Board of Visitors
Finance Subcommittee Meeting
September 10, 2014
1
Agenda
I. Introduction and Comments from Chair
II. Reports
A.
B.
C.
D.
Research
Philanthropy
Observations from Completion of Recent Admissions
Cycle
Strategies to Leverage the University’s AAA Balance
Sheet
2
I. Introduction and Comments from Chair
3
Finance Subcommittee Charge
Develop a financial/pricing model (including a long term financial plan) that promotes:
Affordability for low-income and middle-income students and their families
Predictability of tuition and fee costs and associated financial aid
A sustainable student financial aid program
Sustainable funding for instruction that preserves and enhances academic excellence
Diversity and inclusiveness
Process efficiencies and savings achieved through the Organizational Excellence
initiative
4
II.A. Research
5
Research Background
• UVa decided to be research intensive long ago
– Attracts top students and faculty, achieves UVa mission
• Research is important lever for academic excellence
and supports Cornerstone Plan
– However… not a revenue lever to subsidize tuition
– Every dollar of research revenue must translate into at least one
dollar of research expenditure
• Federal agencies and sponsors support some costs
associated with research infrastructure (F&A)
– Institution and state must co-invest
6
Research Requires Investment
• Research does not generate net dollars
• “F&A” are those costs which cannot be identified readily and
specifically with a particular sponsored project
– Examples: Shared resources such as libraries, electricity, maintenance of
buildings, and administrative support
– Actual UVa F&A costs are 67%, government grants provide F&A of 58%,
our overall recovery due to mix of grants is 39%, so UVa F&A subsidy is
28%
• Research costs UVa about 17 cents on every dollar of research
– (i.e. we pay $0.28 for every $1.67 of research conducted)
• Research provides a deep discount of 83% on our $275M+ annual
portfolio, which is critical to our research university mission
7
UVa Research Awards vs Recovered F&A FY
2010-2014
$400,000,000
$350,000,000
5% uptick in
2014 research
awards
$300,000,000
$250,000,000
$200,000,000
Awards
Stability due to F&A rate increase
negotiated with gov’t., and some
diversification of grant sources
$150,000,000
F&A
F&A recoveries
lag awards
$100,000,000
$50,000,000
$2010
2011
2012
2013
2014
Stimulus
(ARRA)
8
UVa Research Eco-Cycle
Landscape view & pan-university,
school & scholar level programs
“Seeding” research,
creative scholarship,
Innovation, ideas
PEOPLE: hiring, renewal,
retention
Top faculty & students
Philanthropy & university
investments
Grants and Contracts
Premiere Research
University
New understanding,
creations, discoveries,
innovations
Impact on the World
Reputation and impact
New Ideas
Philanthropy
New ventures,
licensing revenues,
corporate partnerships
An “eco-cycle” of people, actions, and resources producing UVa impact
9
UVa Research Growth
• UVa annual sponsored research is equivalent to
nearly $5 billion in additional endowment
– Research distinguishes UVa from other institutions
• attracts great faculty and graduate students, and provides
experiences for undergraduate students
• Research is an important lever for academic
excellence
– . . . but is not a revenue lever
• To grow, we must seed early-stage research and plan
for generational faculty turnover
– Strategic recruitment leads to targeted research growth
– To support growth we need investments
10
II.B. Philanthropy
11
Post-Campaign Analysis
• Impact of Big Gifts
• Profile of $1M Donors
• Principal Gift Pipeline
Recent Progress
• Restructuring and Rebuilding the Team in
University Development
• Organizational Discipline and Collaboration
• Initial Campaign Planning
Impact of Big Gifts
Profile of $1M+ Donors
Principal Gift Pipeline
Principal Gift Pipeline
Score Description
Annual Gift Dollar
Range
# Prospects
Tier 1
$1 Million+
168
Tier 2
$750,000 - $1 Million
831
Tier 3
$500,000 - $750,000
1,373
Tier 4
$250,000 - $500,000
2,592
Note that figures above count Individuals, not Households
Geographic Distribution of Principal
Gift Prospects
16
3
6
3
9
5
5
1
10
1
12
2
2
184 9
67
36
3
3
31
2
24
7
81
19
1,283
59
5
105
2
4
65
2
179
157 9
7
23
281
9
9
391
29
103
8
185
