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REVISED 5-14-12 UNIVERSITY OF VIRGINIA BOARD OF VISITORS MEETING OF THE FINANCE COMMITTEE MAY 22, 2012 FINANCE COMMITTEE Tuesday, May 22, 2012 1:15 – 3:15 p.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 PAGE I. II. STRATEGIC PRIORITIES • 2012-2013 Operating Budget (Mr. Strine to introduce R. Edward Howell and Colette Sheehy; Messrs. Strine and Howell and Ms. Sheehy to report) 1. Academic Division 2. The University of Virginia’s College at Wise 3. Medical Center 4. Transitional Care Hospital 5. Pratt Fund 6. Annual Renovation and Infrastructure Plan ACTION ITEMS A. Property Actions (Ms. Sheehy to report) 1. Disposition of Real Property – Wise County, Virginia, Stallard Property 2. Transfer of Real Property to City of Charlottesville for Public Street Purposes, University Avenue B. Medical Center Joint Ventures/Acquisitions 1. Valley Health Stereotactic Radiosurgery Joint Venture 2. Albemarle Arthritis Associates, LLP Acquisition III. REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER (Mr. Strine) A. Vice President’s Remarks B. University of Virginia Investment Management Company Report on the Long-Term Pool – Market Value and Performance as of March 31, 2012 (Written Report) 1 8 12 16 17 PAGE C. D. IV. Retirement Administrative Committee (Written Report) Miscellaneous Financial Reports 1. Academic Division Accounts and Loans Receivable 2. Capital Campaign 3. Internal Loans to University Departments and Activities 4. Write-off of Bad Debts for Non-Patient Services 5. Report on Endowment by School/Foundation 6. Quasi-Endowment Actions 7. Sources and Uses of Available Funds 8. 2012 and 2013 Summer Conference Rates APPENDICES A. 2012-2013 Pratt Fund Allocations B. Minutes of the May 11, 2012 Meeting of the Retirement Administrative Committee 34 36 38 39 40 41 42 44 50 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: I. 2012-2013 Operating Budget BACKGROUND: At its May meeting, the Board of Visitors considers the proposed operating budgets for the Academic Division, The University of Virginia's College at Wise, and the Medical Center. At its April meeting, the Board of Visitors approved tuition, mandatory fees, housing, and dining rates for 2012-2013 - which comprise significant revenue sources for the operating budget. During this fiscal year, the Board of Visitors has heard reports on the University’s budget requests to the state and the preliminary budget assumptions for the 2012-2013 operating budget. Additionally, the Board of Visitors was informed of the Governor’s 2012-2014 biennial budget proposal. On April 6, 2012, the Joint Conference Committee of the General Assembly released a compromise budget. After review and possible amendment by the Governor, the final budget should be approved by the General Assembly in May. DISCUSSION: The 2012-2013 expenditure budget proposal for all divisions of the University totals $2.6 billion, a 4.2% increase compared with the revised budget of the previous fiscal year. Of this amount, $1.4 billion relates to the Academic Division, $1.2 billion to the Medical Center, and $36.3 million to The University of Virginia's College at Wise. Academic Division The proposed Academic Division operating expenditure budget will increase by 0.3% to $1.4 billion. The increase in the operating budget is driven by increases in tuition, fees, state general funds, and auxiliary revenues, which are partially offset by the tapering-off of federal stimulus funds for research. In 2012-2013, net tuition and fees (32.4%) provides the greatest proportion of the operating budget, followed by grants and contracts (22.6%), sales and services and other, including auxiliary sales and services, investment income and other miscellaneous revenues (12.4%), endowment distributions (11.2%), state general funds (10.2%), and gifts (8.2%). The remaining 3.0% of the expenditure budget will be funded from 1 operating cash reserves and accumulated investment balances. Personnel costs comprise approximately 71.8% of educational and general expenditures and 60.5% of total operating expenditures in the Academic Division. The proposed budget includes a reserve for the anticipated 3% bonus included in the General Assembly’s adopted budget. Amendments to that budget proposed by the Governor and to be addressed by the General Assembly on May 14th may result in further discussion about funding of the bonus and internal reallocation. The 2012-2013 budget development cycle for the Academic Division incorporated elements that are expected to be principles in the new internal financial model: • • • • • • Budget assumptions were developed earlier and in greater collaboration with administrative leadership and deans; Revenue from undergraduate enrollment growth is flowing to the schools that generate it, aligning incentives as the University grows; New funding provided in the 2012-2013 budget is clearly tied to the University’s strategic priorities; Budget discussions were more open and frequent, contributing to a more transparent budget process and greater awareness of the University’s strategic direction and financial capacity; Effective stewardship of the University’s resources led to academic and administrative units looking within their organizations to reallocate funds towards highest priority needs; and The budget document is more focused on the academic enterprise. Critical strategic investments in the Academic Division budget are: modest progress on competitive compensation for faculty and staff; the further implementation of goals from the 2011 Virginia Higher Education Opportunity Act including the undergraduate enrollment growth approved by the Board in February 2011; and ongoing investment in AccessUVa to attract and retain a high quality, diverse student body. The University of Virginia’s College at Wise The proposed operating expenditure budget for The University of Virginia's College at Wise will increase by $1.7 2 million, or 4.8%, in 2012-2013. State general funds will increase by 9.3%; at the same time, net tuition revenues are increasing by 2.8%. Grants and contracts will decrease by 17.3% and sales and services, including auxiliary sales and services revenues, will increase by 10.3%. Key strategic priorities addressed through this budget cycle are increasing student retention, improving graduation rates, and focusing on Science, Technology, Engineering, Math, and Health (STEM-H) offerings. Medical Center The Medical Center operating expenditure budget is proposed to increase by $99.0 million, or 9.0%, to $1.2 billion during 2012-2013. The operating margin is expected to be $58.6 million or 4.7%. The budget presentation will include a proposal to increase hospital room rates and ancillary service charges between 7.0 and 9.9% and to enhance personnel compensation packages. The pay-for-performance pool has been established at $8 million, which includes the impact on benefit costs and is based on a 3.0% salary adjustment with an October implementation date. Other salary adjustments, such as market adjustments, total $5 million, including the impact on benefit costs. The Transitional Care Hospital’s operating ($18.8 million in 20122013) and capital ($1.6 million in 2012-13) budgets are consolidated with the Medical Center’s budget. For the Medical Center, the 2012-2013 operating plan was developed through a priority-based budget process to align resource allocations with Medical Center strategies and goals to achieve the Health System strategic planning goal to become a top decile academic medical center. The operating plan was developed while considering the challenges of providing patient care, teaching, and research services in an increasingly dynamic health care industry. The full impact of the Accountable Care Act will not be realized until 2014-2015; however, a number of its provisions have already had an effect. The impact will be decreased reimbursements from government payors and an industrywide erosion of pricing power with private payors. At the same time, costs associated with providing quality patient care will continue to experience upward pressure due to increases in medical supply, pharmaceutical and medical device expenses, as well as a shortage of health care workers. These changes require careful fiscal planning now to ensure meeting the mission of the Health System in the future. 3 From the operating margin and from the capital reinvestment plan, the Medical Center has set aside $20.0 million for the Strategic Investment Pool to be used to fund future proposals that best align the allocation of resources with Medical Center strategies and goals. For a full discussion of the budget proposal, as well as comparative revenue and expenditure data for the Academic Division, the College at Wise, and the Medical Center, please refer to the budget summary, which accompanies this book. Pratt Fund In April 1976, the University received funds, designated in the will of John Lee Pratt, to be used "to supplement salaries of the professors of the Departments of Biology, Chemistry, Mathematics and Physics, to purchase equipment for these departments as suggested by the heads of the departments and approved by the President and the Board of Visitors, and to provide for scholarships in these departments for outstanding students." Mr. Pratt’s will provides further that these funds could be used "to support research in the School of Medicine and to provide scholarships for medical students." The will stipulates that the Pratt endowment reverts to Washington and Lee University if the University of Virginia does not comply with the provisions of the will. The original Pratt endowment has been split into two equal endowments, with 50% of the original principal assigned to the College of Arts and Sciences and the remaining 50% assigned to the School of Medicine. The market value of both pieces of the Pratt endowment is $120.8 million as of February 29, 2012. In 2012-2013, a distribution of $3.2 million from the College of Arts and Sciences endowment and $3.8 million from the School of Medicine endowment, for a total of $7.0 million, is recommended. Additionally, the College of Arts and Sciences plans to use in 2012-2013 approximately $105,000 – funds that were allocated in 2011-2012 but will remain uncommitted by the end of the fiscal year. Similarly, the School of Medicine plans to use in 20122013 approximately $293,000 – funds that were allocated in 20112012 but will remain uncommitted by the end of the fiscal year. Committees in each of the schools developed the proposal to spend the distribution, which is included as an appendix to this document. 4 Each dean, the Vice President for Research, the Executive Vice President and Provost, and the President are required to indicate their support of these projects. The table below shows aggregate allocations; the attachment describes the specific allocations. 2012-2013 Pratt Fund Allocation Biology Chemistry Mathematics Physics New Faculty Start-up Fund and Other Significant Initiatives Arts & Sciences Subtotal School of Medicine TOTAL Anticipated Carryforward of Uncommitted 2011-12 Funds $ 34,667 70,000 - Total Funds Available for 2012-13 $ 284,667 $ 250,000 $ 220,000 $ 250,000 Faculty Equipment Salaries Fellowships Research $ 2,230 $ 64,310 $ 183,460 $ 100,000 150,000 5,275 144,725 211,939 38,061 - Total 2012-13 Allocation $ 250,000 $ 250,000 $ 150,000 $ 250,000 766,667 766,667 766,666 $ 980,836 $ 974,313 $ 1,244,851 $ $ $ 2,300,000 3,200,000 $ $ 2,300,000 104,667 $ 3,304,667 $ $ $ 267,592 $ 3,532,408 $ $ 980,836 $ 974,313 $ 1,512,443 $ 3,532,408 $ 3,800,000 7,000,000 $ 292,688 $ 4,092,688 397,355 $ 7,397,355 - Annual Renovation and Infrastructure Plan Under Restructuring, the Board of Visitors has delegated authority to approve all capital projects (acquisitions, capital leases, or new construction or renovation projects costing more than $2 million and impacting more than 5,000 gross square feet) funded with non-general funds. To facilitate the consideration of certain projects with no exterior impact, the Board of Visitors considers the Annual Renovation and Infrastructure Plan (ARIP) each year. In the 2012-2013 Budget Summary, the Academic Division and the Medical Center will present 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. This shorter, annual approval process allows these smaller projects to be planned in a more appropriate timeline based on the nature of the project. For example, renovating a lab for a new scientist is a project for which the need will arise during recruitment, and which must be completed before the scientist joins the faculty. 