
37
1%
157
25
0%
-
-
25
0%
1,060
21%
372
7%
1,432
28%
12%
Long / Short Equity
Private Equity
% of NAV
3%
Real Estate
330
6%
278
5%
608
Resources
351
7%
112
2%
463
9%
57
1%
-
-
57
1%
248
5%
79
2%
327
6%
2,192
43%
879
17%
3,070
60%
Europe
Asia
Absolute Return
Credit
Total
Market and Currency Exposure Estimates (8)
(% of NAV)
Policy Ranges
Equity
Actual
Exposure
North
America
6.9
7.6
(9)
LAMA
40 - 70
48.6
27.9
6.1
Real Assets
5 - 20
15.2
12.9
1.2
0.8
0.3
Credit
0 - 20
5.2
5.0
(0.3)
0.1
0.3
Government Bonds
5 - 20
8.5
8.5
0.0
0.0
0.0
Total Market Exposure
70 - 100
77.4
54.2
7.9
8.5
6.7
25 - 75
10 - 40
10 - 40
0 - 20
Policy Ranges
--
Cash & Currency
Currency Exposure
Policy Ranges
Market Beta Exposure
(10)
--
0 - 30
22.6
23.0
(0.4)
(0.0)
-
--
100.0
77.3
7.5
8.5
6.7
50 - 100
0 - 30
0 - 30
0 - 20
--
--
--
69.5
--
31
--
--
--
Investment Report
September 30, 2011
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 2012 policy target allocations: 60% Equity, 10% Real Assets, 30% Fixed Income.
(4)
The Real Estate component of our Fiscal Year 2012 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 Nationa
Association of Real Estate Investment Trusts Equity Index.
(5)
The Fixed Income component of our Fiscal Year 2012 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.
(6)
Represents securities and funds that may be readily sold for cash within the designated time periods.
(7)
Represents the market values of investments where distributions are at the sole discretion of the managers, plus all uncalled
commitments.
(8)
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.
(9)
Latin America, Middle East, and Africa.
(10)
Estimated market beta of the Long Term Pool with each asset class adjusted for its level of market risk.
32
MISCELLANEOUS FINANCIAL REPORTS
Finance Committee
University of Virginia
November 11, 2011
UNIVERSITY OF VIRGINIA
ACADEMIC DIVISION
ACCOUNTS AND LOANS RECEIVABLE
AS OF SEPTEMBER 30, 2011
Summary of Accounts Receivable:
The University's Academic Division's total accounts receivable at September 30, 2011 was
$45,049.000 as compared to $31,721,000 at June 30, 2011. The major sources of receivables at
September 30, 2011 were student accounts of $27,875,000 and sponsored programs of $14,397,000.
The past due receivables over 120 days old were $2,941,000 as of September 30, 2011 or 6.53 percent of
total receivables, which is below the Commonwealth's management standard of 10 percent.
Gross Accounts Receivable
Less: Allowance for
Doubtful Accounts
Net Accounts Receivable
Accounts Receivable
Greater than 120
Days Past Due
Student
Accounts
Sponsored
Programs
Other
Receivables
Total
$27,875,000
$14,397,000
$2,777,000
$45,049,000
$712,000
$676,000
$65,000
$1,453,000
$27,163,000
$13,721,000
$2,712,000
$43,596,000
$1,425,000
$1,353,000
$163,000
$2,941,000
SOURCE: Financial Administration
DATE:
October 18, 2011
33
UNIVERSITY OF VIRGINIA
ACADEMIC DIVISION
ACCOUNTS AND LOANS RECEIVABLE
AS OF SEPTEMBER 30, 2011
Summary of Loans Receivable:
The default rate for the Perkins Student Loan Program was 2.88 percent for the quarter ending September 30, 2011.
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 from 1.90 percent to 1.95 percent. Both medical loan programs are well below the 5 percent federal threshold. The
University Loan Program default decreased from 2.62 percent to 2.37 percent for the quarter ending September 30, 2011.
Gross
Loan
Receivables
Perkins Student Loans
Current
Default
Rate
Inc/(Dec)
From Last
Quarter
$20,150,000
2.88%
-5.90%
$0
0.00%
0.00%
$1,187,000
1.95%
0.05%
University Loans
$17,621,000
2.37%
-0.25%
Total Student Loans Outstanding
$38,958,000
Health Professions Loans
Undergraduate Nursing Loans
SOURCE: Financial Administration
DATE:
October 18, 2011
34
UNIVERSITY OF VIRGINIA CAPITAL CAMPAIGN SUMMARY
AS OF SEPTEMBER 30, 2011
All Units
Expendable
Gifts and Pledge Payments
Endowment
Total
1,076,533,146
505,297,847
1,581,830,993
174,751,476
41,556,189
216,307,665
Deferred Gifts
92,596,250
29,546,847
122,143,097
Private Grants
217,883,546
0
217,883,546
73,672,896
2,188,297
75,861,193
1,635,437,314
578,589,180
2,214,026,494
228,854,119
66,851,525
295,705,644
1,864,291,433
645,440,705
2,509,732,138
-263,487,314
1,049,460,820
785,973,506
1,371,950,000
1,628,050,000
3,000,000,000
Outstanding Pledge Balances
Gifts in Kind
Gift and Pledge Total
Future Support
Campaign Total
Additional Amounts To Be Raised
(1)
Total
Rector & Visitors Gift Accounts Only
Expendable
Gifts and Pledge Payments
Endowment
Total
372,238,471
271,895,962
644,134,433
Outstanding Pledge Balances
28,519,356
5,735,919
34,255,275
Deferred Gifts
60,348,845
14,558,242
74,907,087
Private Grants
0
0
0
31,260,690
10,587
31,271,277
492,367,362
292,200,710
784,568,072
128,326,764
12,465,594
140,792,358
620,694,126
304,666,304
925,360,430
Gifts in Kind
Gift and Pledge Total
Future Support
Campaign Total
Additional Amounts To Be Raised
TBD
Total
TBD
620,694,126
TBD
304,666,304
925,360,430
9,841,546
0
9,841,546
Deferred Gifts
200,000
0
200,000
Outstanding Pledge Balances
218,523
0
218,523
10,260,069
0
10,260,069
Rector & Visitors Unrestricted Giving
Gifts and Pledge Payments
Total
(1) Excludes future or revocable support
SOURCE: Development & Public Affairs
DATE: October 12, 2011
35
UNIVERSITY OF VIRGINIA
INTERNAL LOANS TO UNIVERSITY DEPARTMENTS AND ACTIVITIES
AS OF SEPTEMBER 30, 2011
PRINCIPAL PAID OUTSTANDING APPROXIMATE
PRINCIPAL
FINAL PAYMENT
TO DATE
DATE OF
LOAN
INTEREST
RATE2
09/01/06
6.25%
706,833
706,833
Varsity Hall
06/30/07
4.75%
1,517,726
Wilsdorf Hall
11/01/06
4.75%
Wise Football Facility
10/01/07
4.75%
PURPOSE
National Radio Astronomy
Observatory Piping
Total Internal Loans Subject to
$15M Limit Established by BOV1
NOTES: 1.
2.
ORIGINAL
LOAN AMOUNT
-
August 2011
1,372,983
144,743
March 2012
3,311,328
3,280,127
31,201
629,171
160,057
469,114
$ 6,165,058
$
5,520,000
$
November 2011
October 2022
645,058
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.
The University's blended borrowing rate for tax exempt financing is 4.75%. A taxable rate of 6.25%
is being charged for the National Radio Astronomy Observatory Piping project.
