Download Finance Committee

UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
NOVEMBER 15, 2013
FINANCE COMMITTEE
Friday, November 15, 2013
8:00 – 9:30 a.m.
Board Room, The Rotunda
Committee Members:
Victoria D. Harker, Chair
John A. Griffin, Vice Chair
Frank B. Atkinson
Marvin W. Gilliam Jr.
Stephen P. Long, M.D.
Edward D. Miller, M.D.
Timothy B. Robertson
Linwood H. Rose
George Keith Martin, Ex-officio
Daniel M. Meyers, Consulting Member
Martin N. Davidson, Faculty
Consulting Member
AGENDA
PAGE
I.
II.
CONSENT AGENDA (Mr. Hogan)
A.
Acquisition of Department of Forestry Property
Located at 480 George Dean Drive, Charlottesville,
Virginia
B.
Amendment to the Qualified Governmental Excess
Benefit Arrangement Plan
C.
Capital Project Approvals – Financial Plans
1.
Education Resource Center
2.
Wilson Hall Renewal
3.
Gross Anatomy Lab Renovation
REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Hogan)
A.
Organizational Excellence (Mr. Hogan to introduce
Ms. Sarah L. Collie; Ms. Collie to report)
B.
2014-2015 Academic Division Budget Planning and
Preliminary Assumptions (Mr. Hogan to introduce Ms.
Colette Sheehy; Ms. Sheehy to report)
C.
Treasury Report (Mr. Hogan to introduce Mr. James
S. Matteo; Mr. Matteo to report)
D.
Report on University Workforce (Mr. Hogan to
introduce Ms. Susan Carkeek; Ms. Carkeek to report)
E.
Executive Vice President’s Remarks
F.
Written Financial Reports
1.
Interim Academic Division Financial Report for
September 30, 2013
2.
Endowment Report – Market Value and
Performance as of September 30, 2013
1
3
5
5
6
7
8
12
14
16
17
25
PAGE
3.
4.
Endowment/Long-Term Investments, Including
Related Foundations at September 30, 2013
Quasi-Endowment Actions: July 1, 2013 September 30, 2013
42
43
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
I.A. Acquisition of Department of Forestry
Property Located at 480 George Dean Drive,
Charlottesville, Virginia
BACKGROUND: The Commonwealth of Virginia Department of Forestry
owns 13.37 acres of land, more or less, located on George Dean
Drive, Charlottesville, Virginia, as further described in the
deed from the Department of Conservation and Historic Resources
to the Department of Forestry dated March 29, 1989, and recorded
in the Office of the Circuit Court Clerk of Albemarle County.
George Dean Drive is located off Fontaine Avenue approximately
one-half mile west of the Fontaine Research Park. There are
nine structures on the property to include warehouses, shop
spaces, offices, and housing. The property is currently served
by a well and septic field; however, public utilities are
available.
DISCUSSION: The Department of Forestry has determined it no
longer needs the property if it can suitably relocate its
equipment maintenance facilities. Proximity to Fontaine
Research Park and other University of Virginia Foundation
properties, access to Route U.S. 29 and Interstate 64, and the
potential for redevelopment suggest the property is of strategic
value to the University. The property was appraised in 2010 at
$1,860,000. The state would handle the transaction as a
transfer of property between two state agencies.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL TO ACQUIRE 480 GEORGE DEAN DRIVE, CHARLOTTESVILLE,
VIRGINIA
WHEREAS, the Board of Visitors finds it to be in the best
interest of the University of Virginia to acquire that parcel or
tract of land transferred to Department of Forestry from the
Department of Conservation and Historic Resources in Deed Book
1040, page 341, containing approximately 13.37 acres of land,
more or less, together with all improvements situated thereon,
located at 480 George Dean Drive, Charlottesville, Virginia (the
1
“Property”), on terms and conditions as authorized by the Chair
of the Finance Committee of the Board of Visitors and the
Executive Vice President and Chief Operating Officer of the
University of Virginia;
RESOLVED, the Board of Visitors approves the acquisition of
the Property on terms and conditions as authorized by the Chair
of the Finance Committee of the Board of Visitors and the
Executive Vice President and Chief Operating Officer of the
University of Virginia; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized, on behalf of the University, to
approve and execute purchase agreements and related documents,
to incur reasonable and customary expenses, and to take such
other actions as deemed necessary and appropriate to consummate
such property acquisition; 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 property
acquisition, are in all respects approved, ratified, and
confirmed.
2
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
I.B. Amendment to the Qualified
Governmental Excess Benefit Arrangement Plan
BACKGROUND: The Qualified Governmental Excess Benefit
Arrangement Plan (Section 415[m]) is a retirement plan used to
defer taxation on retirement contributions in excess of the
limitations otherwise imposed by the IRS on other retirement
plans. This “excess benefit” plan is considered non-qualified
deferred compensation and the contributions basically sit on top
of the supplemental executive retirement plan. There are fewer
than 10 active employees with assets in the plan. Employees
have an immediate vested interest in the assets.
DISCUSSION: The current forms of distribution allowed for these
assets are very limited. An amendment to the plan is proposed
that would offer additional forms of distribution, essentially
providing a longer horizon for assets to be distributed from the
plan.
Current Forms of Distribution
(a) Lump sum
(b) Equal installments over
five (5) years
Requested Forms of Distribution
(a) Lump sum
(b) Equal installments over
five (5), ten (10), fifteen
(15), or twenty (20) years
(c) Life Annuity
(d) Joint and Survivor Annuity
This change will not negatively impact any of the current
plan participants, as none have elected their form of
distribution. An amendment approved by the Board of Visitors in
November 2012 allows employees to elect the form of distribution
at time of separation. This amendment is not a substantive or
policy level issue. It merely supplements the resolution
approved by the Board last year by providing more flexibility to
employees on the distribution.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
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APPROVAL OF AN AMENDMENT TO THE QUALIFIED GOVERNMENTAL EXCESS
BENEFIT ARRANGEMENT PLAN FOR EMPLOYEES OF THE UNIVERSITY OF VIRGINIA
RESOLVED, the Board of Visitors approves amending the Qualified
Governmental Excess Benefit Arrangement Plan of the University of
Virginia such that a participant may elect to receive a distribution
of his/her Excess Benefit Account as either a lump sum, life
annuity, joint and survivor annuity, or in equal installments over a
period of five (5), ten (10), fifteen (15), or twenty (20) years.
4
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
I.C. Capital Project Approvals – Financial
Plans
BACKGROUND: The Board of Visitors approves major capital
projects every two years with the update of the Major Capital
Projects Program. This plan was last approved in April 2013.
When the University identifies new projects outside the biennial
update cycle, approval by the Finance and Buildings and Grounds
Committees is required. The Finance Committee will review the
financial plans and the Buildings and Grounds Committee will
review the proposed projects for inclusion in the University’s
Major Capital Projects Program.
DISCUSSION: The University recommends three revisions to the
multi-year capital program.
Education Resource Center
Debt
Med Center Cash
$25.54 million
$ 4.32 million
$29.86 million
In accordance with the policy adopted by the Board of
Visitors in October 2004, capital project budget increases in
excess of 10% require the approval of both the Finance and
Buildings and Grounds Committees. Resulting from the September
2013 Buildings and Grounds Committee Schematic Design Review,
this project is now proposed to add a fourth floor of 10,500
gross square feet with a cost of $4 million, to be funded from
Medical Center operating funds. Build out of this additional
level maximizes the use of the site while preserving the
original design intent for graduate medical and patient
education, a relocated outpatient pharmacy, and an outpatient
imaging center. This increases the project to a total of 45,900
gross square feet and a total project cost of $29.86 million.
Wilson Hall Renewal
Gifts and Other
$5.5 - $6.0 million
The Wilson Hall Renewal project will provide interior
renewal of the entire building, a partial renovation of the
first and second floors, and a new accessible entrance at the
first floor south elevation facing Jefferson Park Avenue.