Restructuring/Rebuilding
• Regional Fundraiser Redeployment—Priority
Based
• Principal Gifts Model
• Gift Planning
• Parents Development Expansion
• Foundation Focus
• Discovery Team
**No Additional Funding—all redeployment of existing funds
Organizational Discipline
• Performance Metrics
• Travel Planning
• Strategic Goal Setting
Need-Based Scholarships
• Regional Development vs. Need-Based
Development
—Redeployed three FTEs (July ‘14)
• Presidential Events
• Communications/Matching Challenge
Website
• Presidential Direct Mail Appeal
• E-newsletter Pilot
Initial Results: $9M+ in commitments since late ’13
Samples of Success—Penn
• Goal of $600 million for Scholarship—over
$360 million raised
• 797 new scholarships and additions to 793
existing scholarships
• Matching funds encouraged over 65 people to
give over $2 million each
• Matching funds at multiple levels, including
recent alums
Samples of Success—Penn State
• $500 million for scholarships in the last
campaign
• $120 million+ was raised through Trustee
Matching Scholarship Program--matched the
endowment yield in perpetuity (1:1 and 2:1
matches)
• Match went into effect immediately
Going Forward
• Tell the Students’ Stories
• Formalize a Matching Program to Leverage
Additional Support
• Educate/Incentivize the Schools/Foundations
II.C. Observations from Completion of
Recent Admissions Cycle
24
Profile of Incoming First-Year Class of 2018
• Application increase
• Early Action volume
• Selectivity
• Academic profile
• Class diversity
• Virginia residents
• Yield
• Impact of Blue Ridge Scholarship
• Partnerships
25
Highlights from the Class of 2018
• Record applicant pool (+7%)
31,021
• Early Action applications (+8%)
14,799
• Largest enrolling class in history
3,709
–
–
–
–
–
–
First generation (even)
Low income (+10%)
African American (+17%)
Hispanic (+21%)
Asian (+16%)
Multi-race (+15%)
– Minority
– Financial aid recipients
– Blue Ridge Scholars
348
263
238
244
481
180
31%
34%
110
26
Highlights from the Class of 2018
Offer Rate
Yield
SAT Mean
Top Decile
Virginians
• 29.0%
• 41.4%
• 2009
• 89.1%
• 67%
27
Influential factors in student decisions
Academic reputation or prestige
Value/Return on Investment
Need blind and meeting full-need
Net cost of attendance-affordability and availability of financial aid
Culture or fit
Student/faculty interactions
28
AccessUVa
Mission driven
Components of AccessUVa
Race neutral
Contributes to diversity
Impact on recruitment and yield
Virginia vs. non-Virginia
Reputational impact
Access Communications Task Force
29
THE UNIVERSITY of VIRGINIA
UNIVERSITY COMMUNICATIONS
30
UNIVERSITY COMMUNICATIONS
DEFINING OUR ROLE
Articulate and promote the value of the University
of Virginia, in order to:
 More effectively compete for faculty talent;
 Attract the best and brightest students;
 Grow the reputation and reach of the institution;
 Galvanize constituent support in advance of the
bicentennial;
 Support critical business and strategic priorities; and
 Demonstrate the value the University delivers to the
people of the Commonwealth, the nation and the world.
31
TELLING THE
UVA
STORY
32
UNIVERSITY
COMMUNICATIONS
Use of social to leverage
earned media
First Steps, Early Wins
Increase in national rankings and best
practice in social media for higher ed
Better use of photography to capture
the essence of the student experience
Leveraging social platforms for
increased engagement
Strategic use of videography and
multimedia to engage key audiences
33
UNIVERSITY
COMMUNICATIONS
Video Highlights
Video Placeholder
34
UNIVERSITY
COMMUNICATIONS
Social Media Growth
35
THE UNIVERSITY of VIRGINIA
Fall advertising: Uncommon Thinking
36
OWNED & PURCHASED MEDIA
VISIBILITY
 Special edition of Forbes, showcasing the Commonwealth of
Virginia as a hotbed of investment opportunity and innovation.
UVA has a full-page ad.
 Football season provides important venues for brand visibility
including: full page program ads, :30 television spot, :30 radio
ads, online banner advertising, and more.
 Donation from Gannett of 1M digital impression ads will run on
USAToday.com.
 Virginia Magazine provides a critical platform for brand visibility
with the alumni audience.
 We have an ongoing display advertising contract at the CHO
airport that is due for rotation.