SOURCE: Financial Administration
DATE:
October 6, 2011
36
UNIVERSITY OF VIRGINIA
QUARTERLY BUDGET REPORT
As of September 30, 2011
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 2011-2012, 41.7% of the budgeted sources were
collected and 30.2% 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: University Budget Office
DATE:
October 14, 2011
37
University of Virginia Academic Division
2011-12 Operating Budget Report
As of September 30, 2011
(in thousands)
2011-12
Original
Budget
9/30/2011
Actual
Results
Variance
9/30/2011
Results
Percentage
Sources of Available Funds, net of transfers to capital reserves
Tuition & Fees for Operating Plan
Appropriations: State
Sponsored Research for Operating Plan
Endowment Distribution & Fee
Gifts
Gifts-Via Affiliated Foundations
Sales, Investment & Other
Net Auxiliary Enterprises for Operating Plan
Operating Cash Balances
Total Sources of Available Funds
$443,711
$129,871
$326,308
$141,000
$25,600
$74,000
$20,420
$185,531
$16,735
$1,363,176
$230,440
126,932
98,884
1,905
2,449
19,012
5,226
83,547
0
$568,395
$213,271
$2,939
$227,424
$139,095
$23,151
$54,988
$15,194
$101,984
$16,735
$794,781
51.9%
97.7%
30.3%
1.4%
9.6%
25.7%
25.6%
45.0%
0.0%
41.7%
Uses of Available Funds
Direct Instruction
Research & Public Service
Academic Support
Student Services
General Administration
Operation & Maintenance of Physical Plant
Scholarships, Fellowships, & Other Graduate Support
Auxiliary/Self-Supporting
Total Operating Expenses
$338,302
309,175
128,529
35,940
74,885
110,176
156,150
191,410
$1,344,567
$73,998
91,477
42,009
9,667
22,246
37,476
73,157
56,320
$406,350
$264,304
217,698
86,520
26,273
52,639
72,700
82,993
135,090
$938,217
21.9%
29.6%
32.7%
26.9%
29.7%
34.0%
46.9%
29.4%
30.2%
$18,609
$162,045
($143,436)
Net Sources and Uses of Operating Funds
38
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 – includes 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.
39
UNIVERSITY OF VIRGINIA
QUASI-ENDOWMENT ACTIONS
JULY 1, 2011 TO SEPTEMBER 30, 2011
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 quasiendowment 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
Commonwealth Commerce Professorships
Commonwealth Engineering Professorships
Faculty and Staff Undergraduate Scholarship - UVA Match Quasi-Endowment
McIntire School of Commerce Bequest Gifts Quasi-Endowment
President's Fund for Excellence Unrestricted Quasi-Endowment
University Quasi-Endowment Fund (1)
Total Additions from Gifts to Quasi-Endowments
$
1,666,667.00
1,666,666.00
155.00
29,512.74
25,391.44
371,380.74
$
3,759,772.92
Additions from Endowment Income (Capitalizations)
Total Additions from Endowment Income to Quasi-Endowments
40
$
-
Divestments
Center for SCAT Restricted Quasi-Endowment
McIntire School of Commerce Operations Fund
Sorensen Institute - Hall Estate Quasi-Endowment
Thaler, Myles H. Quasi-Endowment for HIV Research
Total Divestments from Quasi-Endowments
$
25,000.00
898,758.75
250,000.00
75,000.00
$
1,248,758.75
Notes:
(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.
This report does not include transfers between quasi-endowment accounts.
SOURCE: Financial Administration
DATE:
October 6, 2011
41
UNIVERSITY OF VIRGINIA
ENDOWMENT/LONG TERM INVESTMENTS FOR UVA AND RELATED FOUNDATIONS
AS OF SEPTEMBER 30, 2011
(in thousands)
Rector and
Visitors
Funds
The University of Virginia Medical School and related foundations
The College of Arts and Sciences and related foundations
The University of Virginia Law School and related foundation
Darden School and related foundation
Batten School of Leadership and Public Policy
The McIntire School of Commerce and related foundation
School of Engineering and related foundation
University of Virginia's College at Wise and related foundation
Graduate School of Arts and Sciences
School of Nursing
Curry School of Education and related foundation
School of Architecture and related foundation
School of Continuing and Professional Studies
$ 745,598
339,371
41,970
106,219
105,584
74,001
85,772
41,178
47,589
37,811
12,485
15,881
1,684
Related
Foundation
Funds Invested
by UVIMCO
$
33,197
48,336
204,080
197,737
2,994
5,055
7,626
553
-
Alumni
Association
Funds Invested
by UVIMCO
$
8,595
10,824
29,063
2,582
2,264
1,933
383
47
University of Virginia Medical Center and related foundations
Centrally Managed University Scholarships
Athletics and related foundation
Alumni Association
Provost
Miller Center and related foundation
University of Virginia Foundation and related entities
Alumni Board of Trustees
University Libraries
387,620
147,206
38,102
87,714
50,845
48,568
52,038
59,654
8,806
58,554
50,180
-
4,162
384
67,030
33
University - Unrestricted but designated
University - Unrestricted Quasi and True Endowment
University - Unrestricted Other
295,577
155,366
143,527
-
-
All Other
217,465
189,517
$ 3,227,133
$
918,327
Related
Foundation Funds
Invested by
Direction of
Foundation Board
$
19,721 **
429
23,165
128
-
45,427 *
$
172,727
2,760
88,227
10,565
871
2,206
2,424
1,492
433
-
$
Total
$ 787,390
401,291
334,277
314,521
105,584
103,935
93,554
50,921
47,589
39,744
21,603
17,250
1,731
463,541
147,206
98,569
90,195
87,714
59,651
58,682
50,180
48,601
-
295,577
155,366
143,527
15,558
467,967
167,979
$ 4,486,166
*Includes funds on deposit for other areas/schools not individually listed.
**Excludes approximately $45.5 million of board designated pension funds.
SOURCE: Financial Administration
DATE:
October 27, 2011
42
APPENDICES
APPENDIX A
FIRST AMENDMENT
TO THE OPTIONAL RETIREMENT PLAN FOR
EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
(As Amended and Restated January 1, 2010)
WHEREAS, the Optional Retirement Plan for Employees of the University of Virginia
(the “Plan”) of the University of Virginia (the “University”) was established effective July 1,
1989, and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
1. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust
under the provisions of Code sections 401(a) and 403(a). The Board may delegate its
authority to amend the Plan to one or more officers of the University. The Board
expressly delegates its authority to the University’s Executive Vice President and Chief
Operating Officer for purposes of amending the Plan when and if such amendment is
required in order to conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan and Trust to revert to or be recoverable by the University or be used for
or diverted to purposes other than the exclusive benefit of Participants, Former
Participants, and beneficiaries; (2) deprive any Participant, Former Participant, or
beneficiary of any benefit already vested; or (3)alter, change, or modify the duties,
powers, or liabilities of the Trustee without its written consent; or (4)permit any part of
the assets of the Plan and the Trust to be used to pay Premiums or contributions of the
University under any other plan maintained by the University for the benefit of
employees. No amendment to the vesting schedule shall deprive a Participant of
unforfeitable rights to benefits accrued to the date of the amendment.
A - 1
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE OPTIONAL RETIREMENT PLAN
FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA to be executed on behalf of the
University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
FIRST AMENDMENT
TO THE SUPPLEMENTAL DEFINED CONTRIBUTION BENEFIT PLAN
FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
(As Amended and Restated January 1, 2010)
WHEREAS, the Supplemental Defined Contribution Benefit Plan for Employees of the
University of Virginia (the “Plan”) of the University of Virginia (the “University”) was
established effective July 1, 2000;
WHEREAS, the Plan was amended and restated effective January 1, 2010;
WHEREAS, the University wishes to amend the Plan to provide mandatory employee
contributions for eligible employees; and
WHEREAS, Section 7.1 of the Plan permits the University to amend the Plan at any
time.