5
Improvements will include a new sprinkler system, new lighting,
modification to HVAC and Building Automation System control
systems, new security access and increased access and
utilization of natural light for interior spaces. The project
will be fully funded by gifts and other cash reserves.
Gross Anatomy Lab Renovation
Gifts and Other
$4.0 - $5.0 million
The project will provide interior renovation of the gross
anatomy teaching space and co-locate the fresh tissue teaching
laboratory on the first floor of Jordan Hall. The improvements
are necessary to meet accreditation standards. The project will
be fully funded with School of Medicine gifts and other cash
reserves.
ACTION REQUIRED: Approval by the Finance Committee, the
Buildings and Grounds Committee, and by the Board of Visitors
APPROVAL OF REVISION TO THE UNIVERSITY’S MAJOR CAPITAL PROJECTS
PROGRAM - EDUCATION RESOURCE CENTER, WILSON HALL RENEWAL, AND
GROSS ANATOMY LAB RENOVATION
WHEREAS, the University proposes an increase of 10,500
gross square feet at an estimated cost of $4 million for the
Education Resource Center; the addition of the Wilson Hall
Renewal project; and the addition of the Gross Anatomy Lab
Renovation to the Major Capital Projects Program;
RESOLVED, the Board of Visitors approves the expanded scope
of the Education Resource Center bringing the total budget to
$29.86 million; the addition of the Wilson Hall Renewal project
at an estimated cost of $5.5 - $6 million; and the addition of
the Gross Anatomy Lab Renovation project at an estimated cost of
$4.0 - $5.0 million to the University’s Major Capital Projects
Program.
6
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.A.
ACTION REQUIRED:
None
Organizational Excellence
BACKGROUND: Organizational Excellence is Strategy 14 in the
Strategic Plan under Pillar 5: Steward the University’s
Resources to Promote Academic Excellence and Affordable Access.
Organizational Excellence seeks to enable the achievement of
institutional strategic goals and priorities - excellence in
education, research, and scholarship - and to leverage
institutional core strengths and distinctions through resource
alignment and optimization.
At its August Retreat, the Board of Visitors heard an
overview of the implementation plan to establish a formal
program of Organizational Excellence.
DISCUSSION: This session will provide an update on the
establishment of the formal Organizational Excellence program
and its related activities and achievements. The discussion
will summarize the work of the Leadership Council and the
steering committee guiding the effort, and will highlight
examples across the institution in three categories:
•
Process/Functional Improvement - Action results in
measureable, non-monetary, improvements in services or
outcomes.
•
Partnerships/Collaborations - Action results in internal or
external partnerships resulting in enhanced services or
programs and/or avoids duplication of efforts.
•
Cost Savings/Avoidance - Action results in a reduction of
operating expenses.
7
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.B. 2014-2015 Academic Division Budget
Planning and Preliminary Assumptions
ACTION REQUIRED:
None
BACKGROUND: Each year at this time, the University begins
formulating the Academic Division budget for the subsequent
fiscal year, including the establishment of budget assumptions
which will provide guidance to units in developing their 2014-15
budgets. The assumptions are considered preliminary and may be
modified as additional information becomes available,
particularly after release of the Governor’s budget and actions
by the General Assembly.
DISCUSSION: The objectives of the 2014-15 budget process are
to: (1) demonstrate commitment and resources available to
address high-priority items emerging from the strategic planning
process and the President’s priorities of faculty retention and
recruitment, curriculum enhancement, and research; and (2)
transition to an activity-based resource allocation model based
on multi-year financial planning in the schools and major
service units.
Revenue Assumptions:
•
The University is developing a comprehensive undergraduate
tuition and financial aid strategy that will be discussed with
the Board of Visitors in the coming months. Actual tuition
and fee charges for 2014-15 will reflect rates that will be
approved by the Board of Visitors at a later date.
o The second year of a four-year phase-in of the School of
Engineering and Applied Science differential tuition will
be implemented, with both first- and second-year
undergraduate students paying $2,000 more than the base
undergraduate tuition rate.
o Tuition rates for graduate and professional schools will
reflect increases in the cost of instruction and financial
8
aid, re-allocation of funds where appropriate, and
consideration of market sensitivity.
•
For Proposed fees, administration will consider the reallocation of existing resources before increasing student
charges. Total mandatory auxiliary fees should range between
2-2.5%. In considering new or increased fees, the
administration will consider:
o the impact to existing students – both cost and benefit;
o the impact to AccessUVa;
o how proceeds will be deployed (including, whether intended
use is aligned with the University strategic plan, a school
strategic plan, or is needed to address a debt or
contractual obligation); and
o other factors brought forward by the vice president or
dean.
•
For 2014-15, the University takes a conservative estimate of
growth in the state general fund appropriation, assuming that
the state will fund its proportionate share of any state
authorized salary and benefit increases, as well as in-state
enrollment growth.
•
According to Board of Visitors policy the 2014-15 endowment
spending distribution will be 4.68% of the June 30, 2013,
market value.
•
A 0.5% administrative fee (based on the endowment’s June 30th
market value for the preceding fiscal year) will be assessed
to each endowment.
•
In 2014-15, funds from annual giving will be projected based
upon estimates from University Development and school
officials.
•
Reimbursements for direct and indirect costs related to
externally-sponsored research (primarily federally funded) are
currently projected at a 1.0% decrease due to declining
federal investment in research and the impact of
sequestration. The final 2014-15 budget will be based on
historical spending patterns, sponsored program awards,
expected indirect cost recoveries, and discussion with the
research-intensive schools and the Vice President for
Research. The budget will reflect a 58% Facilities and
Administrative cost recovery rate on new grants.
9
•
For 2014-15, preliminary projections indicate a 1.7% increase
in activity related to sales and services (primarily from
self-supporting entities that exist to provide services to
students, faculty, and staff, such as Housing, Bookstores, and
Athletics). Final budgets will be based upon services to be
provided, including fees which will be considered by the Board
of Visitors in February.
Expenditure Assumptions:
•
The budget for 2014-15 will incorporate $8-9 million in
organizational excellence savings.
•
Full funding will be provided for the projected cost of
AccessUVa. After implementation of administrative changes and
a loan modification for low-income students, the institutional
contribution to AccessUVa in 2014-15 is expected to remain
unchanged from 2013-14.
•
Compensation: The following assumptions will apply to
salaries and benefits in 2014-15:
o Teaching and Research (T&R) Faculty: Fiscal year 2014-15
will be the second year of a four-year strategy to raise
T&R faculty salaries so that the University can attain a
rank of #20 among the Association of American Universities
by 2016-17. A merit pool equivalent to 4.75% of base T&R
faculty salaries will be included in the budget.
•
Other Faculty and University Staff: A 3% merit increase
for University staff and Administrative and Professional
faculty will be budgeted in 2014-15.
o Classified Staff: Any classified staff salary increase for
2014-15 will be authorized by the state in the approved
budget. For planning purposes the University will assume a
2% increase.
o The minimum hiring rate for salaried staff will increase in
July 2014 by 2% from $11.53 to $11.76 per hour, or $24,461
per year.
o All schools and units will continue planning/reserving
funds for the 2015-16 fiscal year when there will be 27
(rather than 26) bi-weekly payroll periods.
10
o Estimated 2014-15 fringe benefit rates are outlined below.
Full-time (FT) faculty and
university staff—exec
FT classified staff,
university staff—
managerial & professional
and operational &
administrative
Part-time (PT) faculty and
staff with benefits
PT faculty and staff
without benefits and wage
•
2013-14 FB
Rates
Submitted to
DHHS
24.9%
Preliminary
2014-15 FB
Rates
32.1%
39.5%
24.9%
29.9%
6.0%
6.0%
29.9%
Auxiliaries should plan for quarterly general and
administrative assessments based on a rate of 6.2% of their
adjusted 2012-2013 expenditure base to cover their share of
central services.
Reserves and Other:
•
Units will comply with the Board of Visitors Capital and
Operating Reserves Policy established in April 2006: (a)
operating reserves equivalent to three months of operating
expenses and (b) annual capital expenditures or contributions
to capital reserves of at least 1.5% of replacement value of
buildings and equipment.