37
3
FPO
Video Placeholder
II.D. Strategies to Leverage the University’s
AAA Balance Sheet
46
Background
Since last Finance Subcommittee meeting:
Reviewed
Began
Considered
Reviewed the
current and
discussion on
alternative
composition
historical
appropriate
forms of
and liquidity
operating
levels of
balance sheet
needs of our
requirements
liquidity
liquidity
debt portfolio
47
Ongoing Subcommittee Discussion
Required
Operating Funds
Allocable
Operating
Funds
Endowment
Spending
Rate
Short- vs.
Long-Term
Funding
48
Board of Visitors Policy on Required Reserves
Capital:
• At least 1.5% of replacement value of buildings and
equipment
• Intended to provide sufficient funds for ongoing
capital renewal and replacement
Operating:
• Three months of operating expenses
• Intended to provide sufficient liquidity for monthto-month operating needs
49
Monthly Days Cash on Hand
An Important Liquidity Measure for AAA Rating
50
Ongoing Subcommittee Discussion
Required Operating
Funds
Allocable
Operating
Funds
Endowment
Spending
Rate
Short- vs.
Long-Term
Funding
51
Strategic Use of Operating Funds
• What targets for liquidity
should we establish to
determine adequate levels of
operating funds?
In seeking to leverage
our strong operating
position and create
sustainable funding for
strategic needs:
• How much of our operating
funds can be thoughtfully
harvested for strategic needs?
• How often should we review
operating funds balances and
liquidity targets?
• Consider current and future
operating risks such as state
appropriation, research
funding, health care reform.
52
Ongoing Engagement with UVIMCO
Date
UVIMCO Long-Term
Pool Return
06/30/2008
5.9%
06/30/2009
-21.0%
06/30/2010
15.1%
06/30/2011
24.3%
06/30/2012
5.1%
06/30/2013
13.4%
06/30/2014
19.0%
06/30/2015
Estimated at 7.5%
• Thoughtful discussion on how best to deploy
allocable operating funds
53
Ongoing Subcommittee Discussion
Required Operating
Funds
Allocable
Operating
Funds
Endowment
Spending
Rate
Short- vs.
Long-Term
Funding
54
UVa’s Endowment Spending Percentage
Inflation Growth Within a Band
$250
(in millions)
Endowment Spending
$200
5.00%*
$150
5.50%**
4.50%*
$100
5.25%
4.63%
4.83%
4.95%
4.68%
FY13
FY14
FY15
4.00%*
$50
$0
FY07
FY08
FY09
Potential Lower Limit of Band (4%)
FY10
FY11
FY12
Potential Upper Limit of Band (6%)
Actual Distribution
* Rate set by Board because inflationary change would have caused rate to fall below the band.
** Rate set by Board because inflationary change would have caused rate to fall above the band.
55
Endowment Sensitivity Analyses
• The following four slides illustrate sensitivity analyses
related to the potential impact on the endowment
distribution given three drawdown scenarios:
1-year
Drawdown
Probability for the
Long Term Pool
Probability for the
Policy Portfolio
30%
0.2%
1%
25%
1%
2%
15%
8%
10%
• The Long Term Pool currently has a slightly lower level of
market risk versus the Policy Portfolio, resulting in a
relatively lower probability of a given one-year drawdown
compared to the Policy Portfolio
56
Impact of a 30% Decline in
Market Value
R&V Endowment Payout
(with -30% Drawdown in FY 2015 and no Adjustments
to Spending $)
260
Scenario 1: 30% decline in
2015
Distribution in $ Millions
• The distribution percentage
would rise to 6.5% in 2017,
exceeding the top of the
band.
• This would trigger BOV review
and possible action to re-set
the rate.
240
220
200
• -30% investment return in
2015
• +7.5% investment return in
years 2016-21
• 3% HEPI inflation each year
• 0.7% fees each year
214
199
180
160
140
Assumptions
239
164
167
170
159
174
178
183
189
194
159
160
161
161
161
106
107
107
107
107
143
133
120
100
2014 2015 2016 2017 2018 2019 2020 2021
Fiscal Year
6% Ceiling $
4% Floor $
Distribution $
The unadjusted distribution amount will increase at the five-year
average HEPI rate.