5 The Academic Division’s ARIP totals $24.2 million to $30.0 million and includes renovations on the seventh floor of Old Jordan Hall and several utility upgrade projects. All projects will be funded from E&G maintenance fund cash reserves. The Medical Center’s 2012-2013 ARIP Plan includes $7.6 to $9.2 million in various renovation projects and infrastructure upgrades. All projects will be funded from Medical Center operating funds. Additionally, the Medical Center is authorized to substitute a new project costing between $2 million and $5 million for a project included on the approved ARIP, provided that the total capital budget as approved by the Board is not exceeded and that a report is provided at each Board meeting listing the changes made to the original project list. ACTION REQUIRED: Approval by the Finance Committee and by the Board of Visitors APPROVAL OF THE 2012-2013 OPERATING BUDGET AND ANNUAL RENOVATION AND INFRASTRUCTURE PLAN FOR THE ACADEMIC DIVISION RESOLVED, the 2012-2013 Operating Budget and Annual Renovation and Infrastructure Plan for the Academic Division are approved, as recommended by the President and the Chief Operating Officer. APPROVAL OF THE 2012-2013 OPERATING BUDGET FOR THE UNIVERSITY OF VIRGINIA'S COLLEGE AT WISE RESOLVED, the 2012-2013 Operating Budget for The University of Virginia’s College at Wise is approved, as recommended by the President and the Chief Operating Officer. APPROVAL OF THE 2012-2013 OPERATING AND CAPITAL BUDGETS AND ANNUAL RENOVATION AND INFRASTRUCTURE PLAN FOR THE UNIVERSITY OF VIRGINIA MEDICAL CENTER RESOLVED, the 2012-2013 Operating and Capital Budgets and the Annual Renovation and Infrastructure Plan for the University of Virginia Medical Center are approved, as recommended by the President, the Chief Operating Officer, and the Medical Center Operating Board. 6 APPROVAL OF THE 2012-2013 OPERATING AND CAPITAL BUDGETS FOR THE UNIVERSITY OF VIRGINIA TRANSITIONAL CARE HOSPITAL RESOLVED, the 2012-2013 Operating and Capital Budgets for the University of Virginia Transitional Care Hospital, presented as a component of the Medical Center Operating Budget, are approved, as recommended by the President, Chief Operating Officer, and the Medical Center Operating Board. APPROVAL OF PRATT FUND DISTRIBUTION FOR 2012-2013 RESOLVED, the budget for the expenditure of funds from the Estate of John Lee Pratt is approved to supplement appropriations made by the Commonwealth of Virginia for the School of Medicine and the Departments of Biology, Chemistry, Mathematics, and Physics in the College of Arts and Sciences. Departmental allocations, not to exceed $7,000,000 for 20122013, are suggested by the department chairs and recommended by the dean of each school; the disbursement of each allotment will be authorized by the Executive Vice President and Provost. To the extent the annual income from the endowment is not adequate to meet the recommended distribution, the principal of the endowment will be disinvested to provide funds for the approved budgets. 7 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: II.A.1. Disposition of Real Property, Wise County, Virginia, Stallard Property BACKGROUND: Iloe Read Stallard devised (i.e., transmitted by will) 39.7 acres to The University of Virginia’s College at Wise. The property is subject to two restrictions, a life estate in favor of Evelyn Stallard Smith and a right of first refusal in favor of Eddie Buchanan. The life estate is limited to a house and one acre of land located at 10748 Coeburn Mountain Road. The beneficiary, Evelyn Stallard Smith, is liable for all maintenance, repairs, and upkeep on the property during the remainder of her lifetime. The terms of the right of first refusal provide that Mr. Buchanan must respond within 60 days to any offer to sell the property to him on the same terms and conditions as any other proposed purchaser. DISCUSSION: The College has evaluated the property and accepted the devise as required by Ms. Stallard’s will. A survey commissioned by the College indicates the property consists of approximately 44.7 acres, as opposed to the 39.7 referenced in the will. Given the location of the property – approximately four miles southeast of the College – the College has determined it would be best to sell the property and use the proceeds to create an unrestricted endowment, the income from which would be used to further the College’s strategic priorities. The College requests permission to sell the property. ACTION REQUIRED: Approval by the Finance Committee and by the Board of Visitors APPROVAL TO SELL STALLARD PROPERTY OF APPROXIMATELY 44.7 ACRES IN WISE COUNTY, VIRGINIA WHEREAS, by Last Will and Testament, dated July 1, 2010, Iloe Read Stallard devised to The University of Virginia’s College at Wise approximately 44.7 acres located in Wise County, Virginia (the “Property”), subject to a life estate in favor of Evelyn Stallard Smith and to a first right of refusal in favor of Eddie Buchanan; and 8 WHEREAS, Iloe Read Stallard is now deceased such that title to the Property is vested in the name of The University of Virginia’s College at Wise; and WHEREAS, the Board of Visitors finds it to be in the best interest of the College at Wise to dispose of the Property; RESOLVED, the Board of Visitors approves the sale of the Property to any interested party; and RESOLVED FURTHER, the Executive Vice President and Chief Operating Officer is authorized, on behalf of the College at Wise, to approve and execute agreements and related documents, to incur reasonable and customary expenses, and to take such other actions as deemed necessary and appropriate to consummate the sale of the Property; and RESOLVED FURTHER, all prior acts performed by the Executive Vice President and Chief Operating Officer, and other officers and agents of the University and the College at Wise, in connection with such sale of the Property, are in all respects approved, ratified, and confirmed. 9 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: II.A.2. Transfer of Real Property to City of Charlottesville for Public Street Purposes, University Avenue BACKGROUND: The University of Virginia, University of Virginia Foundation, and the City of Charlottesville are cooperating on a project to enhance the intersection at Emmet Street and University Avenue. The project scope includes: 1) the widening of the three westbound lanes of University Avenue, 2) striping of a westbound bike lane within the University Avenue right-ofway, and 3) adding ADA sidewalk ramps at the northeast corner of the Emmet Street/University Avenue intersection and a five-foot sidewalk along the north side of University Avenue. The University of Virginia Foundation is overseeing this project. DISCUSSION: The intersection improvements will require both 1) the transfer of property by the University to the City of Charlottesville for public street purposes and 2) the granting of an easement by the University to Dominion Virginia Power for the electric line relocation. The transfer of property to the City for public street purposes will be considered by the Finance Committee and the granting of the easement to Virginia Dominion Power will be considered by the Buildings and Grounds Committee. ACTION REQUIRED: Approval by the Finance Committee and by the Board of Visitors APPROVAL TO TRANSFER FOR PUBLIC STREET PURPOSES PROPERTY LOCATED ON UNIVERSITY AVENUE, CHARLOTTESVILLE, VIRGINIA WHEREAS, the City of Charlottesville, University of Virginia Foundation, and the University of Virginia are cooperating on a project to enhance the intersection of Emmet Street and University Avenue; and WHEREAS, the project will require the transfer of property owned by The Rector and Visitors of the University of Virginia to the City of Charlottesville, Virginia, for public street purposes, to facilitate the widening of the westbound lanes of 10 University Avenue, east of Emmet Street, to accommodate three, full-width traffic lanes; RESOLVED, the Board of Visitors approves the transfer of property owned by The Rector and Visitors of the University of Virginia at the northeast corner of the intersection of Emmet Street and University Avenue to the City of Charlottesville for public street purposes; and RESOLVED FURTHER, the Executive Vice President and Chief Operating Officer is authorized, on behalf of the University, to identify the specific property to be transferred to the City for public street purposes, to approve plans and plats, to approve and execute deeds and related documents, to incur reasonable and customary expenses, and to take such other actions as deemed necessary and appropriate to consummate the transfer of the property for public street purposes; 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 transfer of the property for public street purposes, are in all respects approved, ratified, and confirmed. 11 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: II.B.1. Valley Health Stereotactic Radiosurgery Joint Venture BACKGROUND: The Medical Center desires to form a limited liability company with Winchester Medical Center to open a Radiosurgery Center to provide stereotactic radiosurgery and stereotactic body radiation therapy services at Winchester Medical Center. DISCUSSION: The Radiosurgery Center will expand the Medical Center’s clinical enterprise in northern Virginia. The center will be modeled on the Medical Center’s other off-Grounds radiosurgery centers at Riverside Hospital and Mary Washington Hospital. The University of Virginia Physician’s Group, through the departments of Neurosurgery and Radiation Oncology, will provide and be compensated for development services to prepare for operations and medical direction services, which will continue for several years of operations. The Medical Center will be a 15% owner of the center without making any capital contribution. ACTION REQUIRED: Approval by the Medical Center Operating Board, the Finance Committee, and by the Board of Visitors APPROVAL TO ENTER INTO A JOINT VENTURE TO ESTABLISH A RADIOSURGERY CENTER AT WINCHESTER MEDICAL CENTER WHEREAS, the Medical Center Operating Board and the Finance Committee find it to be in the best interests of the University of Virginia and its Medical Center for the Medical Center to form a limited liability company with Winchester Medical Center to provide stereotactic radiosurgery and stereotactic body radiation therapy services in northwest Virginia; and WHEREAS, Section 23-77.3 of the Code of Virginia grants authority to the Medical Center to enter into joint ventures; 12 RESOLVED, the University, on behalf of the Medical Center, is authorized to form a limited liability company with Winchester Medical Center to provide stereotactic radiosurgery and stereotactic body radiation therapy services in northwest Virginia; and RESOLVED FURTHER, the Executive Vice President and Chief Operating Officer of the University, in consultation with the Vice President and Chief Executive Officer of the Medical Center, and with the concurrence of the Chair of the Medical Center Operating Board and the Chair of the Finance Committee, is authorized to negotiate the terms of such joint venture, including execution of the definitive agreement, contracts, and all other documents necessary for the closing of the transaction, on such terms as the Executive Vice President and Chief Operating Officer of the University deems appropriate, and to take such other action as the Executive Vice President and Chief Operating Officer of the University deems necessary and appropriate to consummate the foregoing. 