11
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.C.
ACTION REQUIRED:
None
Treasury Report
BACKGROUND: The University’s Treasury Department manages the
University’s debt portfolio, working capital investment
portfolio, liquidity, and banking operations. From time to
time, we report to the Board on debt, liquidity, and financing
activities.
DISCUSSION:
Debt Management
The University manages its debt portfolio according to its
Debt Policy, last approved by the Board in February 2013. We
manage the debt portfolio to achieve the following four goals:
1) maintain adequate access to the financial markets, 2) manage
the University’s credit rating, 3) optimize the University’s
debt mix, and 4) manage debt maturities to meet liquidity
objectives.
As of June 30, 2013, the University had approximately $1.28
million of debt outstanding. Approximately 17% of this debt is
variable rate, or $218 million. A portion of the University’s
variable rate debt is issued as commercial paper. Commercial
paper is primarily used to provide short-term funding for
capital projects during construction. As the outstanding
commercial paper balance grows, the University will issue longterm debt to refund the commercial paper.
The University’s long-term debt is rated “AAA” by Moody’s,
S&P, and Fitch, resulting in us being one of only three public
universities with this distinction. This top-tier rating
provides us with strong access to the capital markets and the
lowest borrowing rates available in our market. The
University’s weighted cost of debt capital, as of June 30, 2013,
was 4.05%.
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Liquidity
The University manages its liquidity to ensure it can fund
its operations during normal periods and in times of stress.
Liquidity is principally in the form of bank deposits, shortterm investments and, to a lesser extent, credit lines. The
University prepares a monthly cash flow forecast and runs stress
tests (e.g. government shutdown failure to remarket variable
rate debt, etc.) against this forecast to assess the adequacy of
its liquidity.
Liquidity is meant to support the University’s operating
and reserve requirements. University departments maintain
reserves for various purposes including capital construction,
operations, and strategic initiatives. Many of these reserves
are maintained in compliance with the April 2006 Board-approved
capital and operating requirements for self-sufficient programs.
The University as a whole maintains reserves to support
department-level reserves and meet entity-wide obligations, such
as debt service. A portion of reserves may be invested longterm if they are meant to meet long-term needs. The majority of
reserves are invested short-term and their adequacy is best
represented by the University’s day’s cash on hand (“DCH”)
ratio. The DCH ratio compares cash and cash equivalents to
annual operating expenses to determine how many days of
operating expense can be supported by current cash and cash
equivalent balances. As of September 30, 2013, the University’s
DCH is 240 days, which compares favorably to the median for AAArated public institutions.
13
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.D.
ACTION REQUIRED:
None
Report on University Workforce
UNIVERSITY OF VIRGINIA EMPLOYEE CATEGORIES
Employees at the University of Virginia are found in three
budget entities - the Academic Division, the Medical Center, and
the College at Wise. Total headcount of all employees is
approximately 21,000. A count and description of employee
categories follows. This report also includes a comparison of
the workforce profile as of October 2012.
Employee Category
Teaching & Research
Faculty
Temporary/Wage Faculty
Head
Count
2,467
-25.9%
449
-9.1%
4,981
Graduate Assistants
1,561
Student Employees
College at Wise
Medical Center
TOTAL
-1.9%
375
Administrative &
Professional Faculty
Professional Research
Staff
Staff
Temporary/Wage Staff
Comparison to
October 2012
548
-14.4%
Additional Description
Includes 1,511 tenure track (-4.1%) and 956
non tenure track (-2.3%); also includes 1,061
faculty in the School of Medicine
Part-time faculty typically teaching one
course.
-3.7%
Includes 1,903 Classified Staff (38%) and
3,078 University Staff (62%)
-2.4%
Includes 928 Teaching Assistants and 633
Research Assistants
682
- 8.8%
2,530
-2.1%
445
+21.9%
7,306
+1.2%
21,344
-2.5%
14
Includes 238 student employees at College at
Wise
Includes 94 T&R faculty (+2.2%), 40 A&P
Faculty (no change), 172 staff (+ 3.0%), and
139 temp/wage employees (+110.6%)
Includes 5,989 salaried employees (+2.6%),
555 temporary employees (-10.6%), and 762
“house staff”, i.e. medical residents
Notes:
New employees are not hired as Administrative and Professional
Faculty and Classified Staff. Most employees that would have
fallen into those categories are now being hired as University
Staff.
These counts do not include employees of the University
Physician’s Group (primarily billing staff for the physician
practice plan) nor do they include the majority of employees
with the many other University Foundations.
15
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.E.
ACTION REQUIRED:
None
Executive Vice President’s Remarks
BACKGROUND: The Executive Vice President and Chief Operating
Officer, Patrick D. Hogan, 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:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.F.1. Interim Academic Division Financial
Report for September 30, 2013
ACTION REQUIRED:
None
BACKGROUND: The Commonwealth’s Auditor of Public Accounts has
completed the June 30, 2013, audit and will provide a verbal
report to the Board’s Audit & Compliance Committee. For the new
fiscal year, the University is implementing Governmental
Accounting Standards Board Statement 63, which will change how
the University’s financial statements are organized and named.
The statement adds new categories of deferred inflows and
outflows of resources and will report on “net position” rather
than “net assets.”
The unaudited financial report for the University’s
Academic Division for the quarter ended September 30, 2013,
follows and includes:
•
•
•
statement of net position (formerly statement of net
assets) compared to June 30, 2013;
statement of revenues, expenses, and changes in net
position (formerly, statement of revenues, expenses, and
changes in net assets) compared to prior year; and
operating sources and uses, budget versus actual results
through September 30, 2013.
DISCUSSION:
Statement of Net Position
This statement, on the following page, provides Academic
Division’s net positions as of September 30 and June 30, 2013.
The unaudited statement is developed based on Generally Accepted
Accounting Principles (GAAP). The unaudited statements include
material adjustments and accruals in order to be reasonably
accurate, but are not on a full accrual basis.
17
UNIVERSITY OF VIRGINIA - Academic Division Only
Statement of Net Position (Unaudited)
As of 9/30/13
ASSETS
Current Assets
Cash and short term investments
Receivables (accounts, notes, other)
Inventories, prepaids and other
Total current assets
As of 6/30/13
(in 000s)
$
Noncurrent Assets
Endowment and other investments
Receivables (pledges and notes)
Deposits with bond trustees & other
Capital assets, net
Total noncurrent assets
632,196
53,869
266
686,331
$
4,164,363
22,288
14
2,170,906
6,357,571
Total assets
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Deferred revenues and deposits
Commercial Paper
Internal deposits held Wise, SWVHEC & and agencies
Total current liabilities
4,023,415
21,166
21
2,161,194
6,205,796
$
7,043,902
$
6,750,054
$
28,798
101,187
148,893
3,114
281,992
$
17,150
152,071
139,593
9,872
318,686
Noncurrent Liabilities
Long-term debt
Other long-term liabilities
Total noncurrent liabilities
814,198
621
814,819
Total Liabilities
NET POSITION
Invested in capital assets, net of related debt
Restricted:
Nonexpendable
Expendable
Unrestricted
Total Net Position
815,078
493
815,571
$
1,096,811
$
1,134,257
$
1,195,839
$
1,220,059
499,831
2,624,265
1,627,156
5,947,091
Total Liabilities & Net Position
$
18
495,297
48,695
266
544,258
7,043,902
498,277
2,541,985
1,355,476
5,615,797
$
6,750,054
Net position is up $331.3 million or 5.9%, primarily due to
the recognition of tuition and state appropriation revenues that
will be spent down as fiscal year 2014 progresses and investment
gains.
The $53.9 million in receivables are primarily comprised of
billing for fall tuition and student charges ($26.6 million) and
sponsored research ($25.9 million). Past due receivables over
120 days are only $2.2 million, just over 3.9% and well within
the Commonwealth of Virginia’s management standard of 10%.