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
1. Section 1.1 shall be amended to read as follows: “The account of a Participant or a Former
Participant that is credited with University Contributions made pursuant to Section 3.1 and/or
Mandatory Employee Contributions made pursuant to Section 3.2.”
2. The following section 3.2 shall be added and all remaining sections shall be renumbered
accordingly:
3.2
Mandatory Employee Contributions
A - 2
In the case of a Participant to whom Section 3.1(b) applies, the Employer shall
make a Mandatory Employee Contribution to such Participant’s Accumulation
Account for the Plan Year of an amount equal to 5% of such Participant’s
Compensation or an amount equal to such other rate for optional retirement plans
sponsored by institutions of higher education that may be established from time to
time by the Commonwealth or provided for under section 51.1-126 of the Code of
Virginia. Mandatory Employee Contributions shall be paid by the Employer in
lieu of employee contributions. The source of each Mandatory Employee
Contribution paid by the University shall be a corresponding reduction in the
salary of the Participant on whose behalf the Employer makes a Mandatory
Employee Contribution. A Participant for whom the Employer makes a
Mandatory Employee Contribution shall have no cash or deferred election right
(within the meaning of section 1.401(k)-1(a)(3) of the Treasury Regulations) with
respect to the Mandatory Employee Contributions paid to the Plan by the
Employer. The Mandatory Employee Contributions shall be treated as paid by
the Employer for the purpose of Code section 414(h)(2).
A Participant to whom Section 3.1(b) applies shall continue to make Mandatory
Employee Contributions while on an Educational Leave of Absence subject to the
limitation described in Section 3.4.
3. Section 3.3(a) (renumbered to be Section 3.4(a) by this Amendment) shall be amended to
read as follows:
In no event shall a Participant’s University Contributions and/or Mandatory Employee
Contributions exceed the lesser of:
(b)
(ii)
$49,000, as adjusted under Code section 415(d); or
one hundred percent (100%) of the Participant’s 415 Compensation.
4. Section 3.4(a) (renumbered to be Section 3.5(a) by this Amendment) shall be amended to
read as follows:
(c)
Retroactive Contributions
If a Participant is in qualified military service, as that terms is defined under
USERRA, and he returns to employment with the Employer within ninety (90)
days of the end of his military leave (or such longer period of time as his
reemployment rights are protected by law), the Employer shall make the
contributions described in Sections 3.1 above that he otherwise would have been
entitled to but for his absence due to the military leave and the Participant shall
have his salary reduced to make contributions described in Section 3.2 above that
he otherwise would have been required to make but for his absence due to the
A - 3
military leave. Such contributions shall be treated as paid by the Employer for the
purpose of Code section 414(h)(2).
5. The first sentence of Section 5.1 shall be amended to read as follows:
The Participant shall have the option to allocate the University Contributions made
pursuant to Section 3.1 and the Mandatory Employee Contributions made pursuant
to Section 3.2 between the following forms of investment:
(a)
an annuity contract that meets the requirements of Code section 403(a), or
(b)
a qualified trust as described in Code section 401(a).
6. The first sentence of Section 5.3(a) shall be amended to read as follow: “The Administrator
shall establish and maintain an account in the name of each Participant to which there shall
be credited (or debited) a Participant’s University Contributions made in accordance with
Section 3.1 above or Mandatory Employee Contributions made in accordance with Section
3.2 above, that the Participant has designated to be allocated to the Trust pursuant to Section
5.1(b) above.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE OPTIONAL RETIREMENT PLAN
FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA to be executed on behalf of the
University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
SECOND AMENDMENT
TO THE SUPPLEMENTAL DEFINED CONTRIBUTION BENEFIT PLAN
FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
(As Amended and Restated January 1, 2010)
WHEREAS, the Supplemental Defined Contribution Benefit Plan for Employees of the
University of Virginia (the “Plan”) of the University of Virginia (the “University”) was
established effective July 1, 2000; and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
A - 4
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
2. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan under the
provisions of Code sections 401(a) and 403(a). The Board may delegate its authority to
amend the Plan to one or more officers of the University. The Board expressly delegates
its authority to the University’s Executive Vice President and Chief Operating Officer for
purposes of amending the Plan when and if such amendment is required in order to
conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan to revert to or be recoverable by the University or be used for or
diverted to purposes other than the exclusive benefit of Participants, Former Participants,
and beneficiaries; (2) deprive any Participant, Former Participant, or beneficiary of any
benefit already vested; (3) alter, change, or modify the duties, powers, or liabilities of the
Administrator without its written consent ; or (4) permit any part of the assets of the Plan
to be used to pay Premiums or contributions of the University under any other plan
maintained by the University for the benefit of employees. No amendment to the vesting
schedule shall deprive a Participant of unforfeitable rights to benefits accrued to the date
of the amendment.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this SECOND AMENDMENT TO THE SUPPLEMENTAL DEFINED
CONTRIBUTION BENEFIT PLAN FOR EMPLOYEES OF THE UNIVERSITY OF
VIRGINIA to be executed on behalf of the University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
A - 5
FIRST AMENDMENT
TO THE COMMONWEALTH OF VIRGINIA MATCHING
CONTRIBUTION RETIREMENT PLAN FOR
SALARIED EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
(As Amended and Restated January 1, 2010)
WHEREAS, the Commonwealth of Virginia Matching Contribution Retirement Plan for
Salaried Employees of the University of Virginia (the “Plan”) of the University of Virginia (the
“University”) was established effective April 1, 2000; and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
3. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust
under the provisions of Code sections 401(a) and 403(a). The Board may delegate its
authority to amend the Plan to one or more officers of the University. The Board
expressly delegates its authority to the University’s Executive Vice President and Chief
Operating Officer for purposes of amending the Plan when and if such amendment is
required in order to conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan and Trust to revert to or be recoverable by the University or the
University of Virginia Medical Center, or be used for or diverted to purposes other than
the exclusive benefit of Participants, Former Participants, and beneficiaries; (2) deprive
any Participant, Former Participant, or beneficiary of any benefit already vested; (3) alter,
change, or modify the duties, powers, or liabilities of the Trustee without its written
consent; or (4)permit any part of the assets of the Plan and the Trust to be used to pay
Premiums or contributions of the University or the University of Virginia Medical Center
under any other plan maintained by the University or University of Virginia Medical
Center for the benefit of employees. No amendment to the vesting schedule shall deprive
a Participant of unforfeitable rights to benefits accrued to the date of the amendment.
A - 6
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE COMMONWEALTH OF
VIRGINIA MATCHING CONTRIBUTION RETIREMENT PLAN FOR SALARIED
EMPLOYEES OF THE UNIVERSITY OF VIRGINIA to be executed on behalf of the
University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
FIRST AMENDMENT
TO THE OPTIONAL RETIREMENT PLAN FOR EMPLOYEES
OF THE UNIVERSITY OF VIRGINIA MEDICAL CENTER
(As Amended and Restated January 1, 2010)
WHEREAS, the Optional Retirement Plan for Employees of the University of Virginia
Medical Center (the “Plan”) of the University of Virginia (the “University”) was established
effective July 1, 1993; and
WHEREAS, the University of Virginia Medical Center would like to encourage
employees who currently work for Hematology Oncology Patient Enterprises, PC (H.O.P.E.) to
continue to work at the University of Virginia Medical Center as Medical Center employees by
providing service credit in the Medical Center’s retirement plan for time spent employed by
H.O.P.E.; and
WHEREAS, the Plan must be formally amended to accomplish the grant of service
credit; and
WHEREAS, Section 8.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective July 1, 2011:
4. Section 4.1(c) shall be amended as follows:
(c) Measurement of Vesting Period
A - 7
For purposes of this section, the one- or two-year vesting period shall be the 12- or 24month period that begins with the Participant’s commencement of participation in the
Plan.