13 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: II.B.2. Albemarle Arthritis Associates, LLP Acquisition BACKGROUND: The Medical Center desires to acquire substantially all of the assets of the Albemarle Arthritis Associates, LLP medical practice. DISCUSSION: Albemarle Arthritis Associates, LLP, is a threephysician practice located in Charlottesville. The practice operates a small infusion center that performs 1,400 infusions annually. The practice will be acquired and converted to a provider-based clinic, and the infusion center will be enlarged to perform at least 2,200 and as many as 4,500 infusions annually. The three physicians will be employed by the University of Virginia Physicians Group. This acquisition will improve access for the Medical Center’s infusion patients, expand the referral base for more complex care, and provide strong financial performance, with projected operating income over $1 million and operating margin in excess of 20% by the end of year four. ACTION REQUIRED: Approval by the Medical Center Operating Board, the Finance Committee, and the Board of Visitors APPROVAL TO ACQUIRE_ALBEMARLE ARTHRITIS ASSOCIATES, LLP WHEREAS, the Medical Center Operating Board and the Finance Committee find it to be in the best interests of the University of Virginia and its Medical Center for the Medical Center to purchase substantially all of the assets of Albemarle Arthritis Associates, LLP; RESOLVED, the University, on behalf of the Medical Center, is authorized to acquire substantially all of the assets of Albemarle Arthritis Associates, LLP on such terms to be contained in a definitive agreement between the parties; and 14 RESOLVED FURTHER, the Executive Vice President and Chief Operating Officer of the University, in consultation with the Vice President and Chief Executive Officer of the Medical Center, and with the concurrence of the Chair of the Medical Center Operating Board and the Chair of the Finance Committee, is authorized to negotiate the terms of such acquisition, including execution of the definitive agreement, contracts, and all other documents necessary for the closing of the transaction, on such terms as the Executive Vice President and Chief Operating Officer of the University deems appropriate, and to take such other action as the Executive Vice President and Chief Operating Officer of the University deems necessary and appropriate to consummate the foregoing. 15 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: III.A. ACTION REQUIRED: None Vice President’s Remarks BACKGROUND: The Executive Vice President and Chief Operating Officer will inform the Board of recent events that do not require formal action, but of which it should be made aware. 16 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: III.B. University of Virginia Investment Management Company Report on the Long-Term Pool – Market Value and Performance as of March 31, 2012 ACTION REQUIRED: None BACKGROUND: The University of Virginia Investment Management Company (UVIMCO) provides investment management services 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 March 31, 2012 report follows. Quarter-End March 2012 SUMMARY The following commentary provides an update on the current market environment as well as the asset allocation, performance (unaudited), risk management, and liquidity position of UVIMCO’s Long Term Pool as of and for periods ending March 31, 2012. 17 As our investors are well aware, the Long Term Pool’s quarterly returns (and those of the markets) are volatile and impossible to predict. The 7.1% gain recorded by the Long Term Pool this calendar quarter is high, albeit not quite as lofty as the 8.5% increase in our policy benchmark over the same time period. Combined with losses recorded in the second half of 2011, our fiscal year-to-date return on the Long Term Pool is 3.6%, versus a fiscal year-to-date policy portfolio return of 1.9%. As always, we encourage readers of our investment reports to focus on long-term returns. The Long Term Pool’s ten year return of 9.5% exceeds the policy benchmark return by a healthy 3.0%. Each spring, we estimate the future long-term return of the Long Term Pool by adding the nominal expected return of our policy portfolio together with expected alpha from manager performance and portfolio tilts. This year, we adjusted our long-term return forecast up from 7.5% to 8.0%. The 50 bps increase is partially due to the lower global equity prices and higher real earnings that occurred in 2011. Equities represented better value at the end of 2011 than they did the year before. We have a few observations about the 8.0% expected nominal return for the Long Term Pool. First, assuming a 5.0% spending rate and a 2.5% rate of inflation, the 8.0% return allows us to produce growth in the Long Term Pool of 0.5% per annum. Next, we note that profitable active management will be required in order to grow the Long Term Pool in real dollars. Finally, although our analysis underlying the 8.0% expected return on the Long Term Pool is sound, there is much uncertainty surrounding the inputs and this final estimate. We estimate approximately 2.5% of the return will come from future alpha, and increased competition in the institutional investor space could hamper our ability to deliver those results. Also in the spring, we reassess and adjust our risk management practices of the Long Term Pool. This year, we have increased our focus on managing unfunded commitments, as they represent the riskiest part of private investing. Going forward, we will target the level of unfunded commitments at 15% of the Long Term Pool, with a maximum unfunded commitment level of 25%. We expect that over the next few years, this revised target will reduce the market value of private investments from its current level of 41% of the Long Term Pool to a long-term equilibrium of approximately 30%, with the resulting capital shifted to public investments. We believe these adjustments to 18 Pool allocations will reduce the liquidity risk of the Long Term Pool without reducing the expected return. MARKET ENVIRONMENT Investors celebrated the third anniversary of the March 9, 2009 low on the S&P 500 index by participating in the strongest first quarter rally since 1998. The S&P 500 index returned 12.6% for the quarter, ending the period at a level of 1,408. The index has increased 108.0% since its bottom in March 2009. Other risk assets also had a good quarter with high-yield bonds returning 5.3% and emerging market equities returning 14.1%. U.S. Treasuries generated a 29.9% return in 2011 (as measured by the Barclays Aggregate Long Term U.S. Treasury Index), but lost 5.8% during the first quarter of 2012. The markets were less influenced by macro risks as economic conditions in the U.S. appeared to improve and Europe’s deterioration seemed to slow. Average cross-sectional return correlations across stocks reached a high of close to 70% last September, the highest level since the Great Depression. Cross-sectional correlations have remained elevated since the 2008 meltdown, as security prices have reacted more to macro news than company fundamentals. However, average correlations have recently decreased, finishing the quarter at 33% (still above the long-run average of 27%). Although our active managers have done well over the past several years, a period of lower cross-sectional correlations – a stock picker’s market – should play to the strengths of our managers who are less macro-focused and more focused on investing at good companies at fair prices. As the U.S. economy showed signs of strength, U.S. Treasury yields increased modestly with the yield on the ten-year bond, increasing 33 bps to 2.21% at quarter-end. At the Fed’s March meeting, Chairman Ben Bernanke suggested that further easing would be less likely if the economic news continued to improve. This led markets to re-think the likelihood that short rates would remain near zero until 2014, as was initially announced last summer. Although Chairman Bernanke said he would watch closely for signs of inflationary pressures, it is still widely believed that the Fed is more focused on unemployment risk as long as excess slack remains in the economy. Retail investors continued to allocate more money to bonds despite the historically low level of interest rates. During the first quarter of 2012, a net $84 billion was invested in bond funds (compared to $124 billion in the entire year of 2011) versus $2 billion of net redemptions from equity funds. Corporations continued to take advantage of low interest rates. During the 19 first quarter of 2012, investment grade and non-investment grade companies issued $350 billion and $90 billion of debt, respectively, with both amounts exceeding the totals of the first quarter of 2011. In Europe, the ECB’s actions and the Greek restructuring calmed fears of a European crisis. However, developments in Spain, the euro zone’s fourth largest economy, rekindled the market’s fears over the health of Europe’s southern periphery. Spain’s poor debt auction reminded investors that the European region is still fragile and will continue to represent a potential risk to the global economic recovery. China’s economic growth slowed in the first quarter of 2012 to an 8.1% annual rate versus 8.9% in the fourth quarter of 2011. In addition, the rapid growth of the real estate market started to show signs of decline this year. In the first two months of 2012, the total growth rate of property sold dropped 20.9%. It is expected that these downward trends could have an impact on the global economy, in particular on countries that produced materials used for construction in China. PIMCO’s Mohamed El-Erian recently described the tug of war he sees in markets between the impact of healthy corporations and weak sovereigns. He believes that the risk of further problems in Europe is fully priced into risk assets, but broader geopolitical risks and the “fiscal cliff” in the U.S. are not priced in and could derail positives occurring at the corporate level. Since March 2009, S&P 500 operating earnings per share have increased by 95%. However, revenues per share have only increased by 1% during this time period. Earnings growth has been driven by cost cutting and has resulted in record high profit margins. The below average global economic recovery since the Great Recession has contributed to a muted rise in sales revenues. Similar to 2012, equity markets started the last two years with a strong first quarter. However, markets swooned during the second or third quarters in each year, as markets switched from focusing on the recovery in corporate profits to the macro risks facing the globe. The recent two years of “sell in May and go away” markets are making investors worry whether the same thing will happen this year. The fiscal cliff referenced by Mohamed includes the year-end: expiration of Bush tax cuts, expiration of the payroll tax cut, healthcare tax increase, automatic spending cuts and need for a further increase in the debt ceiling (as described by Strategas Research Partners). Markets have already started to weaken in April, as macro news 20 stories have been more mixed than they were in the first quarter. Writing in this week’s Barron’s, Michael Santoli also wonders whether the markets will see a replay of the last two years’ mid-year weakness. He speculates that this year’s “market bugaboo” could be the year-end “fiscal cliff,” and his research indicates that the use of the term “fiscal cliff” was up five times in April over March 2012. It is possible that such political risks (which also include the 2012 U.S. and other developed country elections) could pre-occupy investors’ minds the remainder of the year, once again returning us to a macrofocused market that is often less kind to stock-pickers and investors who focus most on company fundamentals. 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 March 31, 2012 is 62.5% to equity managers, 15.0% to real asset managers and 22.5% to fixed income (including credit), cash and absolute return managers. Looking through to our managers’ underlying investments, the Long Term Pool has a 51.4% allocation to equities, 16.2% allocation to real assets and 32.4% allocation to fixed income (including credit) and cash as of March 31, 2012. Therefore, the Long Term Pool continues to be positioned defensively versus the policy portfolio benchmark, with less market risk. Our portfolio tilts remain unchanged: a relative overweight to quality equities, a low duration bond portfolio, a relative underweight to real estate, and a meaningful allocation to natural resources. PERFORMANCE The Long Term Pool returned 7.1% in the quarter ended March 31, 2012 versus the policy benchmark gain of 8.5%. As expected, Pool performance lagged the benchmark in the face of rapidly rising equity markets. Fiscal year-to-date, the Long Term Pool has returned 3.6% versus 1.9% earned by the policy benchmark. 