Endowment and other long-term investments are up nearly
$141 million, on the strength of the return on investments in
the first quarter of 2014. Further information on the
endowment’s performance this year is included in the written
report from the University of Virginia Investment Management
Company (UVIMCO) on page 25.
Student loan receivables, depending on payment schedules,
are included in accounts payable and long-term debt. Student
loan receivables of $39.0 million include $21.0 million through
the Federal Perkins Loan Program, $1.0 million through the
Federal Nursing Student Loan Program, and $19.1 million through
loan programs managed by the University using philanthropy given
for this purpose. The default rates by University students on
the federal loan programs are below required thresholds: 2.0%
for Perkins versus the federal requirement of 15.0% and 1.7% for
nursing versus the 5.0% federal threshold. Collectively, the
default rate on University managed loan programs stands at 2.2%.
Statement of Revenues, Expenses, and Changes in Net Position
(SRECNP)
Shown on the following page, this statement outlines the
Academic Division’s revenues, expenses, and other changes in net
position as of September 30, 2013, as compared to the same
period last year. It is developed based on GAAP but is
unaudited.
At September 30th, net position is up $331.3 million or 5.9%
from June 30, 2013, primarily attributable to the receipt of
tuition and state appropriations in the first quarter of fiscal
year 2014; these monies will be spent as the University
progresses through the fiscal year.
19
UNIVERSITY OF VIRGINIA - Academic Division Only
Statement of Revenues, Expenses, and Changes in Net Position (Unaudited)
OPERATING REVENUES AND EXPENSES:
Operating Revenues
Student tuition and fees, net
Grants and contracts (federal, state, nongovernmental)
State appropriations
Gifts
Sales and services of educational departments
Auxiliary enterprises revenues, net
Pell grants
Total operating revenues
Three Months
Ended
Three Months
Ended
9/30/2013
9/30/2012
(in 000s)
$
237,416
85,114
137,082
28,220
5,024
53,086
3,411
549,353
$
220,341
93,603
130,508
24,123
5,300
52,872
526,747
Operating Expenses
Instruction
Research
Public service
Academic support
Student services
Institutional support
Operation of plant
Student aid, net
Auxiliary
Depreciation
Other
Total operating expenses
72,125
81,499
10,663
39,549
10,378
18,877
31,707
25,208
37,002
26,300
(1,023)
352,285
68,879
85,982
9,841
37,838
10,160
19,803
34,294
23,450
35,165
25,362
4,677
355,451
Operating revenues less operating expenses
197,068
171,296
5,939
134,664
1,484
397
142,484
26,905
121,133
537
276
148,851
7,611
648
8,259
8,230
924
9,154
Nonoperating revenues less nonoperating expenses (losses)
134,225
139,698
Total Revenues
Total Expenses
Increase (decrease) in net position
691,837
360,544
331,293
675,598
364,605
310,993
5,615,797
4,989,847
NONOPERATING REVENUES AND EXPENSES
Nonoperating Revenues
Capital appropriations, grants and gifts
Investment income (loss)
Additions to permanent endowments
Other
Total nonoperating revenues
Nonoperating Expenses
Interest on capital asset related debt, net
Loss on capital assets (gain)
Total nonoperating expenses
NET POSITION
Net position - July 1 (Beginning)
Net assets -- September 30 (ending)
$
20
5,947,091
$
5,300,840
Operating Revenues:
Total operating revenues for the quarter ended September
30, 2013, were $549.4 million, up 4.3% over the prior year.
Student tuition and fees are reported net of discounts and
allowances, and are up about 7.7% as compared to last year.
Undergraduate enrollment growth and increases in undergraduate,
graduate, and professional tuition and fees approved by the
Board of Visitors in April 2013 account for the increase.
Spending from grants and contracts is down 9.1% overall,
but with a varied mix by source. As anticipated, the federal
budget uncertainty with Continuing Resolutions and Sequestration
in lieu of an approved federal spending plan has adversely
affected federally funded grants which are down over $7 million,
or nearly 7%. Spending on state and local grants is up by $2.6
million, while spending on grants from private industry and
foundations is about flat.
State appropriations increased $6.6 million or 5.0%, with
the additional funding coming to support the July 2013 faculty
and staff salary increase, employee benefits, and additional
appropriations in support of the HEOA of 2011.
Investment income is $134.7 million, reflecting the
investment performance on the UVIMCO Long Term Pool through
September 30, 2013. Additions to permanent endowment have
increased by nearly $1 million to $1.5 million.
Operating Expenses:
Operating expenses were down $3.2 million, or 0.9% for the
quarter ended September 30, 2013, compared to the same quarter
in fiscal year 2013. A decrease in sponsored research
expenditures was partially offset by the salary increases that
went into effect in July 2013. However, it is too early to draw
firm conclusions about fiscal year 2014 expenditures.
Operating Sources and Uses, Budget vs. Actual
This report, on the following page, reviews actual
results as of September 30, 2013, compared to budgeted
outcomes for the sources and uses of funds of the Academic
Division. The cash-based operating plan differs from the
GAAP SRECNP in the following ways:
21
•
External debt service, UVa Health Plan activity, and endowment
investment performance are excluded, while repayments of debt
to the internal bank and the expendable endowment distribution
are included.
•
Depreciation is excluded and most equipment purchases are
reported as a use of funds, and are not capitalized.
•
Only gifts received and available for the operating plan are
included. Pledges, non-cash gifts, gifts transferred to the
endowment or capital program, and gifts held at foundations
are excluded.
•
The operating plan nets financial aid funded from tuition from
gross tuition, but does not exclude financial aid funded from
other sources (gifts, endowments, and grants).
•
The operating plan reflects mandatory fees collected for
auxiliaries and internal revenues collected from internal
departments as other tuition and fee and sales, investment, &
other revenue.
•
The operating plan excludes unrealized gains.
Through September 30, 2013, actual net sources exceeded
uses by $253.1 million related to the difference in timing of
the receipt of sources as compared to uses. In the first
quarter, one-half of tuition revenues (representing one semester
of billings), a majority of the annual appropriation revenue,
and one-half of the endowment distribution have been recognized,
while expenses are incurred more evenly throughout the year.
Sources of Funds:
Actual available sources of funds for the Academic Division
as of September 30, 2013, were $646.2 million, or 0.3% greater
than the $644.5 million budgeted for the quarter.
22
Schedule 1
University of Virginia
Academic Division
Comparative Statement of Sources and Uses of Funds, Year to Date
as of 09/30/2013 (in thousands)
2013-14
Revised
Budget
Actuals
Through
9/30/2013
2013-14
Quarterly
Budget
Actuals Over Actuals as a
(Under) Budget % of Budget
Sources of Available Funds
Tuition and Fees
Undergraduate
Less: Tuition to financial aid
Net Undergraduate
266,871 $
(32,624)
234,247
136,000 $
(18,000) $
118,000
136,657 $
(17,837)
118,820
657
163
820
0.5%
-0.9%
0.7%
Graduate
Less: Tuition to financial aid
Net Graduate
41,662 $
(27,231)
12,936
22,000 $
(13,500) $
8,500
21,956
(13,308)
8,648
(44)
192
148
-0.2%
-1.4%
1.7%
Professional (Law, Darden, McIntire & SEAS Exec.)