(i)
Participants Previously Employed by Virginia Ambulatory Surgery, Inc.
Participants who became Eligible Employees as a result of the Medical Center’s
assumption of the sole membership interest of Virginia Ambulatory Surgery, Inc.,
effective July 1, 2004, shall be permitted to apply months of service performed on
behalf of the Health Services Foundation at Virginia Ambulatory Surgery, Inc.,
toward fulfilling the vesting period requirement.
(ii)
Participants Previously Employed by Culpeper Hospital Home Health
For purposes of calculating years of participation for Participants who became
Eligible Employees as a result of their transfer from Culpeper Hospital Home
Health to the Medical Center, months of service performed with Culpeper
Hospital Home Health shall be counted towards fulfilling the vesting period
requirement.
(iii)
Participants Previously Employed by Hematology Oncology Patient Enterprises,
P.C. (H.O.P.E.)
Participants who became Eligible Employees as a result of the Medical Center’s
stock purchase of Hematology Oncology Patient Enterprises, P.C. (H.O.P.E),
effective July 1, 2011, shall be permitted to apply months of service performed on
behalf of H.O.P.E., toward fulfilling the vesting period requirement.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE OPTIONAL RETIREMENT PLAN
FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA MEDICAL CENTER to be
executed on behalf of the University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
A - 8
SECOND AMENDMENT
TO THE OPTIONAL RETIREMENT PLAN FOR EMPLOYEES
OF THE UNIVERSITY OF VIRGINIA MEDICAL CENTER
(As Amended and Restated January 1, 2010)
WHEREAS, the Optional Retirement Plan for Employees of the University of Virginia
Medical Center (the “Plan”) of the University of Virginia (the “University”) was established
effective July 1, 1993, and amended and restated effective January 1, 1999; and
WHEREAS, Section 8.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
5. Section 8.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust
under the provisions of Code sections 401(a) and 403(a). The Board may delegate its
authority to amend the Plan to one or more officers of the University. The Board
expressly delegates its authority to the University’s Executive Vice President and Chief
Operating Officer for purposes of amending the Plan when and if such amendment is
required in order to conform the Plan to applicable federal or state law.
Except as set forth in Section 8.3, no such amendment shall (1) cause any part of the
assets of the Plan and Trust to revert to or be recoverable by the Medical Center or be
used for or diverted o purposes other than the exclusive benefit of Participants, Former
Participants, and beneficiaries; (2) deprive any Participant, Former Participant, or
beneficiary of any benefit already vested; (3) alter, change, or modify the duties, powers,
or liabilities of the Trustee without its written consent ; or (4) permit any part of the
assets of the Plan and the Trust to be used to pay Premiums or contributions of the
University or the Medical Center under any other plan maintained by the University or
the Medical Center for the benefit of employees. No amendment to the vesting schedule
shall deprive a Participant of unforfeitable rights to benefits accrued to the date of the
amendment.
A - 9
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this SECOND AMENDMENT TO THE OPTIONAL RETIREMENT
PLAN FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA MEDICAL CENTER to be
executed on behalf of the University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
FIRST AMENDMENT
TO THE SUPPLEMENTAL DEFINED CONTRIBUTION BENEFIT PLAN
FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA MEDICAL CENTER
(As Amended and Restated January 1, 2010)
WHEREAS, the Supplemental Defined Contribution Benefit Plan for Employees of the
University of Virginia Medical Center (the “Plan”) of the University of Virginia (the
“University”) was established effective July 1, 2000; and
WHEREAS, Section 8.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
6. Section 8.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan under the
provisions of Code sections 401(a) and 403(a). The Board may delegate its authority to
amend the Plan to one or more officers of the University. The Board expressly delegates
its authority to the University’s Executive Vice President and Chief Operating Officer for
purposes of amending the Plan when and if such amendment is required in order to
A - 10
conform the Plan to applicable federal or state law.
Except as set forth in Section 8.3, no such amendment shall (1) cause any part of the
assets of the Plan to revert to or be recoverable by the University of Virginia Medical
Center, or be used for or diverted to purposes other than the exclusive benefit of
Participants, Former Participants, and beneficiaries; (2) deprive any Participant, Former
Participant, or beneficiary of any benefit already vested; (3) alter, change, or modify the
duties, powers, or liabilities of the Administrator without its written consent; or (4)permit
any part of the assets of the Plan and the Trust to be used to pay Premiums or
contributions of the University or the University of Virginia Medical Center under any
other plan maintained by the University or University of Virginia Medical Center for the
benefit of employees. No amendment to the vesting schedule shall deprive a Participant
of unforfeitable rights to benefits accrued to the date of the amendment.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE SUPPLEMENTAL DEFINED
CONTRIBUTION BENEFIT PLAN FOR EMPLOYEES OF THE UNIVERSITY OF
VIRGINIA MEDICAL CENTER to be executed on behalf of the University this eleventh day of
November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
FIRST AMENDMENT
TO THE MATCHING CONTRIBUTION RETIREMENT PLAN FOR
UNIVERSITY OF VIRGINIA MEDICAL CENTER
(As Amended and Restated January 1, 2010)
WHEREAS, the Matching Contribution Retirement Plan for University of Virginia
Medical Center (the “Plan”) of the University of Virginia (the “University”) was established
effective October 1, 2002 and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
A - 11
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
7. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust
under the provisions of Code sections 401(a) and 403(a). The Board may delegate its
authority to amend the Plan to one or more officers of the University. The Board
expressly delegates its authority to the University’s Executive Vice President and Chief
Operating Officer for purposes of amending the Plan when and if such amendment is
required in order to conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan and Trust to revert to or be recoverable by the University or be used for
or diverted to purposes other than the exclusive benefit of Participants, Former
Participants, and beneficiaries; (2) deprive any Participant, Former Participant, or
beneficiary of any benefit already vested; (3) alter, change, or modify the duties, powers,
or liabilities of the Trustee without its written consent ; or (4) permit any part of the
assets of the Plan and the Trust to be used to pay Premiums or contributions of the
University or the University of Virginia Medical Center under any other plan maintained
by the University or the University of Virginia Medical Center for the benefit of
employees. No amendment to the vesting schedule shall deprive a Participant of
unforfeitable rights to benefits accrued to the date of the amendment.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE MATCHING CONTRIBUTION
RETIREMENT PLAN FOR UNIVERSITY OF VIRGINIA MEDICAL CENTER to be executed
on behalf of the University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
A - 12
FIRST AMENDMENT
TO THE DEFINED CONTRIBUTION PLAN FOR
PHYSICIANS OF COMMUNITY MEDICINE, LLC
(As Amended and Restated January 1, 2010)
WHEREAS, the Defined Contribution Plan for Physicians of Community Medicine,
LLC (the “Plan”) of the University of Virginia (the “University”) was established effective July
1, 2001; and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
8. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust
under the provisions of Code sections 401(a) and 403(a). The Board may delegate its
authority to amend the Plan to one or more officers of the University. The Board
expressly delegates its authority to the University’s Executive Vice President and Chief
Operating Officer for purposes of amending the Plan when and if such amendment is
required in order to conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan and Trust to revert to or be recoverable by the University or be used for
or diverted to purposes other than the exclusive benefit of Participants, Former
Participants, and beneficiaries; (2) deprive any Participant, Former Participant, or
beneficiary of any benefit already vested; (3) alter, change, or modify the duties, powers,
or liabilities of the Trustee without its written consent; or (4)permit any part of the assets
of the Plan and the Trust to be used to pay Premiums or contributions of the University
under any other plan maintained by the University for the benefit of employees. No
amendment to the vesting schedule shall deprive a Participant of unforfeitable rights to
benefits accrued to the date of the amendment.