21 EQUITIES Public Equity The public equity portfolio returned 15.5% in the quarter ending March 31, 2012 versus 12.0% on the MSCI ACWI index. Fiscal year-to-date, the portfolio returned 2.9% versus -0.6% on global equities. The portfolio continues to have a bias that favors larger capitalization, higher quality companies and the emerging markets. In some periods these tilts help performance versus the global equity markets, and at other times they detract from our relative returns. In the first quarter of 2012, emerging market equities rose more than global equities, up 14.1% versus 12.0%. Fiscal year-to-date however, emerging markets significantly trailed global equities, losing 7.6% in a flat (i.e., -0.6%) global equity market. Over both time periods our emerging market managers outperformed the broad emerging market benchmarks. As we’ve said before, our emerging exposure with long-only managers is less of an “emerging market story” and more of a “manager story”. We have great managers who are able to exploit inefficiencies in emerging markets by adding value through active stock selection (although, again will underperform benchmarks during certain periods of time). There is not a perfect benchmark for quality, but one measure is the Russell 1000 Growth index, which was up 14.7% in the first quarter and 10.1% during the current fiscal year. This exceeds the broad equity benchmark over both periods of time. Although our recent performance was helped by our portfolio tilts, we continue to believe that much of our success will be driven by the stock selection skills of our managers. Over the past ten years, our public equity portfolio returned 12.0% versus 5.9% on global equities. The portfolio tilts and the stock selection skills of our managers have combined to produce significant outperformance. It is unreasonable to expect similar relative performance over the next decade. Long/Short Equity Long/short equity managers returned 9.0% for the quarter versus 7.2% on the DJ Credit Suisse Long/Short Equity index and 12.0% on global equities. Fiscal year-to-date, our long/short managers returned 6.6% versus -1.4% on the long/short index and -0.6% on global equities. After a fallow few years of meager spread between longs and shorts, we have been rewarded for our 22 patience. Many of our worst performing managers over the past two years have been our best performers in 2012. Over the past decade, the long/short portfolio returned 8.5% versus 6.8% on long/short index and 5.9% on global equities. Private Equity The private equity portfolio returned 4.8% for the quarter and 2.5% for the fiscal year, versus benchmark returns on the MSCI ACWI index of 12.0% for the first quarter and -0.6% for the fiscal year. Buyout volume in the U.S. totaled $13 billion during the first quarter, down 44% from the 2011 level of $23.6 billion according to Dealogic. The number of deals decreased from 170 to 156 for the same period. While many market participants expect deal activity to increase during the remainder of 2012, the European debt crisis still represents a wildcard that could dramatically impact the world economy. Buyout volume during the quarter also declined globally to $31.6 billion from $43.5 billion for the same period in 2011, with the number of deals also falling to 412 from 425. While deal volume is usually lower in the first quarter than the rest of the year, the figures for 2012 seem unusually low. However, an abundant supply of credit in the U.S. and proposed changes in the capital gains tax rate may accelerate sale decisions over the rest of the year. In addition, many companies continue to carry large amounts of cash reserves on their balance sheets, and acquisitions are often a favored means for deploying cash. Over the past few months, private equity firms have often utilized sales to strategic buyers in order to exit portfolio investments. The buyout portion of the private equity portfolio returned 4.4% for the quarter and 1.6% for the fiscal year. The venture capital portion of the private equity portfolio returned 6.9% for the quarter and 7.2% for the fiscal year. For the ten-year period, the buyout portfolio had a return of 14.7% versus 5.9% for the index and the venture capital portfolio was flat. Despite the slower pace of deal activity noted above, UVIMCO received a healthy $58 million in cash distributions from the buyout and venture capital portfolios in the first quarter of 2012, almost three times the $21 million in capital called over the same time period. 23 REAL ASSETS Real Estate The real estate portfolio returned 6.1% for the first quarter of 2012 versus 11.6% for the weighted benchmark of publicly-traded U.S. and international real estate securities. Fiscal year-to-date, the real estate portfolio generated a return of 6.8%, outperforming the benchmark by 3.0%. We funded capital calls of approximately $80 million for the real estate portfolio during the past nine months, bringing the real estate allocation to 7.7% of the Long Term Pool. As the real estate portfolio matures, it is emerging from an extended period in which unfunded commitments to the asset class served to weigh down returns. We now hold substantially more investments in the strategy than we retain in unfunded commitments, which should support our real estate returns on both an absolute and relative basis going forward. During the quarter, the real estate program had $30 million of capital calls and generated $11 million of distributions. U.S. commercial real estate market fundamentals continued to recover during the first quarter of 2012. The multifamily sector was buoyed by increased household formation, declining home ownership rates, a marginally improved job market, demographic tailwinds and lagging supply. Strong capital flows into the space have benefitted multifamily asset pricing as well. Overall, commercial real estate transaction volumes grew to $170 billion in 2011 from a low of $50 billion in 2009, yet well below the peak of $510 billion in 2007. Commercial real estate construction as a percentage of gross domestic product remains at a historic low. In the U.S. residential real estate market, single family home starts still languish slightly above the lows set at the trough of the financial crisis. Home prices have not experienced the sustained increases that would encourage new construction. Real Treasury yields at or near zero are providing ongoing support to U.S. REIT securities values. An assessment of current U.S. REIT valuations depends upon one’s view of expected 10-year Treasury yields over the coming five to seven years, as an extended period of low yields would be supportive of REIT pricing. For international real estate securities, the murky and uncertain real estate picture in China has dampened returns while increasing volatility. Fiscal year-to-date, U.S. real estate securities have outperformed the global basket of 24 publicly-traded real estate securities by nearly 900 basis points. Resources The resources portfolio returned 3.6% for the quarter versus 5.9% for the GSCI Commodity Index, 0.9% for the Dow Jones/UBS Commodity Index and 11.6% for our real assets benchmark (i.e., global public real estate). Fiscal year to date, the resources portfolio has remained relatively flat, returning -0.5% versus 1.9% for the GSCI Commodity Index, -10.2% for the Dow Jones/UBS Commodity Index and 3.8% for our real assets benchmark. The majority of our resources portfolio is invested in privately held companies that provide lagged valuation updates. The first quarter of 2012 saw a further decoupling of domestic oil and natural gas prices, a trend that has persisted during the last few years. The WTI Cushing Crude Oil spot price once again surpassed the $100 mark, reflecting the rising marginal cost of supply and strong global demand for petroleum products. The NYMEX Henry Hub Natural Gas spot price continued its precipitous fall, declining 33.5% during the quarter from $2.98 to $1.98. Low gas prices in North America reflect the prolific growth in production from unconventional resources and the mild temperatures we experienced during the past winter. It is a testament to the skill of our managers that our resources portfolio, which is weighted toward domestic onshore oil and gas assets, generated a cumulative return exceeding 150% in the past five years while oil prices increased around 50% and gas prices decreased over 70%. Our managers continue to apply advanced drilling technology to develop increased reserves, and prudently allocate incremental capital toward projects with the highest return potential. During the quarter, the resources program had $11 million of capital calls and generated $9 million of distributions. Fiscal year to date, the resources portfolio has been approximately cash flow neutral with capital calls offsetting distributions from our fund managers. We expect the imminent sale of a co-investment position will provide both cash inflows and positive returns during the second calendar quarter of 2012. 25 FIXED INCOME Absolute Return and Credit The absolute return portfolio returned 1.6% for the quarter versus a 0.8% return on the Barclays Aggregate Bond Index, 5.3% return on the Barclays High Yield index and the 8.5% return on the policy portfolio benchmark. Fiscal year to date, the absolute return portfolio has returned 4.2% versus a 5.2% return on the Barclays Aggregate Bond Index, 5.3% return on the Barclays High Yield index and the 1.9% return on our policy portfolio benchmark. The credit portfolio returned 4.3% for the quarter and 3.3% for the fiscal year versus the Barclays High Yield index returns of 5.3% for both the quarter and fiscal year time periods. Neither portfolio kept pace with the strong equity and high-yield market rallies in the quarter, and each has provided a relatively modest return for the fiscal year as past opportunities were harvested and new seeds planted. Over the past decade, both the absolute return and credit portfolios have delivered relatively strong returns, compounding at an average annual pace of 7.3% and 10.1%, respectively. The composition of the absolute return and credit portfolios continues to evolve. During the quarter, we exited a relatively large allocation to a fixed income arbitrage manager in the absolute return program. While the manager had delivered very good results for us over the past six years, a change in fund terms ran counter to our thesis and we exited the position. In addition, we added an opportunistic fundamental valueoriented manager to the credit portfolio at the beginning of the year. We continue to receive distributions from several drawdown structure funds with allocations to residential mortgage-related securities, corporate credit and a broader mix of eclectic assets. We expect to wind down these allocations over the next few years. We had no capital calls from our credit managers during the quarter but had $22 million in cash distributions. Bonds and Cash Our cash and bond portfolios continue to be managed as sources of liquidity. Our cash portfolio is invested in U.S. Treasury bills and notes with maturities under one year, and U.S. Treasury guaranteed Repurchase Agreements with U.S. domiciled counterparties. The duration of the cash portfolio as of March 31, 2012 was .21 years. Our government bond portfolio has also been in short-term U.S. Treasury notes and bonds but 26 with maturities under three years. The average duration of this portfolio as of quarter end was .62 years. We have continued to maintain our position in shorter duration bonds, as we feel that the small additional return for longer duration bonds does not compensate us for the risk of higher rates in the near