57
Impact of a 25% Decline in
Market Value
R&V Endowment Payout
(with -25% Drawdown in FY 2015 and no Adjustments
to Spending $)
260
Scenario 2: 25% decline in
2015
• This would trigger BOV review
and possible action to re-set
the rate.
Distribution in $ Millions
• The distribution percentage
would rise to 6.1% in 2017,
just above the 6% ceiling.
240
239
220
200
214
199
180
160
Assumptions
140
• -25% investment return in
2015
• +7.5% investment return in
years 2016-21
• 3% HEPI inflation each year
• 0.7% fees each year
120
164
167
170
174
171
178
183
189
194
172
174
175
176
115
116
117
117
159
143
133
114
100
2014 2015 2016 2017 2018 2019 2020 2021
Fiscal Year
6% Ceiling $
4% Floor $
Distribution $
The unadjusted distribution amount will increase at the five-year
average HEPI rate.
58
Impact of a 15% Decline in
Market Value
R&V Endowment Payout
(with -15% Drawdown in FY 2015 and no Adjustments
to Spending $)
Scenario 3: 15% decline in
2015
Assumptions
• -15% investment return in FY
2015
• +7.5% investment return in
years 2016-21
• 3% HEPI inflation each year
• 0.7% fees each year
240
Distribution in $ Millions
• With a -15% decline in FY15,
the distribution percentage
would rise to 5.4% in 2017,
and will continue to rise slowly
in each year thereafter.
• However, the spending rate
would continue to stay within
the 4-6% band in the
foreseeable future.
260
239
220
200
214
199
194
180
160
140
164
167
170
174
197
178
200
183
203
189
194
159
143
133
205
129
131
133
135
137
120
100
2014 2015 2016 2017 2018 2019 2020 2021
Fiscal Year
6% Ceiling $
4% Floor $
Distribution $
The unadjusted distribution amount will increase at the five-year
average HEPI rate.
59
Impact of a 15% Decline in Market
Value with an Adjusted Spending
Rate (+19 bps)
260
240
239
220
Distribution in $ Millions
Scenario 4: 15% decline in 2015
and adjusted spending rate
• With a 15% decline in FY15, the
distribution percentage would rise
to 5.4% in 2017.
• In order for the spending to reach
the 6% ceiling in five years, the
FY16 spending could be increased
to $178M, or 4.47%, compared to
current plan of $170M, or 4.28%.
• This is a 19 bps adjustment to
FY16 spending.
Assumptions
• -15% investment return in FY
2015 (8% likelihood)
• +7.5% investment return in years
2016-21
• 3% HEPI inflation each year
• 0.7% fees each year
R&V Endowment Payout
(with -15% Drawdown in FY 2015 and 4.47% Spending
Rate in FY 2016)
200
214
199
194
180
160
140
178
164
167
182
196
186
199
197
201
203
132
134
135
191
159
143
133
129
131
120
100
2014 2015 2016 2017 2018 2019 2020 2021
Fiscal Year
6% Ceiling $
4% Floor $
Distribution $
The unadjusted distribution amount will increase at the five-year
average HEPI rate.
60
Observations
•
The projected FY16 endowment distribution will be 4.3% of the
endowment, providing headroom within the 4%-6% band.
•
A drawdown of 24% or greater to the endowment in FY15 would cause
the spending rate to exceed the 6% ceiling in FY17. The probability of a
24% drawdown for UVIMCO’s Long Term Pool in any given year is
approximately 1%.
•
A 15% drawdown (approximately 8% probability) allows spending to
continue to increase within the band. Adding 19 bps to FY16 distribution
would cause the spending rate to reach 6% cap in FY21, assuming a 7.5%
investment return in every year post-drawdown.
•
A 25-basis point increase in the endowment spending rate generates
approximately $4.5 million available for unrestricted purposes.
61
Ongoing Subcommittee Discussion
Required Operating
Funds
Allocable
Operating
Funds
Endowment
Spending
Rate
Short- vs.
Long-Term
Funding
62
Strategic Use of Debt Portfolio
What is an
appropriate
level of
short-term
and longterm
funding in
our debt
portfolio?
Operating Risks (state appropriations, research funding, health care
reform)
Interest expense vs. rollover or put risk
Liquidity needs of debt portfolio and how to use alternate sources of
liquidity (cash, credit lines)
The impact of operating fund decisions - what is an appropriate risk
tolerance for debt portfolio
Working under parameters of Board-approved debt policy - 50%
variable rate debt limit
63