A - 13
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE DEFINED CONTRIBUTION
PLAN FOR PHYSICIANS OF COMMUNITY MEDICINE, LLC to be executed on behalf of
the University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
FIRST AMENDMENT
TO THE DEFINED CONTRIBUTION RETIREMENT PLAN FOR
EXECUTIVE EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
(As Amended and Restated January 1, 2010)
WHEREAS, the Defined Contribution Retirement Plan for Executive Employees of the
University of Virginia (the “Plan”) of the University of Virginia (the “University”) was
established effective January 1, 2001, and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
9. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan under the
provisions of Code sections 401(a) and 403(a). The Board may delegate its authority to
amend the Plan to one or more officers of the University. The Board expressly delegates
its authority to the University’s Executive Vice President and Chief Operating Officer for
A - 14
purposes of amending the Plan when and if such amendment is required in order to
conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan to revert to or be recoverable by the University or be used for or
diverted to purposes other than the exclusive benefit of Participants, Former Participants,
and beneficiaries; (2) deprive any Participant, Former Participant, or beneficiary of any
benefit already vested; or (3)permit any part of the assets of the Plan to be used to pay
Premiums or contributions of the University under any other plan maintained by the
University for the benefit of employees. No amendment to the vesting schedule shall
deprive a Participant of unforfeitable rights to benefits accrued to the date of the
amendment.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE DEFINED CONTRIBUTION
RETIREMENT PLAN FOR EXECUTIVE EMPLOYEES OF THE UNIVERSITY OF
VIRGINIA to be executed on behalf of the University this eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
FIRST AMENDMENT
TO THE DEFINED CONTRIBUTION INCENTIVE PLAN FOR EMPLOYEES
OF THE UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
(As Amended and Restated January 1, 2010)
WHEREAS, the Defined Contribution Incentive Plan for Employees of the University of
Virginia Investment Management Company(the “Plan”) of the University of Virginia (the
“University”) was established effective October 1, 2000; and
WHEREAS, Section 7.1 of the Plan permits the University, through affirmative action of
the Board or its designee, to amend the Plan at any time;
WHEREAS, the Plan must be formally amended to appoint a designee to act on behalf
of the University;
A - 15
NOW, THEREFORE, in accordance with the foregoing, the Plan is hereby amended as
follows effective November 11, 2011:
10. Section 7.1 shall be amended as follows:
Amendment
The University reserves the right to amend the Plan, through affirmative action by the
Board at any time and from time to time, in whole or in part, including, without
limitation, retroactive amendments necessary or advisable to qualify the Plan and Trust
under the provisions of Code sections 401(a) and 403(a). The Board may delegate its
authority to amend the Plan to one or more officers of the University. The Board
expressly delegates its authority to the University’s Executive Vice President and Chief
Operating Officer for purposes of amending the Plan when and if such amendment is
required in order to conform the Plan to applicable federal or state law.
Except as set forth in Section 7.3, no such amendment shall (1) cause any part of the
assets of the Plan and Trust to revert to or be recoverable by the University or be used for
or diverted to purposes other than the exclusive benefit of Participants, Former
Participants, and beneficiaries; (2) deprive any Participant, Former Participant, or
beneficiary of any benefit already vested; or (3)alter, change, or modify the duties,
powers, or liabilities of the Trustee without its written consent; or (4)permit any part of
the assets of the Plan and the Trust to be used to pay Premiums or contributions of the
University under any other plan maintained by the University for the benefit of
employees. No amendment to the vesting schedule shall deprive a Participant of
unforfeitable rights to benefits accrued to the date of the amendment.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
University, has caused this FIRST AMENDMENT TO THE DEFINED CONTRIBUTION
INCENTIVE PLAN FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
INVESTMENT MANAGEMENT COMPANY to be executed on behalf of the University this
eleventh day of November, 2011.
THE UNIVERSITY OF VIRGINIA
By:
____________________________________________________
Name:
____________________________________________________
Title:
____________________________________________________
A - 16
APPENDIX B
Working Capital
Short-Term Investment Policy
Adopted November 11, 2011
B-1
Table of Contents
I. Governing Authority ..............................................................................................................3
II. Scope ......................................................................................................................................3
III. General Objectives ..............................................................................................................3
Tier Structure
Safety .........................................................................................................................3
Liquidity.....................................................................................................................3
Yield ...........................................................................................................................3
IV. Standards of Care ................................................................................................................4
Prudence ....................................................................................................................4
Ethics and Conflicts of Interest ...............................................................................4
Delegation of Authority ............................................................................................4
V. Custody, Trust, and Controls...............................................................................................4
Custody /Trust...........................................................................................................4
Internal Controls .......................................................................................................4
VI. Suitable and Authorized Investments ................................................................................5
1. Investment Types ......................................................................................................5
2. Duration .....................................................................................................................5
3. Collateralization ........................................................................................................5
Permitted Investments ..............................................................................................5
VII. Portfolio Risk Management ..............................................................................................7
Interest Rate Risk .....................................................................................................7
Credit Risk .................................................................................................................7
Liquidity Risk ............................................................................................................8
VIII. Investment Parameters & Diversification .......................................................................8
Portfolio Diversification ...........................................................................................8
1. Security Downgrades ................................................................................................8
Subsequent Events
IX. Selection of Broker/Dealers ................ 9, Investment Managers and Depository Banks
Selection of Broker/Dealers
Engagement of Investment Managers .....................................................................9
Selection of Depository Banks
X. Prohibited Investments and Investment Practices
XI. IX. Portfolio Benchmarks ................................................................................................10
B-2
Appendix A:
University of Virginia Investment Management Company Investment Policy Statement
Appendix B:
Board of Visitors resolution, October 2007
B-3
I.
Governing Authority
Board of Visitors resolution, October 2007 (appended at p.A-22)
RESOLVED that the Vice President and Chief Financial Officer is authorized to invest
the cash of and held by the University in the University of Virginia Investment
Management Company (UVIMCO) long-term pool or in other investment vehicles as
permitted by law, the cash to include but not be limited to working capital, operating
reserves, employee health plan reserves, other academic division operating and capital
reserves, and medical center working capital, operating and capital reserves including
depreciation reserves;
Definition of Working Capital
“Working Capital” is the operating liquidity available to an organization to meet
financial obligations.
The University‟s investment program shall be operated in conformance with applicable
federal, state, and other legal requirements, including, but not limitlimited 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 forforth the parameters, responsibilities,
investment and controlsoperational policies for the short term (24 months or less)
investment of University funds.University‟s Working Capital Funds. Proceeds from taxexempt 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.
B-4
III.
General Objectives & Investment Guidelines
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:
Tier Structure - For purposes of this policy, the University‟s Working Capital Funds
shall be divided into three (3) Tiers based on expected liquidity needs and return
objectives. Investment activities for all Tiers shall be guided by the objectives of safety,
liquidity and return. The priority of these objectives will vary based on Tier as described
below.
1. Safety - Safety of principal is the foremostan important objective of the University‟s
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
operatingdisbursement requirements that may be reasonably anticipated in the Tier.
3. YieldReturn - The investment portfolioportfolios shall be designed with the
objective of attaining a market rate of return throughout budgetary and economic
cycles. Performance objectives will be established for each Tier consistent with
stated objectives.
Tier 1: The University‟s cash and short-term investments shall be categorized as the Tier
1 Portfolio. Because of the difficulties inherent in accurately forecasting cash flow
requirements, a portion of this portfolio shall be continuously invested in readily
available funds such as money market mutual funds, bank deposits, or overnight
repurchase agreements to ensure that appropriate liquidity is maintained to meet the
University‟s obligations. Safety and liquidity are the primary objectives of this Tier.
Tier 2: The Tier 2 Portfolio represents Working Capital Funds that do not need to be
readily available to meet the University‟s operating needs. These funds are available for
intermediate-term investment. Safety and return are the primary objectives of this Tier.