future. The negligible returns reported for the short-term cash investments are consistent with an environment in which current interest rates are near 0%. RISK MANAGEMENT Investors may be willing to bear risk if they are adequately compensated with future higher returns. At UVIMCO, we are willing bear certain risks, but others must be eliminated if we are unable to absorb the downside losses or if we do not earn a sufficient risk premium from assuming those risks. We consider three broad portfolio risks when managing the Long Term Pool – market risk, manager risk, and liquidity risk – and evaluate these factors relative to the risk tolerance of Long Term Pool shareholders. Over the past several months, the UVIMCO staff and Board have been working together to refine the measurement and management of risk in the Long Term Pool. The changes to our models and processes are subtle, but we are making fewer assumptions than before and are providing better estimates of the risk in the portfolio. We utilize a quantitative and qualitative approach to risk management, and continuously seek to improve our ability to measure and manage Long Term Pool risk. However, we acknowledge the limitations we face when modeling certain risks, as we often invest in commingled funds that lack transparency into the underlying holdings. Market Risk The largest risk factor present in the Long Term Pool is equity market risk. A common definition of market risk is the standard deviation or volatility of a portfolio’s return. Volatility provides a useful proxy for market risk if returns are normally distributed. However, it is clear that both the broad market as well as individual investment strategies are not normally distributed, but rather are subject to a much higher probability of negative “tail” events. Since investment returns are subject to “tail risk,” it is useful to complement the standard deviation statistic with an estimate of drawdown risk. 27 We manage market risk in the Long Term Pool by diversifying across three broad asset classes: equity, fixed income, and real assets. Our objective is to maintain estimated market risk in the Long Term Pool that is less than or equal to the estimated market risk of the policy portfolio. Our current estimate of the volatility of Long Term Pool returns is 11% versus 12% for the policy portfolio. In addition, the lowest one-percentile annual drawdown on the Long Term Pool is estimated to be 26%, less than the drawdown estimate of -30% on the policy portfolio. Manager Risk The Long Term Pool invests with more than one hundred external managers. We seek to maintain a portfolio of managers that generates sufficient returns to compensate us for bearing both market risk and the additional risk inherent in working with individual managers. Manager risk includes tracking error or active bets away from the benchmark, operational or business risks, lack of transparency, and leverage. UVIMCO mitigates manager risk by a thorough due diligence process. At our first Annual Investors Meeting on March 21, we highlighted the due diligence process and presented case studies designed to illustrate how we select external managers and monitor those relationships. We are currently recruiting for a Manager of Operational Due Diligence, who will augment the current procedures we use to assess our managers’ operations and controls. We also reduce manager risk through diversification, bypassing certain investment 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. Over time, UVIMCO has been well compensated for assuming manager risk. Attribution analyses suggest that manager selection is the largest contributor to the Long Term Pool’s long-term outperformance versus the policy benchmark and peers. Liquidity Risk At UVIMCO, we define liquidity risk as an inability to meet any of the following four primary liquidity requirements: (i) withdrawals by the University and foundation investors, (ii) the excess of capital calls over expected capital distributions from 28 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. Managing the pace of commitments to private investments is an inexact science. As the timing and amount of capital calls to and distributions from private investments is at the discretion of our external private fund managers, we must continually recalibrate our models to better predict these cash flows. In addition, for the past few years, we focused on the sum of private market values and unfunded commitments (the “private aggregate”) as the primary risk control for our private portfolio. While this measure is useful, it overlooks material changes to the composition of the private exposure and the underlying risks. An excessive level of private market value within the Long Term Pool may prevent us from having the liquidity needed to fund shareholder redemptions or rebalance the portfolio. However, unfunded commitments represent a form of implicit leverage, a more serious risk. Therefore, we have revised our risk framework for private investments to center around unfunded commitments. We believe a target for unfunded commitments of 15% is prudent and will enable UVIMCO to invest consistently through a variety of market cycles. Actual unfunded private investment commitments decreased from $975 million or 18% of the Long Term Pool as of June 30, 2011 to $843 million or 15% of the Long Term Pool as of March 31, 2012. We also plan to adopt a maximum unfunded commitment of 25% of the Long Term Pool. A lower allocation to private investments will reduce the impulse to sell privates or turn off new commitments entirely during a market downturn, which we believe would be costly to long-term returns. This approach also gives us the ability to be more opportunistic in buying secondary investments or co-investing, when we have better insights into the valuation and attractiveness of those investments. Given our four primary liquidity requirements, we believe that an appropriate target for liquidity is to have 10% of the Long Term Pool invested in assets that are safe and highly liquid, and at least 30% of the Pool should be available for conversion to cash in any twelve-month period. The total of bonds and cash as of March 31, 2012 was 11.7%, a significant increase over the 8.3% of bonds and cash we held in the Long 29 Term Pool at year end. The increase was largely due to fund redemptions, but we expect new investment allocations and spending distributions will reduce the level of Long Term Pool liquidity before fiscal year end. Over time, we expect the sum of the liquid U.S. Treasury bond and cash portfolios to vary between 8% and 12% of the Long Term Pool. Although this is a drag on returns (especially in a zero interest rate environment), we believe it provides insurance against future turbulent markets and will allow us to fund attractive investments that it will more than make up for the return drag. The percentage of the Long Term Pool that can be turned into cash has remained relatively constant over the past year. As of March 31, 2012, 38% of the Long Term Pool can be turned into cash within one quarter and 53% of the Pool can be turned into cash within one year. 30 INVES TMENT MANAGEMENT COMPANY Investment Report March 31, 2012 Investment Activity FYTD 2012 (1) Month $5,354,121,923.51 915,195.33 Beginning Net Asset Value (NAV) Beginning Shares $5,346,502,216.17 932,765.04 $5,731.89 $37,072,958.10 ($125,250,487.09) $184,856,915.98 ($10,285,748.61) $5,850.25 $1,503,859.52 ($1,596,684.12) $79,759,109.30 ($892,353.66) NAV Per Share at Beginning of Period + Contributions - Redemptions + Investment Return - Fees $5,432,895,854.55 915,029.41 $5,937.40 Ending Net Asset Value (NAV) Ending Shares NAV Per Share at End of Period $5,432,895,854.55 915,029.41 $5,937.40 Shareholder Summary Long Term Pool % of NAV $3,377,941,003.46 $1,183,664,134.92 $871,290,716.17 $5,432,895,854.55 University of Virginia Endowment Affiliated Organizations University Operating Funds Total 62.2% 21.8% 16.0% 100.0% Performance Market Value (2) $ Millions % Long Term Pool Policy Benchmark (3) Equity Public Long / Short Buyout Venture Capital Total Equity MSCI All Country World Equity Real Assets Real Estate Resources Total Real Assets MSCI Real Estate (4) Fixed Income, Cash & AR Absolute Return Credit Government Bonds Cash & Currency Total Fixed Income, Cash & AR Barclays Aggregate Bond (5) 5,433 Time-Weighted Returns MO CYTD FYTD 1 YR 3 YR Annualized 5 YR 10 YR 20 YR 100.0 1.5 7.1 3.6 10.0 16.7 6.1 9.5 12.1 100.0 0.5 8.5 1.9 3.1 18.4 2.2 6.5 7.7 1,141 1,224 860 170 21.0 22.5 15.8 3.1 1.2 3.4 0.6 2.0 15.5 9.0 4.4 6.9 2.9 6.6 1.6 7.2 12.5 10.3 14.0 23.7 30.8 8.1 23.9 18.4 5.6 5.7 6.2 6.4 12.0 8.5 14.7 (0.0) 11.9 10.2 -17.3 3,395 62.5 60.0 1.8 0.7 9.7 12.0 4.1 (0.6) 12.7 (0.2) 19.4 21.4 6.6 0.3 420 393 7.7 7.2 2.2 1.3 6.1 3.6 6.8 (0.5) 9.1 10.2 813 348 239 367 270 1,224 (9.9) 30.9 (14.9) 20.3 10.1 5.9 (2.2) 24.7 14.0 7.4 --- 15.0 1.7 4.9 2.8 9.9 13.4 3.3 11.9 -- 10.0 2.2 11.6 3.8 6.6 35.2 (3.3) 9.1 9.0 4.2 3.3 0.1 (0.1) 5.3 6.8 0.1 (0.0) 14.2 20.9 2.4 0.2 8.0 4.6 6.1 4.8 7.3 10.1 6.9 -- --7.4 -- 6.4 4.4 6.8 5.0 0.6 0.7 0.0 (0.0) 1.6 4.3 (0.0) (0.1) 22.5 0.4 1.6 2.3 3.4 10.8 6.3 7.2 7.8 30.0 (0.3) 0.8 5.2 7.3 6.1 5.7 5.5 6.5 31 Investment Report March 31, 2012 Short-Term Liquidity(6) Actual Liquidity (Cumulative Total % of NAV) Weekly Public Equity Monthly Quarterly Semi-Annually Annually 2% 6% 14% 18% 18% Long / Short Equity - 1% 11% 11% 18% Absolute Return - - 2% 2% 5% 1% 1% 1% 1% 1% Resources Government Bonds 7% 7% 7% 7% 7% Cash 5% 5% 5% 5% 5% 14% 20% 38% 43% 53% 780 1,076 2,084 2,353 2,888 Total Available Liquidity ($ in Millions) Private Funds Market Values and Commitments (7) ($ in Millions) Market Value of Private Investments Amount Public Equity % of NAV Uncalled Commitments Amount % of NAV Private Aggregate Amount % of NAV 125 2% 27 0% 152 3% 30 1% - - 30 1% 1,030 19% 360 7% 1,390 26% Real Estate 420 8% 198 4% 618 11% Resources 359 7% 160 3% 519 10% 64 1% - - 64 1% 212 4% 54 1% 266 5% 2,241 41% 799 15% 3,041 56% Europe Asia LAMA(9) Long / Short Equity Private Equity Absolute Return Credit Total Market and Currency Exposure Estimates (8) (% of NAV) Equity Policy Ranges Actual Exposure North America 40 - 70 51.4 29.1 7.9 8.0 6.3 Real Assets 5 - 20 16.2 13.6 1.5 0.8 0.3 Credit 0 - 20 5.4 4.8 0.0 0.1 0.5 Government Bonds 5 - 20 6.8 6.8 - - - Total Market Exposure 70 - 100 79.8 54.3 9.4 8.9 7.1 0 - 40 0 - 40 0 - 20 - - 8.9 0 - 30 7.1 0 - 20 Policy Ranges Cash & Currency Currency Exposure Policy Ranges -- -- 25 - 75 0 - 30 20.2 21.6 --- 100.0 -- 75.9 50 - 100 32 (1.4) 8.1 0 - 30 33 UNIVERSITY OF VIRGINIA BOARD OF VISITORS AGENDA ITEM SUMMARY BOARD MEETING: May 22, 2012 COMMITTEE: Finance AGENDA ITEM: III.C. ACTION REQUIRED: None Retirement Administrative Committee BACKGROUND: The University is the plan sponsor of a number of defined contribution retirement plans, including the Defined Contribution Retirement Plan for the General Faculty and Executive and Senior Administrative and Managerial and Professional University Staff of the University of Virginia and the Defined Contribution Retirement Plan for Employees of the University of Virginia Medical Center. At its June 2, 2007 meeting, the Finance Committee of the Board of Visitors approved a revised Retirement Program Policy. The revised policy established the role of the Finance Committee of the Board of Visitors to provide oversight of the retirement plans and to report annually to the Board. The policy also clarified the role of the University’s Retirement Administrative Committee to establish procedures and review investment performance of the various funds offered. The Retirement Administrative Committee is chaired by Yoke San Reynolds, Vice President and Chief Financial Officer of the University. The Retirement Administrative Committee also established an Investment Subcommittee, chaired by the CEO of UVIMCO. Susan Carkeek, Vice President and Chief Human Resource Officer, is the retirement program administrator. At its April 11, 2008 meeting, the Finance Committee of the Board of Visitors approved new Investment Procedures, creating a menu of investment options for plan participants that includes a full range of funds, regardless of which