Less: Tuition to financial aid
Net Professional
103,123 $
(7,813)
95,673
55,000 $
(3,500) $
51,500
56,135
(3,344)
52,791
1,135
156
1,291
2.1%
-4.5%
2.5%
School of Medicine
Less: Tuition to financial aid
Net School of Medicine
29,007 $
(510)
28,497
15,000 $
0 $
15,000
14,516
(455)
14,061
(484)
(455)
(939)
-3.2%
n/a
-6.3%
Other
Less: Tuition to financial aid
Net Other
Total Net Tuition & Fees
97,996 $
(1,193)
96,211
467,564
51,000 $
0 $
51,000
244,000
52,147
(254)
51,893
246,213
1,147
(254)
893
2,213
2.2%
n/a
1.8%
0.9%
137,082
68,875
19,633
70,450
19,151
2,272
82,534
582
1,875
(367)
(550)
151
(1,728)
(466)
-
0.4%
2.8%
-1.8%
-0.8%
0.8%
-43.2%
-0.6%
n/a
1,710
0.3%
$
State Appropriations
Grants & Contracts
Facilities & Administrative Cost Recoveries
Endowment Distribution & Fee
Gifts-Via Affiliated Foundations
Expendable Gifts
Sales, Investment & Other
Operating Cash Balances
Total Sources of Available Funds
144,890
229,328
63,200
158,422
100,571
35,245
184,911
39,199
$
1,423,330 $
$
368,937 $
300,526
146,912
42,976
76,256
110,261
101,517
156,508
109,028
Total Uses of Available Funds
$
Net Sources in Excess of Uses
$
136,500
67,000
20,000
71,000
19,000
4,000
83,000
$
$
$
$
$
$
$
644,500 $
646,210 $
Uses of Available Funds
Direct Instruction
Research & Public Service
Academic Support
Student Services
General Administration
Operation & Maintenance of Physical Plant
Scholarships, Fellowships, & Other
Auxiliary Enterprises
Internal Debt Service/Transfers
74,000
90,500
41,000
11,000
24,000
41,000
48,000
45,000
27,500
$
$
$
$
$
$
$
$
71,880 $
90,919
39,747
10,319
21,277
36,121
47,296
47,832
27,746
(2,120)
419
(1,253)
(681)
(2,723)
(4,879)
(704)
2,832
246
-2.9%
0.5%
-3.1%
-6.2%
-11.3%
-11.9%
-1.5%
6.3%
0.9%
1,412,920 $
402,000 $
393,138 $
(8,862)
-2.2%
10,410 $
242,500 $
253,072 $
10,572
4.4%
23
Total net tuition and fees ended the quarter at $2.2
million or 0.9% above the budget for the quarter.
Spending on grants and contracts through the end of
September 2013 totaled $68.9 million, a $1.9 million increase
over the quarterly projection. The 2013-14 budget
conservatively estimated fiscal year spending due to anticipated
federal budget reductions and sequestration.
Expendable gifts for operations ended the quarter $1.7
million or 43.2% lower than expected. The timing of gift
receipts is difficult to project over the year, with the
majority of gifts coming in before the calendar year-end. We
will have a better idea if this is a trend or a timing
difference next quarter.
Uses of Funds:
Total uses of available funds for the Academic Division
through September totaled $393.1 million which is 2.2% below
the quarterly budget.
•
General Administration is $2.7 million or 11.3% below the
quarterly budget, primarily due to timing differences and
operational savings efforts.
•
Operation and Maintenance of Physical Plant is $4.9 million or
11.9% below the quarterly budget, primarily due to the
seasonal impact of utility spending.
•
Auxiliary Enterprises is $2.8 million or 6.3% above the
quarterly estimate primarily as a result of Cavalier Computers
and the Bookstore purchasing inventory needed for fall
semester sales.
24
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.F.2. Endowment Report – Market Value and
Performance as of September 30, 2013
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 September 30, 2013, report follows.
Quarter-End September 2013
SUMMARY
The following commentary provides information on the recent
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 September 30, 2013.
The Long Term Pool returned 2.9% for the three months ending
September 30, 2013, versus 5.0% earned by the policy portfolio
benchmark. The Pool’s relative underperformance for the quarter
25
is unsurprising given that we generally trail public benchmarks
during rapidly appreciating markets, and the majority of our
private drawdown funds (approximately 40% of the Pool) remain
marked at fair values recorded as of June 30. While we report
on short-term performance, we encourage all of our investors to
focus most on longer-term performance. Over the twenty-year
period ending September 30, 2013, the Pool’s annualized return
was 11.8%, exceeding the policy benchmark return by 460 bps.
The Long Term Pool’s asset allocation has remained
relatively constant for the past few years. However, as equity
markets rise, our exposure to equities grows organically.
Therefore, we have recently begun to actively reduce the Long
Term Pool’s equity exposure by trimming certain positions and
hedging with portfolio overlays, when needed, to keep our equity
risk in line with that of our policy portfolio. More
information about actual exposures is available in the following
report.
MARKET ENVIRONMENT
Global market participants spent most of the third quarter
of 2013 anticipating that the Fed would begin tapering its bond
purchasing program, if only by a small amount. However, the Fed
surprised investors in September by announcing a delay in any
near-term tapering. Capital markets around the world responded
positively. The S&P 500 was up 5.2% for the three months ended
September 30, 2013, while the MSCI World Index rose 8.3% over
the same time period. The Fed’s decision to stay on course gave
fixed income markets a small boost as well. The Barclays Global
Aggregate Index reversed its previous sell-off and ended up 0.8%
for the quarter, bringing the total year-to-date loss for the
index to -0.4% through September 30. The Fed’s announcement
also led to the largest one-day price jump since 2011 in the
U.S. Treasury 10-year bond. The U.S. Treasury 10-year bond
entered the quarter at 2.48%, traded as high as 2.99%, and then
finished the quarter at 2.62%. The entire yield curve was
volatile, ending the quarter slightly steeper than before.
The quarter also saw signs of recovery in Chinese exports,
industrial production and manufacturing. Investors responded to
the positive news with renewed enthusiasm for Chinese equities
as the Shanghai Composite Index returned 11.1% for the quarter
(in Yuan). At the end of September, the Chinese government
formally opened the Shanghai Free Trade Zone as a test area for
potential financial reform. Details are unclear, but some
believe the Shanghai Free Trade Zone will enable the Chinese to
26
open up their banking sector, test a freely convertible Yuan,
and potentially allow western companies to stage local IPOs. In
November, the Communist Party of China is expected to use the
Third Plenum to discuss the direction of reform under the new
Chinese leadership. Investors see these potential reforms as
positive for the region, but many are questioning the pace of
reform.
Japan continued its 2013 climb as the Nikkei rose 6.3% (in
Yen) during the three months ended September 30, extending the
market's gains to 41.1% (in Yen) year-to-date. However, other
parts of Asia did not fare as well as China and Japan. Thailand
and Indonesia both felt the impact of the potential U.S. bond
tapering, with those markets down 3.7% and 10.0% (in local
currencies) during the quarter, respectively. In August,
India's currency fell to a record low of 68.825 INR against the
dollar as investors worried about the country's declining growth
and consumer inflation.
Bullish U.S. markets continued to reward an improved
outlook for the domestic economy. Whereas the U.S. market
slightly lagged China and Europe, it managed to gain just over
5% during the three months ended September 30, driving calendar
year-to-date gains to nearly 20%. At the end of September,
Bloomberg reported that U.S. stocks were trading “in lockstep
with 1954,” when U.S. equity markets finally regained their preGreat Depression levels. Bloomberg reported that the
correlation between U.S. equity returns in 1954 and 2013 was
0.95, implying that confidence in today’s equity markets is
remarkably similar to the strong investor sentiment in 1954. In
both 1954 and 2013, stocks reached new highs after the
respective market declines of the Great Depression and Great
Recession. Warren Buffett recently addressed rising equity
valuations in an interview, saying that equities “were very
cheap five years ago, ridiculously cheap. And, that’s been
corrected. They're probably more or less fairly priced now...
We're having a hard time finding things to buy.” (CNBC,
September 19, 2013). The same situation can be seen in credit
markets. Money has poured into high yield and loan funds,
resulting in easing of terms by lenders. The issuance of
covenant-lite loans has returned to pre-crisis levels, and
acceptable levels of leverage continue to creep up.
The fourth quarter of 2013 began with many uncertainties
including a potential missile launch into Syria, a partial
government shutdown, and the need for an increase in the
national debt ceiling approaching again. As we write this
27
update, all of these concerns have been temporarily resolved
without any real impact on markets. However, as markets
continue to rise, they become more vulnerable to a sudden change
in sentiment. Bond tapering is inevitable; it’s just a question
of when it will happen. If investors truly believe that the
U.S. economy is healthy, bond tapering could be a non-event.
However, this is a delicate issue and as seen over the past
three months, global markets are watching.