Tier 3: The Tier 3 Portfolio represents Working Capital Funds that can be invested as
part of the commingled pool managed by the University of Virginia Investment
Management Company (“UVIMCO”). The Investment Policy Statement for UVIMCO
governs Tier 3 assets and supersedes the limits set forth in this policy for asset
allocations and issuer limitations. (A copy of the UVIMCO Investment Policy Statement
is included as an appendix to this policy and incorporated by reference.) The primary
objective of this Tier is to maximize long-term real return commensurate with the risk
tolerance of the University.
B-5
The University‟s liquidity needs, cash forecast, and risk tolerance will be considered in
determining what percentage of total working capital will be invested in Tier 1. Assets
invested in Tier 2 are those assets typically not needed during the University‟s annual
operating cycle. Tier 2 assets are typically those assets being held for specific projects
expected to be needed over a 1-5 year time frame. The remaining working capital,
primarily in the form of reserves, will be allocated to the Tier 3 portfolio. Allocation
among the three tiers will be monitored regularly and reported annually to the Board of
Visitors.
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. The Executive Vice President and Chief
Operating Officer and the Vice President and Chief Financial Officer may make
temporary exceptions to the investment policy in the event of significant market
instability or a credit event that would require us to make a significant reallocation of
the portfolio in order to protect the safety and/or liquidity of the working capital
portfolio. Any such exception to the investment policy will be reported immediately
to the Rector and Chair of the Finance Committee of the Board of Visitors. Any
temporary exception will remain in place until no later than the next Board of Visitors
meeting at which time the EVP and COO will suggest a course of action with regard
to the policy and seek input on and approval of such action by the Board.
B-6
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 OperationsManagement 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.
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.
Permitted investments - Subject to the foregoing, theThe University may invest in the
following investment vehicles: subject to diversification and maturity limitations for each
Tier.
1. 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.
2. 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 collateralizedthat has a
rating no less than the rating on U.S. Government debt. Collateralized mortgage
obligations will not be purchased.
3. 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,
B-7
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.
4. 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”).
5. 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 Standard and
Poor‟s, Inc., and a maturity of no more than two years from the date of purchase.
6. 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.
7. 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...
8. Repurchase Agreements - Overnight, term, and open repurchase agreements
provided that the following conditions are met:
1. 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;
2. 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;
3. the securities are free and clear of any lien and held by an independent third-party
custodian acting solely as agent for the University, provided such third party is
not the seller under the repurchase agreement;
4. 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;
such that the agent holding the underlying securities (the collateral) must hold the
securities in a way that ensures they remain the property of the University.
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5. 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);
6. the counterparty is a:
a. primary government securities dealer who reports daily to the Federal Reserve
Bank of New York, or
b. a bank, savings and loan association, or diversified securities broker-dealer
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
c. the counterparty that meets the following criteria:
i. a long-term credit rating of at least „AA‟ or the equivalent from an
NRSRO; andor
ii. a short-term credit rating of at least “A-1” or the equivalent from an
NRSRO; and
d. counterparty that has been in operation for at least five years.
7. Collateral under repurchase agreements with a maturity of 14 calendar-days or
less1 business day may be held by the agreement counterparty. Collateral under
repurchase agreements with a maturity of over 14 calendar daysgreater than 1
business day must be held by an independent custodian.
9.
Money Market Mutual Funds (Open-Ended Investment Funds) - Shares in
open-ended, no-load, money market investmentmutual funds, (“MMMF‟s”), 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. No more than 50% of the portfolio may
be allocated to MMMF‟s with no more than 25% of the portfolio being invested with
any Money Market Mutual Fund issuer. The University‟s assets must not represent
more than 10% of a fund‟s total assets. (See graph below for portfolio diversification
requirements)
10. 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 ismust be
rated AAA“AAm” by Standard & Poor‟s, Inc.
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11. Assets Permitted by the Investment Policy Statement of UVIMCO – Tiers 2 and 3
Portfolio assets can be invested as part of a co-mingled investment pool managed by
UVIMCO.
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 toTo manage the impact of interest
ratesand market conditions 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 tolerancethe Working Capital Funds, the
duration and maximum maturity will be limited by Portfolio Tier.
Tier 1: Maximum duration of 9 months, maximum maturity of 2 years
Tier 2: Maximum duration of 3 years, maximum maturity of 5 years
Tier 3: Limited only by Investment Policy Statement for interest rate risk.UVIMCO
1.2.Credit Risk - The University will invest Tier 1 and 2 Portfolios in securities with a
short-termminimum ratings mentioned in Section VI. In the event of a split 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 obligations must be rated no lower than AA by Standard and Poor‟s, Inc.,
and Aa by Moody‟s Investors Service, Inc, the lowest rating should be considered
when determining the appropriate rating category.
2.3.Liquidity Risk - The University assesses its need for liquidity by (a) using its cash
flow forecast to predict periods of greater liquidity needs for the Tier 1 Portfolio and
(b) by providing for sufficient liquidity to support outstanding debt as prescribed by
the rating agencies.
Risk management for the Tier 3 Portfolio will be in accordance with UVIMCO‟s
VIII. Investment Policy Statement.
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-termFund‟s investments within the
following categories:
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Portfolio Diversification - The Investment Portfolio shall be diversified by security type
and institution. Concentrations in individual securities, industries and economic sectors
should not be so high as to subject the Fund to undue risk.
Portfolio Diversification - The maximum percentage of the portfolioasset allocation and
issuer limit permitted in each eligible security isshall be as follows:
Permitted Investment
Sector LimitTier
1 Portfolio
Issuer LimitTier 2
Portfolio
U.S. Treasury Obligations
100%/100%
100%/100%
Federal Agency Obligations
100%/40%
50%100%/40%
Collateralized Bank
DepositsMunicipal
Obligations
50%/25%
5%10%/10%
Negotiable Certificates of
Deposit and Bank Deposit
NotesCommercial Paper
35%20%/5%
20%/5%
Non-Negotiable Certificates
of Deposit / Time
DepositsBankers‟
Acceptances
35%10%/3%
5%20%/3%
Bankers‟
AcceptancesCorporate
Notes
20%35%/5%
35%/5%
Corporate Debt
ObligationsNegotiable
Certificates of Deposit and
Bank Deposit Notes
20%/5%
35%/5%
Commercial PaperNonnegotiable Certificates of
Deposit
10%35%/5%
35%/5%
Municipal
ObligationsVirginia Local
Government Investment
Pool (LGIP)
100%10%/5%
100%25%/5%
Repurchase
AgreementsCollateralized
Bank Deposits
50%/25%
50%/25%
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Tier 3 Portfolio
Permitted Investment
Sector LimitTier
1 Portfolio
Issuer LimitTier 2
Portfolio
Money Market Mutual
FundsRepurchase
Agreements
Limited by
underlying asset
limits
above50%/25%
10%50%/25%
Local Government
Investment PoolMoney
Market Mutual Funds
Limited by
underlying asset
limits
above50%/50%
25%50%/50%
Assets Permitted by the
Investment Policy
Statement of UVIMCO
Tier 3 Portfolio
100%
100%
The Sector Limitsector and Issuer Limitissuer limits shall be applied to the total
Investment each Portfolio value at the date of acquisition. For all pooled investments
(e.g., mutual funds, etc.), with the exception of pools managed by UVIMCO, the
University‟s holdingholdings must represent no more than 10 percent of the net assets of
the pool.
Subsequent Events - The limitations established by this Investment Policy will apply at
the time a security is purchased and will be based on the then-current book value. Should
a subsequent event cause a security or the investment portfolio to no longer meet the
specifications of the Investment Policy, the Assistant Vice President for Treasury
Management and Fiscal Planning will determine the appropriate course of action, and
report such actions to the VP &CFO in the next regular monthly report. There is no
requirement that a security be sold prior to maturity if it no longer meets the criteria set
forth in this Investment Policy. Further, any security held by the University at the time
this Investment Policy was adopted may be held to its maturity.