vendor a participant elects. The new Investment Procedures also changed the role of CAPTRUST (a third party engaged to provide analysis of investment performance of the funds) from consultant to advisor thus shifting fund selection and monitoring responsibility to CAPTRUST. Mr. Mark Kington, as Finance Committee Chair, and Mr. Alan Diamonstein, Finance Committee member, work with the Retirement 34 Administrative Committee to oversee the retirement program and report back to the Finance Committee on an annual basis. DISCUSSION: On May 11, Messrs. Kington and Diamonstein met with the Executive Vice President and Chief Operating Officer and representatives of the Retirement Administrative Committee to review the Plan’s annual performance and to discuss the overall program from participant and administrative perspectives. Minutes of that meeting appear as Appendix B. 35 MISCELLANEOUS FINANCIAL REPORTS Finance Committee University of Virginia May 22, 2012 UNIVERSITY OF VIRGINIA ACADEMIC DIVISION ACCOUNTS AND LOANS RECEIVABLE AS OF MARCH 31, 2012 SOURCE: Financial Administration DATE: April 17, 2012 36 UNIVERSITY OF VIRGINIA ACADEMIC DIVISION ACCOUNTS AND LOANS RECEIVABLE AS OF MARCH 31, 2012 SOURCE: Financial Administration DATE: April 17, 2012 37 University of Virginia Capital Campaign Summary As Of 3/31/12 All Units Expendable Gifts and Pledge Payments Endowment Total 1,158,765,049 523,811,323 1,682,576,372 Outstanding Pledge Balances Deferred Gifts 159,656,565 93,898,101 44,366,795 29,958,841 204,023,360 123,856,942 Private Grants 229,828,773 0 229,828,773 75,684,523 2,201,467 77,885,990 Gift and Pledge Total 1,717,833,011 266,953,123 600,338,426 79,649,338 2,318,171,437 346,602,461 Campaign Total 1,984,786,134 679,987,764 2,664,773,898 -345,883,011 1,371,950,000 1,027,711,574 1,628,050,000 681,828,563 3,000,000,000 Expendable 394,627,999 27,752,618 61,037,698 0 31,925,961 Endowment 275,685,777 4,535,331 14,850,235 0 11,184 Total 670,313,776 32,287,949 75,887,933 0 31,937,145 Gift and Pledge Total 515,344,276 142,146,782 295,082,527 24,315,594 810,426,803 166,462,376 Campaign Total Additional Amounts To Be Raised Total 657,491,058 TBD 657,491,058 319,398,121 TBD 319,398,121 976,889,179 TBD 976,889,179 0 0 0 0 10,380,949 200,000 104,720 10,685,669 Gifts in Kind Future Support Additional Amounts To Be Raised (1) Total Rector & Visitors Gift Accounts Only Gifts and Pledge Payments Outstanding Pledge Balances Deferred Gifts Private Grants Gifts in Kind Future Support Rector & Visitors Unrestricted Giving Gifts and Pledge Payments Deferred Gifts Outstanding Pledge Balances Total 10,380,949 200,000 104,720 10,685,669 (1) Excludes future or revocable support Source: Office of Development and Public Affairs Date: April 12, 2012 38 UNIVERSITY OF VIRGINIA INTERNAL LOANS TO UNIVERSITY DEPARTMENTS AND ACTIVITIES AS OF MARCH 31, 2012 SOURCE: Financial Administration DATE: April 2, 2012 39 UNIVERSITY OF VIRGINIA REPORT ON WRITE-OFF OF NON-PATIENT BAD DEBTS FOR FISCAL YEAR 2011-2012 SOURCE: Financial Administration DATE: April 10, 2012 40 UNIVERSITY OF VIRGINIA ENDOWMENT/LONG TERM INVESTMENTS FOR UVA AND RELATED FOUNDATIONS AS OF MARCH 31, 2012 (in thousands) SOURCE: Financial Administration DATE: April 25, 2012 41 UNIVERSITY OF VIRGINIA QUASI-ENDOWMENT ACTIONS JANUARY 1, 2012 TO MARCH 31, 2012 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 quasi-endowment actions, including establishments and divestments of less than $2,000,000, with regular reports on such actions. • In February 2006, the Board of Visitors approved a resolution permitting approval of quasi-endowment transactions, regardless of dollar amount, in cases in which it is determined to be necessary as part of the assessment of the business plan for capital projects. Additionally, to the extent that the central loan program has balances, they may be invested in the long term investment pool managed by UVIMCO or in other investment vehicles as permitted by law. Additions from Gifts Amount AccessUVa Scholarships* Bull, Richard Endowed Fund* Connally, N. Thomas Professorship of Clincal Excellence Quasi-Endowment* Darden, Barbara B. Endowed Scholarship McIntire School of Commerce Bequest Gifts Quasi-Endowment President's Fund for Excellence Unrestricted Quasi-Endowment Seward, Walter M. Arboretum Quasi-Endowment University Quasi-Endowment Fund (1) Total Additions from Gifts to Quasi-Endowments $ 1,000,000.00 150,000.00 20,000.00 55,000.00 32,215.69 204,193.28 25,000.00 727,297.59 $ 2,213,706.56 $ 8,213.18 75,020.06 1,612.61 1,754.34 5,972.53 4,643.31 5,903.30 6,901.05 5,816.98 5,253.92 7,668.30 2,373.13 4,670.87 1,425.66 Additions from Endowment Income (Capitalizations) Antrim, Lottie C. Income Capitalization Quasi-Endowment Athletics General Operations Quasi-Endowment Chrysler, W. P. Fund for Engineering Library Class of 1955 Fund Class of 1956 Fund Class of 1957 Fund Class of 1958 Fund Class of 1959 Fund Class of 1960 Fund Class of 1961 Fund Class of 1962 Fund Class of 1963 Fund Class of 1964 Fund Class of 1965 Fund 42 Dermatology General Investment Fund Hecht, Sidney M. Fellowship in Chemistry Hecht-Cruachem Chemistry Quasi-Endowment #3 HOPE Physician Incentive Quasi-Endowment Horton, Charles E. Professorship in International Plastic Surgery Quasi-Endowment Hughes Endowment Income Capitalization Quasi-Endowment Jordan, Harvey E. Lectureship Low, Emmet F. and N. Alyce Chair Quasi-Endowment McIntire School of Commerce Operations Fund McIntire, Howard Quasi-Endowment in Neurology Medical Center Capital Assets Quasi-Endowment (2) Miller, Mae W. Cancer Research Quasi-Endowment Moyston Quasi-Endowment for Ophthalmology Moyston, Vernah Scott Professorship in Ophthalmology Investment Quasi-Endowment Plastic Surgery Quasi-Endowment Fund Radiology Fund Special Diagnostic Samuels, Bernard Ophthalmology Library Quasi-Endowment School of Medicine Quasi-Endowment Southwest-Dishner Gift Quasi-Endowment Fund Taylor, Henry N. Fund Virginia Quarterly Review - Anonymous Total Additions from Endowment Income to Quasi-Endowments 28,057.05 7,897.91 2,124.26 52,683.59 10,900.91 3,694.70 1,285.42 1,103.13 830,577.99 20,287.99 6,088,856.54 5,445.40 22,597.54 3,920.56 16,594.02 3,954.08 2,240.21 79,151.74 14,745.42 291.05 503.49 $ 7,334,142.24 $ 25,000.00 898,758.75 1,750,000.00 739,000.00 $ 3,412,758.75 Divestments Center for SCAT Restricted Quasi-Endowment McIntire School of Commerce Operations Fund Miller Center Endowment for Eminent Scholars Income University Press Investment Fund Total Divestments from Quasi-Endowments Notes: *Quasi-endowment newly established or originally funded since January 1, 2012. (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. (2) Per February 7, 2008 BOV authorization, additional amounts up to $300 million can be made to this fund without further BOV approval. SOURCE: Financial Administration DATE: April 2, 2012 43 SOURCES AND USES OF AVAILABLE FUNDS ACADEMIC DIVISION FISCAL YEAR 2011-2012 As of March 31, 2012 This report compares the actual results for the sources and uses of funds to the Academic Division annual budget and to actual results for the same period last year. The operating budget is not developed in accordance with GAAP and differs from GAAP-based statements in several ways: • The operating budget is on a cash basis. • Capital and investment activities are excluded. The operations of the internal bank are not included, except as units pay debt service to the internal bank. • Depreciation is not recognized and non-capital outlay purchases are recognized as expensed rather than spread over the useful life of the purchase. • Fringe benefit expenditures are included in the operating budget using pooled benefit rates. The activity associated with the UVa Health Plan is not included. • The operating budget recognizes recoveries of indirect costs upon distribution to units, not when billed to granting agencies. Comparison of March 31, 2012 Actual Results to Prior Year Sources Total sources of available funds for the Academic Division as of March 31, 2012 were $1,121.9 million, a decrease of 2.1% compared to the same period in the prior year. • Tuition: Overall actual net tuition at March 31, 2012 is $386 million, 2.4% higher than in March 2011 due to higher tuition rates and enrollment increases, offset by a one-time impact of funding undergraduate financial aid from federal stimulus funds. Undergraduate Tuition: Actual gross undergraduate tuition is $233.5 million, $26 million higher than prior year, related to the increase in tuition rates (about $21 million), incremental enrollment (about $3.9 million), and the addition of a differential rate for the McIntire School of Commerce. The allocation to undergraduate financial aid from tuition revenues has increased $23.6 million at March 31, 2012 ($528.4 million) compared to the prior year ($4.8 million) for two reasons. First, in FY2011, the University applied one-time proceeds from State Fiscal Stabilization Funds from ARRA to undergraduate financial aid, reducing the amount required from tuition. Second, FY2012 saw an increase of $8 million in the overall amount of unrestricted resources applied to financial aid in order to address an unplanned 2010-2011 increase and a projected 2011-2012 increase. This increase was related to increases in the cost of attendance, the elimination of two federal aid programs, and a significant increase in the number of students eligible to receive financial aid. 44 Net graduate ($16.3 million) and professional ($86.7 million) tuition is higher than prior year due to increases in tuition rates. Net Medical School tuition ($24.6 million) is higher than in prior year due to an increase in tuition rates and enrollment. • State Appropriations: Down $16.1 million or 11.2% reflecting $10.7 million in budget cuts from the Commonwealth and amounts not yet collected related to benefit adjustments and the draw-down of research funding. • Grants & Contracts and Facilities and Administrative (F&A) Cost Recoveries: Down 5.0% and 5.7% respectively, reflecting the ramp-down of ARRA-supported grants from 24% to 6% of research spending through March 31, 2012 partially offset by increases in corporate and foundation-sponsored research. • Endowment Distribution and Fee: Up $5.6 million or 7.2%.1 Activity through March 2012 includes the endowment fee distribution ($2.7 million higher than prior year), the Coulter Endowment and matching UVa endowment distribution ($1 million higher than prior year), and the semi-annual endowment income distribution made in January 2012 for $66.2 million. The amounts are higher than in prior year due to the higher year-end endowment market values (upon which the fee is based) and the increased distribution rate. • Gifts from external donors and affiliated foundations totaled $81.2 million as compared to $82.4 million during this same period for the prior year. 2 While gifts from affiliated foundations are up 6.5% or $4.1 million compared to last year, expendable gifts are 27.2% or $5.3 million lower mostly related to the difference in timing of the flow of annual gift revenues. • Auxiliary revenues through March 2012 are $168.9 million, up $11.3 million or 7.2% compared to the prior year. Increases over the prior year include higher athletic conference revenues, housing rate increases, parking and transportation revenues, intramurals fees, and printing and copying services revenues. Uses Total uses of available funds for the Academic Division totaled $1,027.2 million, down 1.9% compared to the prior year. • 1 Direct Instruction: Spending is down $5.6 million or 2.2% to date compared with the prior year, primarily related to the continuing impact of budget reductions. The bulk of state budget reductions have impacted instruction (as the largest portion of the state-funded budget) as schools have held open positions vacant. It is anticipated that faculty hiring and UVa-held endowments (unrestricted and restricted) are distributed semi-annually, first in January and then in June. 2 The Sources and Uses statement includes gifts only to the extent they are expected to be expended in the Academic Division during the fiscal year and therefore is not always comparable to annual philanthropic cash flow presented in the External Affairs Committee, which also includes gifts to the foundations, gifts that are transferred to the endowment, and non-cash gifts. 