Asset Allocation
Our policy portfolio for the Long Term Pool 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 a deflation hedge from
fixed income. The Long Term Pool's actual allocation as of
September 30, 2013, is 66.3% to equity managers (public and
private), 13.4% to real asset managers and 20.3% to fixed income
(including marketable alternatives, credit, bonds, and cash).
Looking through to our managers' underlying investments, the
Long Term Pool has a 55.6% allocation to equities, 14.8%
allocation to real assets, and 29.6% allocation to fixed income
(including credit, bonds, and cash) as of September 30, 2013.
Our equity exposure is up slightly due to the rise in equity
markets, but remains consistent with that of the policy
portfolio. We carefully monitor the market risk of the Long
Term Pool and reduce equity exposure by trimming certain
positions and hedging with portfolio overlays, when needed, to
keep our equity risk in line with that of the policy portfolio.
PERFORMANCE
The Long Term Pool returned 2.9% for the quarter ending
September 30, 2013, versus the policy benchmark gain of 5.0%.
These results are eerily similar to last year, when the Long
Term Pool returned 3.0% for the quarter ending September 30,
2012 versus the policy benchmark gain of 5.1%. Returning to
2013, the Long Term Pool is up 10.7% for the nine months ended
September 30 versus the benchmark gain of 8.7%. We are pleased
with this level of relative performance, as it is unusual for
the Pool to keep pace with strong market rallies in the short
term. Our public equity, long/short equity, venture capital,
real estate, and marketable alternatives portfolios have all
recorded double digit gains year-to-date, while buyouts have
earned a very healthy 9.1%. Resources investments have gained
only 2.0% year-to-date, but the asset class continues to exhibit
28
our highest long-term returns. The 9.7% of the Long Term Pool
held in cash and bonds continues to be a drag on performance,
but it helps maintain the appropriate level of risk in the Pool
and provides critical liquidity for shareholder distributions,
capital calls and new investments.
EQUITIES
Public Equity
UVIMCO’s public equity portfolio gained 7.2% in the quarter
ended September 30, 2013, versus the 8.0% return for the
benchmark MSCI All Country World Index (MSCI ACWI). The public
equity portfolio returned 16.6% for the first nine months of
calendar year 2013, versus the 14.9% return for the MSCI ACWI
benchmark. Over the past three, five, and ten-year periods, the
public equity portfolio has gained 17.1%, 14.9%, and 14.4%,
compared to 10.8%, 8.3%, and 8.4%, respectively, for the
benchmark. A number of factors have driven our strong absolute
and relative long-term public equity returns. First, we have
benefited from a large allocation to quality and consumer
companies, which have continued to outperform the market. In
addition, our tilt towards emerging markets has often benefited
the public equity portfolio, although in recent periods this
position has served as a headwind as emerging market indices
have lagged developed markets. Most importantly, we have long
benefited from outstanding stock selection by our underlying
managers. Our managers rely on fundamental research, take a
long-term approach, and are willing to concentrate their
portfolios in only their best ideas. This approach, along with
great stock selection, has resulted in most of our managers
generating returns well in excess of the broader global equity
market regardless of whether the managers operate on a global
basis, in the small cap universe, or within the emerging
markets.
We remain diligent in monitoring our managers and the tilts
inherent in the Long Term Pool’s public equity portfolio, and we
recognize that historic levels of outperformance will be
difficult to achieve going forward. However, we will continue
to take a bottom-up approach to manager selection, as we believe
partnering with managers who focus on long-term value creation
through individual stock selection provides us with the best
chance to generate excess returns.
29
Long/Short Equity
UVIMCO’s long/short equity portfolio gained 1.5% for the
three months ended September 30, 2013, versus 3.5% for the Dow
Jones Credit Suisse Long/Short Equity Index and 8.0% for the
MSCI ACWI. The long/short equity portfolio returned 13.1% for
the first nine months of calendar year 2013, versus 10.7% for
the Dow Jones Credit Suisse Long/Short Equity Index and 14.9%
returned by the MSCI ACWI. We expect our long/short managers to
generate alpha on both the long and short sides of their
portfolios by utilizing fundamental research to identify longterm winners and losers across the global investment universe.
This is easier said than done. As has been the case throughout
2013, our long/short managers posted relatively strong results
from long investments during the three months ended September
30. However, performance on the short side continued to be a
drag, as lower-quality stocks or those facing longer term
structural headwinds have rallied with the general markets
throughout 2013. More broadly, UVIMCO’s long/short portfolio
tends to underperform in periods where markets move sharply
higher, as the net long exposure of that portfolio remains below
50%.
Over longer timeframes, UVIMCO’s long/short portfolio has
consistently outperformed the long/short equity universe. On a
three, five and ten-year basis, our portfolio has generated
returns of 11.7%, 8.1%, and 9.7%, exceeding the Dow Jones Credit
Suisse Long/Short index by 2 to 6 percentage points per annum.
Long-term excess returns versus global equity markets are
smaller, but in most cases still present, as our managers have
been able to generate sufficient alpha to compensate for a lower
level of market exposure.
Despite recent performance challenges across the long/short
universe, we continue to believe there is value in the
investment strategy. The benefits of investing in long/short
may be less evident in periods where markets are appreciating
steadily, as has been the case over the past two years.
However, over longer time periods, our long/short managers have
provided equity-like returns or better with significantly lower
levels of volatility, and have provided downside support in
periods of market distress. Our long/short managers also have
more flexibility to adjust quickly to changing market conditions
relative to other investment strategies. While we are
comfortable maintaining a meaningful exposure to long/short
equity, we are constantly evaluating our current relationships,
30
weighing them against other opportunities within the space and
across the broader investment universe.
Private Equity
UVIMCO’s private equity portfolio returned 2.1% for the
quarter ending September 30 compared to a return of 8.0% for its
benchmark, the MSCI All Country World Index. UVIMCO’s buyout
investments recorded gains of 2.1%, and venture capital
valuations rose 2.0%. As noted in the past, quarterly reports
from our private equity managers lag our performance reporting
schedule by one quarter. Therefore, our September 30, 2013,
returns reflect certain adjustments to June 30 valuations, but
not the full impact of manager valuations as of September 30.
For the ten years ended September 30, 2013, the annualized
return for the private equity portfolio was 11.4% versus 8.4%
for the MSCI ACWI. Over this same period, the 13.1% return
earned by our buyout portfolio outperformed the 6.4% gain in our
venture capital portfolio. Venture capital is still recovering
from the 2000–2010 period in which venture capital returns were
negative.
Continuing the trend that began earlier in 2013, exits for
venture-backed companies via the public markets continued to
surge during the quarter ended September 30. Favorable public
market conditions and strong valuations contributed to good
quality IPOs for venture-backed companies. Twenty-six venturebacked companies went public during the quarter, raising $2.7
billion, according to the National Venture Capital Association
and Thomson Reuters. That represented an increase of 13% over
the second quarter of 2013 and an 11% increase for the year. It
was also the first time since 2004 that twenty or more venturebacked IPOs have occurred in consecutive quarters. When the $16
billion Facebook IPO is stripped out, the quarter ending
September 30 was the strongest quarter for dollars raised by
venture-backed companies since the fourth quarter of 2011. The
largest IPO of the quarter was FireEye, a security network
company that raised $349 million and currently trades at more
than double its offering price of $20 a share. What received
even more attention than any actual IPO, however, was the muchanticipated announcement that Twitter has filed to go public
before the end of 2013. The UVIMCO portfolio has exposure to
both FireEye and Twitter.
On the other hand, private equity-backed exits declined
from the previous quarter as 289 exits valued at $63 billion
took place during the three months ended September 30, versus
31
344 exits valued at $94 billion in the second quarter, according
to Preqin. North America led the way in the third quarter with
$36 billion spent on 363 deals. Total deal flow in Europe
dropped in half compared to the $29 billion of deal flow during
the previous quarter. Buyout deals in Asia were up with $7.1
billion in deals in the quarter versus $2.5 billion during the
second quarter.