1. IX. 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.
Selection of Broker / /Dealers, Investment Managers and Depository Banks
2.1.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.
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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 $1050,000,000;
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.
3.2.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
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 or exempt from registration;
b)
Must have provided to the University an annual updated copy of Form
ADV, Part II, if applicable;
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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:
3.
X.
a)
selectSelect security brokers/dealers who meet the requirements defined
under this policy;
b)
provideProvide monthly reports of transactions and holdings to the
University;
c)
provideProvide performance reports at least quarterly;
d)
reportReport 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)
notNot collect any soft dollar commissions or credits, from mutual funds
or others, in exchange for services directly provided to a customer.
Selection of Depository Banks – the University may deposit funds with any
national banking association, federal savings and loan association or federal savings
bank located in Virginia and any bank, trust company or savings and loan
association organized under Virginia law that is a Qualified Public Depository as
defined by the Virginia Security for Public Deposits Act (Section 2.2-4401 et seq.)
of the Code of Virginia. While it is not expected that bank deposits will be
significant, any bank deposits above $10 million will be managed with (1) an
appropriate diversification of holdings among banks and (2) a consideration of the
credit rating of each bank.
Prohibited Investments and Investment Practices
The University is expressly prohibited from the following investments and investment
practices in the Tier 1 and Tier 2 Portfolios, except to the extent that the Tier 2 portfolio
is invested in a UVIMCO co-mingled pool, in which case the prohibited investments and
practices would be consistent with the UVIMCO investment policy.
1.
Borrowing funds for the sole purpose of reinvesting the proceeds of such
borrowing;
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XI.
2.
Short sales (selling a specific security before it has been legally purchased);
3.
Pair-offs (buying a security and selling it before the settlement date);
4.
Speculative trading (repetitive buying and selling of the same or similar securities
for the purpose of capital gains);
5.
Investment in complex derivatives such as range notes, dual index notes, inverse
floating rate notes and deleveraged notes, or notes linked to lagging indices or to
long-term indices
6.
Investment in collateralized mortgage obligations; and
7.
Investing in any security not specifically permitted by this Policy.
Portfolio Benchmarks
The Working Capital Fund will be designed to obtain at least a market level rate of
return, given budgetary and economic cycles, commensurate with the University‟s
investment risk and cash flow needs. The portfolio management approach will be active,
allowing periodic restructuring of the investment portfolio to take advantage of current
and anticipated interest rate movements.
The returns on the University of Virginia‟s investments will be compared on a quarterly
basis to benchmark with similar risk/return characteristics.
The applicable benchmarks for each of the University‟s three Portfolio Tiers are listed
below:
Fund
Tier 1
Tier 2
Tier 3
Benchmark
Merrill Lynch 6-Month U.S. Treasury Bill Index
Merrill Lynch 1-5 Year U.S. Treasury Index
As prescribed in the UVIMCO Investment Policy
Statement
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.
A copy of this policy and related procedures manual will be placed on file in the Treasury
OperationsManagement Department and an electronic version will be posted on the
University‟s website.
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Appendix A – University of Virginia Investment Management Company Investment Policy
Statement
University of Virginia
Investment Management Company
Investment Policy Statement
Contents
I.
Introduction
A. Organizational Purpose
B. Standard of Care
C. Objectives
D. Spending
II.
Governance
A. Board Responsibilities
B. Staff Responsibilities
C. Tactical Asset Allocation
D. Manager Selection and Monitoring
E. Manager Diversification
F. Leverage and Derivatives
G. Reporting
H. Annual Policy Review
III.
Policy Portfolio
A. Capital Market Risk and Return Estimates
B. Risk Tolerance
C. Strategic Asset Allocation
D. Risk Control Ranges
Exhibit 1 Policy Portfolio
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I. Introduction
A. Organizational Purpose
The University of Virginia Investment Management Company (UVIMCO) provides
investment management to the Rector and Visitors of the University of Virginia (University)
and its related foundations (Foundations). Assets deposited in UVIMCO are held in the
custody and control of UVIMCO on behalf of the University and Foundations within a longterm co-mingled investment pool (Pool).
B. Standard of Care
The Board of Directors (Board) and Officers (Staff) of UVIMCO manage Pool assets in
accordance with this Investment Policy Statement. In making investment decisions and
taking investment actions, they exercise their good faith business judgment and act consistent
with required standards of conduct for managers of institutional assets.
Given the uncertain and continuously evolving nature of investment markets, no static list of
security types, asset classes, or definitions of investment management strategies can
continuously express prudent practice. Therefore, the process by which investment decisions
are developed, analyzed, adopted, and executed must satisfy relevant standards of care.
C. Objectives
UVIMCO‟s primary objective in managing the 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 benchmark with similar
asset allocation and risk (Policy Portfolio Benchmark).
Recognizing that the University must attract outstanding students, faculty, and staff and
provide to them appropriate resources, UVIMCO strives to manage Pool assets to provide
long-term real returns that compare favorably with the returns of endowments of other
outstanding schools (Peer Group).
D. Spending
UVIMCO does not set spending rates. UVIMCO communicates the Pool‟s risk and return
estimates to the University and Foundations for their consideration in setting spending rates.
B-17
II. Governance
A. Board Responsibilities
The Board is responsible for establishing this Investment Policy Statement. The Board has
delegated to UVIMCO‟s Chief Executive Officer (CEO) responsibility for managing Pool
assets in accordance with this Investment Policy Statement and in accordance with other
policies that the Board has or may adopt.
The Board monitors the development, analysis, adoption, and execution of investment
decisions and actions by the Staff to ensure compliance with this Policy and applicable
standards of care. The Board also evaluates the competence of the management of Pool
assets considering the investment process and the resulting return of Pool assets relative to
the Policy Portfolio Benchmark and Peer Group. The Board takes action to amend this
Investment Policy Statement or replace Staff as necessary to ensure prudent management of
Pool assets.
B. Staff Responsibilities
Staff manages Pool assets within the policies set by the Board and under the direction of the
CEO. Staff‟s investment management responsibilities include tactical asset allocation and
selection of external managers. While Staff may directly trade securities or derivatives to
manage the Pool‟s asset allocation, active management of security selection typically is
delegated to external managers.
C. Tactical Asset Allocation
Because an optimal asset allocation evolves through time in response to changing economic
circumstances and volatile market prices, Staff may tactically manage the Pool‟s asset
allocation within the risk control ranges of the Policy Portfolio. Implementation of any such
tactical strategy recognizes the inherent uncertainty of short-term forecasts of asset class
returns and the high relative risk of even small deviations from the market exposures of the
Policy Portfolio and Peer Group. Therefore, Staff typically scales any tactical asset
allocation positions to ensure only modest risk relative to the Policy Portfolio Benchmark
and Peer Group.
D. Manager Selection and Monitoring
Staff monitors and evaluates the full spectrum of global investment strategies seeking
opportunities to employ active external managers. Prior and subsequent to hiring external
managers, staff investigates and analyzes managers‟ investment process, organization, and
staff. Staff terminates managers or adjusts manager positions to achieve the objectives of the
Investment Policy Statement. While the Board has delegated manager selection and
retention decisions to the CEO, the Board monitors the CEO‟s decision making process and
reviews documentation of due diligence in analyzing and monitoring managers.