45 recruitment will rebound slightly as new enrollment related revenues are distributed to the schools. • Research and Public Service: Spending to date is down $2.3 million or 0.9% compared with prior year. • Academic Support: Spending is consistent year-to-year. • Student Services: Increased $3.0 million or 11.3% as a result of recoding expenditures for the cost of the Student Information System to student services in FY 2012 from general administration in FY 2011. Adjusting for this recoding, student service spending increased $50,000 over prior year. • General Administration: Spending is consistent year-to-year. • Operation and Maintenance of Physical Plant: Spending is consistent year-to-year. • Scholarships and Fellowships (exclusive of tuition-funded financial aid): Decreased $22.3 million or -19.2% compared to prior year. In FY2011, one-time proceeds from State Fiscal Stabilization Funds from the ARRA were applied to undergraduate financial aid. These funds were not available in 2011-12. • Auxiliary Enterprises: Up $8.8 million or 5.9% over prior year. In addition to planned higher spending in athletics, housing, intramurals, parking and transportation and printing and copying services, the current year activity includes an unbudgeted Athletics Department transfer of $3 million for capital improvements to the track funded from gifts. Comparison of March 31, 2012 Actual Results to Budget Sources Total sources of available funds for the Academic Division as of March 31, 2012 were $1,121.9 million, compared to budgeted results for the year of $1,297.4 million. • Tuition: Through March 31, 2012, 99.3% of budgeted tuition has been recognized. It is expected that the remaining budget will be met, with revenues remaining to be billed related to terms beginning in May and open enrollment courses in the School of Continuing and Professional Studies. Gross undergraduate tuition is slightly ahead of budget (100.4%) versus last year (98.3%) due to greater than expected enrollment. Graduate tuition is 94.3% of budget and is expected to end the year under budget by about $2 million due to enrollment declines, which are historically more difficult to project. 46 Gross professional tuition is lower than expected due to lower than projected enrollment in the new Global MBA program. Medical tuition is lower than expected due to a slight shift in mix between in-state and outof-state students. Through March 31, 2012, financial aid funded from tuition stands at $54.3 million, or about 90.8% of the expected amount, primarily related to graduate aid. It is anticipated that the aid will be applied to student accounts by year-end. • State Appropriations: Through March 31, 2011, the state appropriation is recognized at 97.9% of the expected amount. Certain base budget adjustments, such as state employee health insurance and retirement plan adjustments make up the difference between the budgeted and actual amounts recognized at March 31, 2012 and are expected to be transferred in April. • Grants & Contracts and F&A Cost Recoveries: Through March 31, 2012, actual recoveries are at 79.9% of budget, which is consistent with the March 31, 2011 recoveries which were also at 79.9% of budget. • Endowment Distribution and Fee: Annual endowment distributions occur twice a year, therefore, activity through March 31, 2012 reflects the January distribution bringing the amount through March 31, 2012 to 59.8% of budget, slightly ahead due to the conservative budgeting for FY2012 since the endowment rate for the year was not established until September 2012. • Gifts from external donors and affiliated foundations 3: Through March 2012, recognized gifts are at 81.6% of budget, which is only slightly less than March 31, 2011 recognized gifts which were at 84.7% of budget. • Auxiliary revenues: Through March 2012, revenues are at 91% of budget versus revenues that were at 87.3% of budget for the same period last year, primarily the result of an unbudgeted Athletics Department transfer of $3 million for capital improvements to the track funded from gifts. Uses Total uses of available funds for the Academic Division totaled $1,027.2 million, or 80% of the $1,284.8 million budgeted for the year. • Direct Instruction: Through March 2012, instruction expenditures are at 74.9% of budget versus 78.3% last year. The budget includes a 2% salary increase pool for an increase that was not effective until December 2011, so we expect expenditures to be slightly higher in the 3 The Sources and Uses statement includes gifts only to the extent they are expected to be expended in the Academic Division during the fiscal year and therefore is not always comparable to annual philanthropic cash flow presented in the External Affairs Committee, which also includes gifts to the foundations, gifts that are transferred to the endowment, and non-cash gifts. 47 second half of the year. In February 2012, the University distributed $3.2 million in incremental tuition and state general funds to school budgets, yet the expected accompanying hiring and expenditures has not yet commenced. • Research and Public Service: Through March 2012, expenditures are at 78.7% of budget, compared to the prior year’s 72.1% of budget. • Academic Support: Through March 2012, expenditures are at 80.5% of budget, just slightly ahead of last year’s 76.9% of budget. • Student Services: Through March 2012, expenditures are at 83.4% of budget versus last year’s 67.3% of budget. In FY2011, support for the student information system was budgeted in this category, but actual expenses at March 2011 were recorded in general administration. • General Administration: Through March 2012, expenditures are at $62.1 million or 82.9% of budget versus March 31, 2011 when expenditures were at 74% of budget. Expenses are higher than in prior year due to leadership transition costs in FY2012. • Operation and Maintenance of Physical Plant: Through March 2012, expenditures are at 75.1% of budget, versus last year’s 77.8% of budget. • Scholarships and Fellowships (exclusive of tuition-funded financial aid): Through March 2012, expenditures are at 97.4% of budget which is lower than last year’s 105.7% of budget, related to applying State Fiscal Stabilization Funds from ARRA to aid (rather than tuition) for FY2011. • Auxiliary Enterprises: Through March 2012, expenditures are at 82.8% of budget, higher than last year’s 79.2% of budget. Contributing to the faster rate of spending is an unbudgeted Athletics Department transfer of $3 million for capital improvements to the track funded from gifts. 48 University of Virginia Academic Division 2011-12 Operating Budget Report As of March 31, 2012 (in thousands) 2011-12 Revised Budget 3/31/2012 Actual Results 3/31/2012 % of Actual vs Budget 3/31/2011 Actual Results 3/31/2011 % of Actual vs Budget 2012 vs 2011 % Change for Actuals Sources of Available Funds Tuition and Fees Undergraduate Less: Tuition to financial aid Net Undergraduate $232,544 (27,674) 204,870 $233,528 (28,385) 205,143 100.4% 102.6% 100.1% $207,462 (4,755) 202,707 98.3% 61.3% 99.7% 12.6% 497.0% 1.2% Graduate Less: Tuition to financial aid Net Graduate 36,860 (23,616) 13,244 34,764 (18,507) 16,257 94.3% 78.4% 122.7% 33,229 (17,196) 16,033 95.2% 80.2% 119.2% 4.6% 7.6% 1.4% Professional (Law, Darden, McIntire & SEAS Exec.) Less: Tuition to financial aid Net Professional 101,670 (6,870) 94,800 95,956 (6,286) 89,670 94.4% 91.5% 94.6% 94,810 (6,801) 88,009 100.0% 100.0% 100.0% 1.2% (7.6%) 1.9% School of Medicine Less: Tuition to financial aid Net SOM 25,814 (510) 25,304 25,127 (533) 24,594 97.3% 104.5% 97.2% 23,150 (510) 22,640 103.9% 101.6% 8.5% 4.5% 8.6% Other Less: Tuition to financial aid Net Other Total Net Tuition & Fees 46,823 (1,134) 45,689 383,907 51,350 (597) 50,753 386,417 109.7% 52.6% 111.1% 100.7% 48,209 (174) 48,035 377,424 102.3% 15.7% 104.4% 101.2% 6.5% 243.1% 5.7% 2.4% 129,871 250,427 69,900 141,000 74,000 25,600 20,420 127,151 201,291 54,763 84,325 67,133 14,115 17,781 97.9% 80.4% 78.3% 59.8% 90.7% 55.1% 87.1% 185,531 168,920 16,735 $1,297,391 $1,121,896 91.0% 0.0% 86.5% 143,253 211,787 58,060 78,681 63,057 19,386 14,296 21,893 157,627 $1,145,464 97.5% 80.5% 78.0% 50.2% 87.8% 76.0% 80.4% 97.6% 87.3% 0.0% 83.4% (11.2%) (5.0%) (5.7%) 7.2% 6.5% (27.2%) 24.4% (100.0%) 7.2% n/a (2.1% ) $338,302 $253,536 309,175 243,197 128,529 103,420 35,940 29,968 74,885 62,084 110,176 82,763 96,346 93,873 191,410 158,407 $1,284,763 $1,027,248 74.9% 78.7% 80.5% 83.4% 82.9% 75.1% 97.4% 82.8% 80.0% 259,184 245,523 103,994 26,918 62,039 83,629 116,210 149,597 $1,047,094 78.3% 72.1% 76.9% 67.3% 74.9% 77.8% 105.7% 79.2% 78.4% (2.2%) (0.9%) (0.6%) 11.3% 0.1% (1.0%) (19.2%) 5.9% (1.9% ) State Appropriations Grants & Contracts Facilities & Administrative Cost Recoveries Endowment Distribution & Fee Gifts-Via Affiliated Foundations Expendable Gifts Sales, Investment & Other American Recovery and Reinvestment Act of 2009 Auxiliary Enterprises Operating Cash Balances Total Sources of Available Funds Uses of Available Funds Direct Instruction Research & Public Service Academic Support Student Services General Administration Operation & Maintenance of Physical Plant Non-tuition-funded Scholarships, Fellowships, & Other Auxiliary Enterprises Total Uses of Available Funds Net Sources and Uses of Operating Funds $12,628 49 $94,648 $98,370 (3.8% ) UNIVERSITY OF VIRGINIA SUMMER CONFERENCE RATES REPORT 2012 and 2013 On June 16, 2001, the Board approved the Signatory Authority Policy which delegates the "[e]stablishment of summer conference rates for housing facilities and for meals, overnight accommodation rates for the Birdwood Pavilion, and room rates for the International Center" to the "President, the Executive Vice President and Chief Operating Officer and the Vice President for Finance". Any approved transaction must be reported to the Board of Visitors at its next meeting following the action. The rates below have been approved by Yoke San Reynolds, Vice President and Chief Financial Officer, and are hereby being reported to the Board of Visitors as required. Summer Conference Rates - Housing 50 Summer Conference Rates – Dining Summer Meal Plan Rates Summer 20 + $40 Summer 40 + $80 Summer 60 + $120 Approved Summer 2010 $200 $380 $560 Approved Summer 2011 $200 $380 $560 51 Proposed Summer 2012 $200 $380 $560 Summer Housing and Dining Rates – College at Wise International Center – Room Rates Guest lodgings are available for international visitors associated with the University of Virginia. The accommodation goal of the International Center is to create a small community of visitors from around the world who need short-term lodgings (3-month maximum stay). Stays of 16 nights or fewer (per day) Single occupancy Double occupancy Stays of more than 16 nights (per month) Single, private bath Double, private bath Single, shared bath Double, shared bath Single “cozy” room Actual 2011-12 Proposed 2012-13 Proposed Increase Percent Increase $40.00 $60.00 $40.00 $60.00 $0.00 $0.00 0.00% 0.00% $750.00 $1,125.00 $650.00 $975.00 $550.00 $750.00 $1,125.00 $650.00 $975.00 $550.00 $0.00 $0.00 $0.00 $0.00 $0.00 0.00% 0.00% 0.00% 0.00% 0.00% SOURCE: Business Operations DATE: April 16, 2012 52 APPENDICES APPENDIX A 2012-2013 PRATT FUND ALLOCATIONS ARTS AND SCIENCES - $3,200,000 allocation for 2012-2013, plus $104,667 anticipated carryforward of remaining 2011-2012 funds Biology - The department proposes to allocate $183,460 from the 2012-2013 allocation plus $10,490 remaining at the end of 20112012 for graduate fellowships in 2012-2013. Of this amount, $148,650 will be used to provide full support to two outstanding first-year graduate students in Biology and augment the fellowship packages of four President's Fellows. The remaining $45,300 will be allocated to satisfy the department’s membership and to support an in-state student in the Biomedical Sciences Graduate Program, an important inter-school collaborative effort. Biology proposes to use $64,310 in Pratt funds to augment the salaries of the Director and Associate Director of the Mountain Lake Biological