The private equity portfolio generated positive cash flows
of $27 million during the three months ended September 30, 2013.
We received cash distributions of $45 million from the
portfolio, and funded capital calls to our managers of $18
million.
REAL ASSETS
Real Estate
The real estate portfolio returned 2.9% for the third
quarter of 2013 versus -0.2% for the blended benchmark of
publicly-traded U.S. and international real estate securities.
Calendar year-to-date, the real estate portfolio has generated a
return of 10.6% versus the benchmark return of 1.8%. As we
explain in most commentaries, our private real estate
investments differ materially from the composition of the
publicly traded real estate benchmark. Calendar year-to-date,
10-year Treasury bond yields have risen 86 bps to 2.62%,
contributing to the modest benchmark REIT returns in 2013.
While the U.S. economy has added jobs, the labor
participation rate continues to decline, with the current rate
of 63.2% representing the lowest level recorded since 1978. The
slow economic recovery has helped commercial real estate
fundamentals to improve, with all sectors experiencing modest
declines in vacancy in the third quarter of 2013. CMBS issuance
is also on the rise, as evidenced by total volume of $56.4
billion through August 2013, versus annual totals of $33.4
billion and $48.3 billion in 2011 and 2012, respectively.
UVIMCO’s real estate portfolio generated positive cash
flows of $11 million during the three months ended September 30,
2013. We received cash distributions of $26 million from the
portfolio, and funded capital calls to our managers of $15
million.
32
Resources
UVIMCO’s resources portfolio returned 1.1% during the three
months ended September 30, 2013, compared to a 0.2% loss on our
formal real assets benchmark, the blended MSCI Real Estate index.
Meanwhile, commodities and commodity-related equities generated
strong overall returns for the quarter, with the Goldman Sachs
Commodity Index increasing by 4.8% and the S&P North American
Natural Resources Equity Index up 8.6%. However, intra-period
commodity returns were mixed. Crude oil and precious metals
both posted strong gains during the first two months of the
quarter and then sold off in September due to macroeconomic
concerns surrounding the U.S. government shutdown and Federal
Reserve policy outlook. However, a rebound in China’s commodity
demand drove a modest recovery in industrial metals which were
hit hardest by concerns over a slowdown in Chinese growth.
Natural gas prices experienced large monthly swings, but ended
the period essentially flat as continuing concerns over excess
supply were offset by increases in demand due to hotter than
normal summer weather. Despite the persistent supply overhang
and depressed natural gas prices, U.S. natural gas production
has remained relatively stable.
It is not unusual for our resources portfolio to
underperform benchmarks during periods of strong commodity and
equity market performance. The majority of our resources
portfolio is invested in privately-held companies that provide
lagged valuation updates, and most of our resources portfolio is
still marked at June 30, 2013, values. The long-term
performance of the resources portfolio continues to be
outstanding. Over the last ten years, our resources portfolio
has returned 23.2% annually compared to a 1.8% and 12.6%
annualized return on the Goldman Sachs Commodity Index and S&P
North American Natural Resources Equity Index, respectively.
The resources portfolio generated positive cash flows of
$27 million during the three months ended September 30, 2013.
We received cash distributions of $45 million from the
portfolio, and funded capital calls to our managers of $18
million. The majority of the distributions represented proceeds
from the June sale of a co-investment position.
33
FIXED INCOME AND MARKETABLE ALTERNATIVES
Marketable Alternatives and Credit
For the three months ended September 30, 2013, our
marketable alternatives and credit portfolio gained 1.9% versus
0.7% returned by the Barclays Aggregate Bond Index and 2.3% on
the Barclays High Yield Index. Calendar year-to-date, the
marketable alternatives and credit portfolio has generated a
return of 11.0% versus -1.1% on the Barclays Aggregate Bond
Index and 3.7% on the Barclays High Yield Index.
Credit
spreads tightened during the quarter after the Fed announced
that they would delay any tapering of expansive monetary policy.
Our managers positioned in liquid credit and reorganization
equity performed well, and we expect managers who focus on
illiquid credit will see a positive but lagged impact from
recent market movements as well.
The credit markets have been rallying for several years,
and many investors feel that there is little upside left in
credit going forward. However, UVIMCO’s credit managers are
opportunistic and do not rely on a passive exposure to credit or
duration to produce returns. Rather, they approach credit from
many angles and have the flexibility to maintain short duration
and/or move into multiple asset classes, including
reorganization equities, which present unique opportunities. In
addition, we have managers who can short the credit markets when
needed. As credit markets tighten, this expertise will be
beneficial.
Bonds and Cash
Our bond and cash portfolios continue to be managed as
sources of liquidity. At the end of the quarter our bond and
cash portfolio made up 9.7% of the Long Term Pool. This did not
materially change from last quarter. Over time, we continue to
expect the sum of the liquid U.S. Treasury bond and cash
portfolios to vary between 8% and 12% of the Long Term Pool.
Although this is a drag on returns (especially in a zero
interest rate environment), we believe it provides insurance
against future turbulent markets and will allow us to fund
attractive investments that will more than make up for the
return drag.
Our government bond portfolio has been in short-term U.S.
Treasury notes and bonds with maturities under three years. The
average duration of this portfolio as of quarter end was 0.84
34
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. Our cash portfolio is invested
in U.S. Treasury bills and notes with maturities less than one
year and U.S. Treasury-guaranteed Repurchase Agreements with
U.S.-domiciled counterparties. The duration of the cash
portfolio as of September 30, 2013, was 0.41 years. 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 to bear certain risks, but others must be
eliminated if we are unable to absorb the downside losses or if
we do not earn a sufficient risk premium from assuming those
risks. We consider three broad portfolio risks when managing
the Long Term Pool – market risk, manager risk, and liquidity
risk – and evaluate these factors relative to the risk tolerance
of the Long Term Pool shareholders.
Market Risk
The largest risk factor present in the Long Term Pool is
equity market risk. On a long-term basis we manage this exposure
through our investments in managers. On a short-term basis we
monitor our equity exposure with portfolio overlays through the
option and futures markets.
A common definition of market risk is the standard
deviation or volatility of a portfolio’s return. Volatility
provides a useful proxy for market risk if returns are normally
distributed. However, it is clear that both the broad market as
well as individual investment strategies are not normally
distributed, but rather are subject to a much higher probability
of negative “tail” events. Since investment returns are subject
to “tail risk,” it is useful to complement the standard
deviation statistic with an estimate of drawdown risk.
We manage market risk in the Long Term Pool by diversifying
across three broad asset classes: equity, fixed income, and real
assets. Our objective is to maintain estimated market risk in
the Long Term Pool that is less than or equal to the estimated
market risk of the policy portfolio. Our current estimate of
35
the volatility of the Long Term Pool returns is 11.0% versus
11.8% for the policy portfolio. In addition, the one-percentile
tail annual drawdown on the Long Term Pool is estimated to be 25.5%, less than the drawdown estimate of -30.8% 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.
Over time, UVIMCO has been well compensated for assuming
manager risk. Attribution analyses suggest that manager
selection is the largest contributor to the Long Term Pool’s
long-term outperformance versus the policy benchmark and peers.
Liquidity Risk
At UVIMCO, we define liquidity risk as an inability to meet
any of the following four primary liquidity requirements: (i)
withdrawals by the University and foundation investors, (ii) the
excess of capital calls over expected capital distributions from
private funds, (iii) the need to rebalance exposures following a
market decline, and (iv) the ability to deploy cash
opportunistically as new investment 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 by managing the pace of
commitments to private investments.
Given our four primary liquidity requirements, we believe
that an appropriate target for liquidity is to have 10% of the
Long Term Pool invested in assets that are safe and highly
liquid, and at least 30% of the Pool should be available for
conversion to cash in any twelve-month period. As of September
30, 2013, we had 10% of the Long Term Pool invested in
Treasuries, 36% of the Long Term Pool that could be turned to
cash within one quarter, and 43% of the Pool that could be
turned into cash within one year. We also limit our unfunded
commitments to private investments to be no more than 25% of the
Long Term Pool. Our goal is to have 15% of unfunded commitments
36
outstanding on average. As of quarter end, our unfunded
commitments were 16% of the Long Term Pool.