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E. Manager Diversification
For instruments or funds whose returns are produced only though exposure to capital
markets, including index funds and similar derivative securities, allocations are limited by the
asset allocation ranges expressed by the Policy Portfolio. For managers whose returns are
produced primarily through skill, including hedge funds, no more than 7.5% of Pool assets
are allocated to a single manager. For long-term closed-end fund investments, including
private equity and real estate funds, the 7.5% limitation applies to the net amount committed
to active funds (calculated as the total cost basis of current investments plus total unfunded
commitments, if any). For purposes of this limitation, separate funds managed by an
investment company or business group are aggregated if the returns of those funds are
produced by a common investment process.
F. Leverage and Derivatives
UVIMCO employs leverage and derivative securities, both directly and within funds, only to
the extent that the aggregate risk of the Pool is not increased beyond that which would be
allowed by the Policy Portfolio without using leverage or derivatives. UVIMCO defines
leverage as a strategy that increases expected return by raising exposure to and risk of a given
investment. The most direct form of leverage is borrowing but many other strategies,
structures, funds, and derivative securities produce similar results and therefore imply
leverage. UVIMCO monitors and controls the effect of both direct and implied leverage on
the Pool‟s volatility and liquidity.
G. Reporting
UVIMCO provides monthly reports to the University and Foundations displaying the Pool‟s
asset allocation relative to the Policy Portfolio and displaying the returns of the Pool and its
component asset classes. UVIMCO provides quarterly narrative reports that explain and
analyze the Pool‟s investment position, strategy, and performance relative to the Policy
Portfolio Benchmark. Annually, UVIMCO provides performance results relative to the Peer
Group.
H. Annual Policy Review
The Board reviews this policy annually. In preparation for that review, Staff provides an
analysis of any changes in the risk tolerance and spending plans of the University that have
been reported to it and on economic and investment conditions. Staff recommends changes
to this Investment Policy Statement accordingly. Typically, annual changes to this
Investment Policy Statement are small and gradual. The revised Investment Policy
Statement is provided to the University and Foundations on a timely basis.
B-19
III. Policy Portfolio
A. Capital Market Risk and Return Estimates
The Board reviews and approves Staff‟s estimates of capital market risks and returns. Staff
divides the global capital market into asset classes and examines their historical returns,
volatilities, and correlation. If future conditions such as economic risk, inflation, and market
integration are likely to differ materially from the conditions during the historical periods
examined, then Staff adjusts historical risk and return estimates accordingly.
Perceived temporary deviations of current market prices from equilibrium values do not
influence UVIMCO‟s capital market risk and return estimates. Therefore, UVIMCO‟s
capital market risk and return estimates are changed infrequently and gradually.
B. Risk Tolerance
The Board determines the Pool‟s risk tolerance in consideration of the University‟s tolerance
for volatility in spending. Foundations must determine whether the Pool‟s risk and return
characteristics are appropriate given their investment objectives and spending plans.
In theory, tolerance for spending volatility determines a risk aversion parameter, which in
combination with capital market risk and return estimates provides a specific optimal asset
allocation that maximizes utility. In practice, risk tolerance is difficult to quantify and the
theoretically optimal asset allocation may vary widely within a reasonable range of capital
market risk and return estimates. Therefore, the Board‟s determination of the Pool‟s risk
tolerance is necessarily a judgmental process.
C. Strategic Asset Allocation
Based upon the University‟s risk tolerance together with capital market risk and return
estimates, the Board sets a strategic asset allocation designed to achieve the objectives stated
in this Investment Policy Statement. The strategic asset allocation is prudently diversified
across asset classes. If passively executed, the strategic asset allocation would provide
expected returns in line with its risks; it lies near the efficient frontier of portfolios that
provide the highest expected return per unit of risk and the lowest risk per unit of expected
return.
Benchmark indices are selected to represent the risk and return profile of each asset class.
Key considerations in selecting benchmark indices include broad market coverage, ability to
passively invest, transparency of index construction, and objectivity of the index provider.
The strategic asset allocation together with the selected benchmark indices form the Pool‟s
Policy Portfolio Benchmark – the primary benchmark against which actual Pool performance
is measured.
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D. Risk Control Ranges
The Policy Portfolio specifies risk controls in the form of ranges for Pool asset allocations.
The ranges help to ensure adequate diversification, define the permissible magnitude of
tactical asset allocation, and constrain both absolute and relative risk. UVIMCO has adopted
risk controls principally considering the Pool‟s tolerance for volatility, but also to ensure
adequate liquidity.
Risk control ranges express the acceptable variation from target asset allocations in normal
market and economic circumstances. Exceptional circumstances may justify deviation from
the ranges specified in the Policy Portfolio. Deviation from risk control ranges caused by an
investment decision or action must result in Board notification via the monthly Board report.
Deviation from risk control ranges caused by changes in market prices or manager actions is
reported by the CEO to the Board monthly along with a recommended plan of action. In any
such circumstance, UVIMCO formally communicates to the University and Foundations the
reasons for operating the Pool‟s actual asset allocation outside of the ranges specified by the
Policy Portfolio.
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Appendix B – Appendix B: Board of Visitors resolution, October 2007
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING: October 4, 2007
COMMITTEE:
Finance
AGENDA ITEM:
II.E. Cash Management Authority
BACKGROUND: In 2007, the University obtained a legislative
amendment that expands its ability to invest non-general fund
reserves and balances and certain local funds of or held by the
university. The amendment allows these funds to be invested in
equity-based financial securities in addition to the instruments
allowed under the State’s Investment of Public Funds Act (IPFA).
The University has long had the authority to invest its gift and
other private funds in equity-based financial securities while all
other funds were invested by the University or the State Treasurer
subject to the provisions of the IPFA. The 2007 legislation allows
the University to invest its cash in higher-returning investments
where appropriate.
The 2006 Restructuring Management Agreement between the
University and the State transferred to the University the
responsibility for management of non-local cash, subject to meeting
the performance metrics established under the Agreement. Thus, in
addition to local and private cash, the University is managing “all
other non-general fund reserves and balances”.
DISCUSSION: The University has embarked on a comprehensive cash
management program including the establishment of an internal bank.
The implementation of a new computer system and the development of
a cash forecasting model have allowed the University to manage cash
flow on a University-wide basis. The result is that the University
is now better able to optimize the investment of its cash.
This action establishes clear authority for the University to
invest its cash in the University of Virginia Investment Management
Company (UVIMCO) long-term pool, as well as other vehicles, in a
prudent manner subject to the law in order to obtain the best
return for the University while ensuring liquidity requirements are
met. It also allows for sharing of the incremental investment
earnings between the central reserves and the entities within the
University. The cash management policies and practices will be
subject to the University’s normal audit, reporting and disclosure
requirements.
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ACTION REQUIRED: Approval by the Finance Committee and by the Board
of Visitors
APPROVAL OF CASH MANAGEMENT AUTHORITY
WHEREAS, the 2006 Restructuring Management Agreement grants
the University the authority to invest all non-general fund cash if
the performance metrics negotiated in the Agreement are met; and
WHEREAS, the 2007 investment legislation (23-76.1) allows the
investment of local funds and all non-general fund reserves and
balances in a variety of financial securities in addition to the
instruments allowed by the Investment of Public Funds Act; and
WHEREAS the University seeks to manage and invest cash in a
prudent manner subject to the law, in order to obtain the best
returns concomitant with acceptable risks that ensure liquidity
requirements are met;
RESOLVED that the Vice President and Chief Financial Officer
is authorized to invest the cash of and held by the University in
the University of Virginia Investment Management Company (UVIMCO)
long-term pool or in other investment vehicles as permitted by law,
the cash to include but not be limited to working capital,
operating reserves, employee health plan reserves, other academic
division operating and capital reserves, and medical center working
capital, operating and capital reserves including depreciation
reserves;
RESOLVED FURTHER that the Vice President and Chief Financial
Officer is granted the authority to distribute returns to major
entities and to central reserves as appropriate.
B-24