Station. The University has made, and continues to make, significant investments in the instructional and research capacity of this Appalachian mountain field research and teaching facility, which provides summer courses, a Research Experiences for Undergraduates program, and hosts researchers from around the world every summer. Biology proposes to use the remaining $2,230, combined with an expected carryforward from 2011-2012 of $24,177, for equipment purchases. Chemistry - The department proposes to allocate $150,000 of the 2012-2013 allocation for graduate support and awards for summer research fellowships to undergraduates. Awards to graduate students will include ongoing commitments to fellowships supporting the Center for Catalytic Hydrocarbon Functionalization and awards used to recruit outstanding entering students. The department proposes to use the remaining $100,000 of its allocation to supplement faculty compensation, including interim funding support and other existing commitments to four faculty members ($52,000); summer wages support for new faculty positions for the introductory and organic lab sections; and summer wages for faculty involved in upgrading the biological chemistry laboratory. Mathematics - The department proposes to allocate $116,142 in support of the Whyburn Postdoctoral Fellowship program. Internationally recognized for its excellence, this competitive program brings four new PhD recipients in mathematics to the University as faculty instructors for three years of teaching Appendix A – Page 1 and research. Pratt funds support 40% of the academic year compensation plus one month of summer wages for each fellow. Mathematics proposes to allocate $5,275 in faculty summer wages for the five faculty members serving as mentors in the summer Research Experiences for Undergraduates program. The department proposes to spend $28,583 of the 2012-2013 allocation, along with the remaining balance from prior years’ allocations (approximately $70,000), to provide entering and rising second year graduate students with additional preparation for advanced level courses and for the General Exams in Analysis, Algebra, and Topology. Additionally, the Pratt funds provide fellowship support for students engaged in Ph.D. research. Physics - The department proposes to use $211,939 of its 20122013 allocation to support the equipment needs in the start-up package for a new condensed matter physicist expected to join the department in fall 2012. The department seeks to use the remaining $38,061 in continued support of the salary of new faculty member Craig Group and to provide summer wages to the associate chair of the department. New Faculty Start-up Fund – A total of $2,300,000 is requested by the College to use as components of start-up packages associated with new hires, some of which are still being negotiated; for cost sharing on grants and other opportunities that may arise in the coming year; and for other strategic needs in building the programs in these four departments. It is estimated that this funding will be equally split between equipment, faculty salaries, and fellowships. This $2,300,000 is comprised of a $400,000 reserve managed by the dean and a $1.9 million Faculty Start-Up Fund, from which all allocations will be authorized by the Executive Vice President and Provost. This reserve, which will be carefully allocated in accordance with the terms of Mr. Pratt’s will, is critical in the recruitment of faculty members in biology, chemistry, mathematics, and physics. SCHOOL OF MEDICINE — $3,800,000 allocation for 2012-2013, plus $292,688 anticipated carryforward of remaining 2011-2012 funds Support and Training of Student Researchers - $327,839 Graduate students and post-doctoral fellows are central to a successful biomedical research program. A modest institutional share from the Pratt bequest supplements funds from federal government training programs and charitable foundations to attract superlative students. These individuals are critical in Appendix A – Page 2 enhancing the quality of research in the Ph.D. and M.D./Ph.D. programs at the University. The success of these programs has a direct impact on the quality of faculty research at the School of Medicine. Core Facility Support - $1,264,849 – Research core facilities – including, but not limited to, the Small Animal Multimodality Imaging Core, Advanced Microscopy Facility, Biomolecular Research Facility, Gene Targeting & Transgenic Facility, Biorepository, and the new BioNMR Spectroscopy Core, provide access to large, expensive equipment and techniques that otherwise would not be available or cost-effective to individual investigators. These facilities operate on a fee-for-service basis and, after development costs and other expenses, average a cost recovery of 60-80%, with the differential funded by Pratt allocations. These resources provide a competitive advantage to acquiring emerging technologies and are critical to the School of Medicine’s success in recruitment and retention of faculty and its ability to continue to grow its externally-funded research programs. The Decade Plan - $2,500,000 - The School of Medicine proposes a special distribution to retain and recruit outstanding faculty in the basic medical sciences, the Department of Medicine, and the Cancer Center. This will be the second of four annual $2.5 million distributions for this purpose. Appendix A – Page 3 APPENDIX B Minutes University of Virginia Board of Visitors Finance Committee Appointees on Retirement Administrative Committee May 11, 2012 Madison Hall Lower Conference Room Board of Visitors Finance Committee Appointees (via phone): Mark Kington and The Honorable Alan Diamonstein Also in Attendance: Michael Strine, Executive Vice President and Chief Operating Officer; Yoke San Reynolds, Vice President and Chief Financial Officer and Chair of the Retirement Administrative Committee (RAC); Susan Carkeek, Vice President and Chief Human Resource Officer; Larry Kochard, Chief Executive Officer of the University of Virginia Investment Management Company; Barry Schmidt, CAPTRUST Financial Advisor (via phone); Anne Broccoli, Director of Benefits; Megan Lowe, Assistant Vice President and Chief of Staff to the Executive Vice President and Chief Operating Officer. There were six agenda items for this meeting: the background of the Retirement Administrative Committee, the annual review of fund performance, completion of vendor consolidation, future consolidation considerations, consideration of more formal oversight of 403(b), and the addition of Roth 403(b) to the 403(b)Plan. I. Background of the Retirement Administrative Committee: The University is the plan sponsor of a number of defined contribution retirement plans, including the Defined Contribution Retirement Plan for the General Faculty and Executive and Senior Administrative and Managerial and Professional University Staff of the University of Virginia and the Defined Contribution Retirement Plan for Employees of the University of Virginia Medical Center. In June of 2007, the Finance Committee of the Board of Visitors approved a revised Retirement Program Policy. The revised policy established the role of the Finance Committee of the Board of Visitors to provide oversight of the retirement plans and to report annually to the Board. The policy also clarified the role of the University’s Retirement Administrative Committee Appendix B – Page 1 to establish procedures and review investment performance of the various funds offered. The Retirement Administrative Committee is chaired by Yoke San Reynolds, Vice President and Chief Financial Officer of the University. The RAC also established an Investment Subcommittee, chaired by the CEO of UVIMCO. Susan Carkeek, Vice President and Chief Human Resource Officer, is the retirement program administrator. In April of 2008, the Finance Committee of the Board of Visitors approved new Investment Procedures, creating a menu of investment options for plan participants that includes a full range of funds, regardless of which vendor a participant elects. The new Investment Procedures also changed the role of CAPTRUST (a third party engaged to provide analysis of investment performance of the funds) from consultant to advisor thus shifting fund selection and monitoring responsibility to CAPTRUST. II. December 31st, 2011 Quarterly Performance Review: Barry Schmitt, CAPTURST Financial Advisor, provided an overview of the annual report on fund performance. Mr. Schmitt reminded the appointees that the RAC meets quarterly with CAPTRUST to monitor fund performance and each quarter, one of the vendors is invited to the RAC to present on their participant activity and fund performance. Mr. Schmitt provided a general overview of the investment performance and reviewed the specific funds that CAPTRUST and the RAC have been following closely. Under RAC policy guidelines, those funds with continued lagging performance against the applicable benchmarks are closed to future contributions. Three Fidelity funds and two TIAA-CREF funds were designated for closure. All other funds are meeting policy guidelines. Other item of note in 2011 is the conversion of many Fidelity and TIAA-CREF funds to lower share classes (lower cost = higher investment returns). III. Completion of Vanguard Consolidation and Improved Pricing: Last year CAPTRUST recommended, and the RAC approved, the migration of existing Vanguard assets in each of the plans to Fidelity. The elimination of Vanguard as a vendor provided several advantages including the simplification of retirement plan options for participants while offering the same Vanguard funds on the Fidelity platform. In essence, each Vanguard and Fidelity participant now has the option to invest in both fund Appendix B – Page 2 structures within the Fidelity platform. With the exception of one fund, all funds on Vanguard’s platform were re-registered to Fidelity, therefore eliminating the need to liquidate and purchase the new fund option. One benefit of this process was Vanguard’s willingness to offer a lower share class on many of their funds since they are no longer responsible for the recordkeeping of participant accounts resulting in significant savings to participants. No re-enrollment was necessary and contributions and investment allocations transferred over as-is to Fidelity from Vanguard with minimal participant involvement. This consolidation was successfully completed in October 2011. IV. Future Consolidation Considerations: Over the last several years, the RAC has considered further consolidation within the Retirement Plans where efficiencies to benefit the participants are warranted. CAPTRUST presented four higher education consolidation options/trends for consideration. The RAC and CAPTRUST are continuing a thorough review of these options before further considering change. V. Discussion on more formal oversight of 403(b)Plan: In 2007, the government issued sweeping changes to 403(b) plans which increased fiduciary responsibility to the sponsoring institutions. As these new regulations were fully implemented in 2009, many institutions including UVa began to look in more detail into the overall operation and structure of their retirement programs and the efficiency (or inefficiency) within these programs. UVa is now considering whether or not to further expand its fiduciary oversight of the 403(b) Plan. CAPTRUST provided the Committee with information about several Institutions of Higher Education that have considered or have made the decision to “take on” fiduciary oversight of the 403b. There are pros and cons of taking on this oversight. RAC is currently reviewing a disruption analysis and investment demographics before further considering taking on this fiduciary responsibility. VI. Addition of Roth 403(b) to the Plan: In response to increasing employee requests to provide a Roth option in the 403(b), the Plan will begin accepting post-tax employee contributions in January 2013. Unlike Roth IRA’s there is no income limit on a Roth 403(b) so regardless of our employees’ income, they can elect to defer post-tax amounts up to the IRS current 403b limits of $17,500 or $22,000, based on age. Appendix B – Page 3