37
38
39
40
Investment Report
September 30, 2013
Endnotes
(1)
UVIMCO's fiscal year runs from July 1 through June 30.
(2)
All investments are recorded at estimated fair market value in accordance with UVIMCO's valuation policy.
(3)
The Policy Benchmark is the geometrically linked monthly average of the underlying asset classes' benchmarks, weighted by
the Fiscal Year 2014 policy target allocations: 60% Equity, 10% Real Assets, 30% Fixed Income.
(4)
The Real Estate component of our Fiscal Year 2014 policy portfolio is comprised of 50% MSCI U.S. Real Estate Index and
50% MSCI All Country World Real Estate Index. Prior to January 1995, the benchmark is comprised of 100% FTSE National
Association of Real Estate Investment Trusts Equity Index.
(5)
The Fixed Income component of our Fiscal Year 2014 policy portfolio is comprised of 50% Barclays Capital U.S. Aggregate
Bond Index and 50% Barclays Capital Global Aggregate Bond Index (Hedged in U.S. Dollars). Prior to January 1990, the
benchmark is comprised of 100% Barclays Capital U.S. Aggregate Bond Index.
Represents the current market values and performance of overlay positions designed to change the Long Term Pool exposures.
Performance is calculated to reflect the impact of overlays relative to the entire Long Term Pool
(6)
(7)
Represents securities and funds that may be readily sold for cash within the designated time periods.
(8)
Represents the market values of investments where distributions are at the sole discretion of the managers, plus all uncalled
commitments.
(9)
Market and currency exposures are estimated by looking through managers and funds to the underlying security positions.
Policy ranges express the expected variation in asset class, regional, and currency exposures during normal market
circumstances. Totals may not add due to rounding.
(10)
Latin America, Middle East, and Africa.
41
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.F.3. Endowment/Long-Term Investments,
Including Related Foundations at September
30, 2013 (in thousands)
ACTION REQUIRED:
None
Rector and
Visitors
Funds
The University of Virginia Medical School and related foundations
The College of Arts and Sciences and related foundations
The University of Virginia Law School and related foundation
Darden School and related foundation
Batten School of Leadership and Public Policy
School of Engineering and related foundation
The McIntire School of Commerce and related foundation
University of Virginia's College at Wise and related foundation
Graduate School of Arts and Sciences
School of Nursing
Curry School of Education and related foundation
School of Architecture and related foundation
School of Continuing and Professional Studies
$ 859,080
391,839
47,254
119,594
118,876
100,524
46,868
48,450
57,665
47,329
14,266
18,488
2,132
Related
Foundation
Funds
Invested by
UVIMCO
Alumni
Association
Funds
Invested by
UVIMCO
Related
Foundation
Funds
Invested by
Direction of
Foundation
Board
$
$
$
46,020
71,266
243,935
234,203
10,264
7,791
10,033
2,706
-
9,923
12,524
44,489
2,567
2,535
435
53
Total
$ 915,023
475,853
396,569
366,991
118,876
112,726
91,956
60,226
57,665
49,864
25,504
22,283
2,185
224
105,380
13,194
1,938
599
1,418
1,205
654
-
University of Virginia Medical Center and related foundations
Centrally Managed University Scholarships
Athletics and related foundation
Alumni Association
Provost
University of Virginia Foundation and related entities
Miller Center and related foundation
Alumni Board of Trustees
University Libraries
471,413
186,350
43,328
98,486
55,570
56,351
61,996
64,795
67,473
10,669
59,655
-
1,405
456
75,366
101
28,985
29,267
203
-
University - Unrestricted but designated
University - Unrestricted Quasi and True Endowment
University - Unrestricted Other
336,567
176,447
162,582
-
-
-
336,567
176,447
162,582
All Other
233,809
237,472
54,783
12,393
538,457
$ 3,693,268
$ 1,128,278
$ 204,637
$ 195,460
$ 5,221,643
*
**
563,799
186,350
108,579
104,633
98,486
67,676
66,239
59,655
56,452
*Includes funds on deposit for other areas/schools not individually listed.
**Excludes approximately $62.8 million of board designated pension funds.
SOURCE: AVP/Finance
DATE: October 28, 2013
42
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 15, 2013
COMMITTEE:
Finance
AGENDA ITEM:
II.F.4. Quasi-Endowment Actions:
2013 – September 30, 2013
ACTION REQUIRED:
None
July 1,
BACKGROUND: The quasi-endowment actions listed below were
approved by either 1) the Executive Vice President and Chief
Operating Officer, under the following Board of Visitors’
resolutions, or 2) the Assistant Vice President for Finance and
University Comptroller, under the delegation of authority from
the Executive Vice President and Chief Operating Officer:
In October 1990 and June 1996, the Board of Visitors approved
resolutions delegating to the Executive Vice President and Chief
Operating Officer the authority to approve quasi-endowment
actions, including establishments and divestments of less than
$2,000,000, with regular reports on such actions.
In February 2006, the Board of Visitors approved a resolution
permitting approval of quasi-endowment transactions, regardless
of dollar amount, in cases in which it is determined to be
necessary as part of the assessment of the business plan for
capital projects. Additionally, to the extent 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.
43
Additions from Gifts
Osher Lifelong Learning Institute Quasi-Endowment
1
Otolaryngology Quasi-Endowment - Head and Neck Surgery
President's Fund for Excellence Unrestricted Quasi-Endowment
1
Shea, Eleanor Quasi-Endowment Professorship in Music
1
Shea, Eleanor Quasi-Endowment Professorship in Art History
2
University Quasi-Endowment Fund
Whitener, Ellen Quasi-Endowment Fund
Total Additions from Gifts to Quasi-Endowments
Additions from Endowment Income (Capitalizations)
Antrim, Lottie C. Income Capitalization Quasi-Endowment
Athletics General Operations Quasi-Endowment
Chrysler, W. P. Fund for Engineering Library
Coulter, Wallace H. Endowment Match
Dermatology General Investment Fund
Hecht, Sidney M. Fellowship in Chemistry
Hecht-Cruachem Chemistry Quasi-Endowment #3
HOPE Physician Incentive Quasi-Endowment
Hughes Endowment Income Capitalization Quasi-Endowment
Jordan, Harvey E. Lectureship
Low, Emmet F. and N. Alyce Chair Quasi-Endowment
McIntire, Howard Quasi-Endowment in Neurology
3
Medical Center Capital Assets Quasi-Endowment
Miller, Mae W. Cancer Research Quasi-Endowment
Moyston, Vernah Scott Professorship in Ophthalmology Investment Quasi-Endowment
Plastic Surgery Quasi-Endowment Fund
Radiology Fund Special Diagnostic
Samuels, Bernard Ophthalmology Library Quasi-Endowment
School of Medicine Quasi-Endowment
Southwest-Dishner Gift Quasi-Endowment Fund
Taylor, Henry N. Fund
Virginia Quarterly Review - Anonymous
Total Additions from Endowment Income to Quasi-Endowments
Divestments
Thaler, Myles H. Quasi-Endowment for HIV Research
Amount
950,000
1,000,000
33,312
210,000
202,000
3,966,299
148
$ 6,361,759
$
$
9,582
87,525
1,744
1,723
32,734
9,214
1,521
67,449
1,995
1,500
1,287
23,670
7,103,805
6,353
4,574
19,360
4,613
2,614
92,345
17,203
339
587
$ 7,491,737
$
$
Total Divestments from Quasi-Endowments
75,000
75,000
Notes:
1
Quasi-endowment newly established or originally funded since July 1, 2013.
Includes current unrestricted gifts to the University which, under a standing Board of Visitors resolution, are required to
be added to the University's Unrestricted Endowment Fund.
3
Per February 7, 2008 BOV authorization, additional amounts up to $300 million can be made to this fund without further
BOV approval.
SOURCE: AVP Finance
DATE: October 10, 2013
2
44