Meeting of the Finance Committee
November 13, 2014
Agenda
I. ACTION ITEMS
A. Medical Center Acquisition of 500 Ray C. Hunt Drive
II. REPORTS
A. Treasury Report
B. University of Virginia Investment Management Company Report on the
Long-Term Pool – Market Value and Performance as of 9/30/2104
C. Interim Academic Division Financial Report for 9/30/2104
D. AccessUVa Metrics Annual Report
E. Executive Vice President’s Remarks
2
M EDICAL C ENTER A CQUISITION
OF 500 R AY C. H UNT D RIVE
PAT R I C K D . H O G A N
E X E C U T I V E V I C E P R E S I D E N T A N D C H I E F O P E R AT I N G O F F I C E R
Medical Center Acquisition of 500 Ray C. Hunt Drive
• Establish Fontaine as predominately
clinical and research park.
• Relocate clinical activities to provide
better patient services:
– Modern clinical space for Urology
– Comprehensive clinical space for
Cardiology
• $12.0 - $14.0 million acquisition cost
from Hospital Funds, reflects fair
market value
• $17.15 - $21.0 million total
renovation cost from Hospital Funds
4
T REASURY R EPORT
J A M E S M AT T E O
A S S O C I AT E V I C E P R E S I D E N T & T R E A S U R E R
Debt Portfolio Optimization
Opportune time to consider changes to debt portfolio:
• Historically low interest rate environment
• Upcoming financing in early 2015
• Provides possible lever to fund University needs
Optimization Considerations
•
Reduce liquidity risk
•
Diversify bank counterparties
•
Better aligning ST debt with ST assets
•
Lessen remarketing risk
•
Reduce interest expense, where possible
6
Potential Bond Financing Components
Refinancing of Commercial Paper
Estimated $200 million outstanding at time of refinancing
Refunding of Series 2005 Bonds
$36 million callable on June 1, 2015
Refunding of VCBA Series 2004B
Bonds
$18 million currently callable
Restructuring of Series 2003A Bonds
$78 million variable rate bonds outstanding supported by operating
liquidity. Restructure to mitigate put risk and reduce reliance on
operating liquidity.
Series 2015 Bond Issue Size
Up to $332 million of refunded debt
7
Considerations for Future Financings
• Fixed rate debt vs. Variable rate debt:
Fixed Rate Debt
•
•
•
Historically attractive long-term interest rates
Higher cost of capital in the near-term
Locks in low long-term rates
Variable Rate Debt
•
•
•
Historically attractive short-term interest rates
Creates near-term cash flow savings
Results in better match between short-term assets and
short-term liabilities
• Appropriate mix of Fixed vs. Variable balances risk and cash opportunity
through interest cost savings
8
Evaluating Interest Rate Environment
• The University cannot
predict future interest rates;
however, we can evaluate
historical market conditions
to help project possible
future trends
Tax-exempt Yield Curve vs Historical Average *
• Consideration should be
given to historical interest
rates and the predicted
future rates as inherently
shown in the future yield
curve
Maturity Year
* Assumes market rates as of November 5, 2014 compared to historical average AAA tax-exempt rates since January 1, 1991
9
Debt Issuance Objectives
• Attempt to take advantage of historically low long-term fixed rates
with the next bond issue
• Consider “averaging in” more variable rate debt over time
• Target a medium-term goal of better matching ST assets and ST
liabilities as a risk management tool.
10
Historical Debt Mix
2009
2010
2011
2012
2013
2014
Fixed Rate
$853,065
$839,645
$1,015,847
$994,608
$1,065,064
$1,052,073
Synthetic Fixed
100,000
100,000
100,000
100,000
100,000
100,000
Unhedged Variable
38,425
52,710
58,860
106,102
118,232
184,432
% Variable
4%
5%
5%
9%
9%
14%
Total
991,490
992,355
1,174,707
1,200,710
1,283,296
1,336,505
Long-term WACC *
4.24%
4.24%
4.16%
4.16%
4.17%
4.17%
* Long-term Weighted Average Cost of Capital (“WACC”) does not take into consideration outstanding commercial paper. Assumes all variable rate debt is hedged at fixed payer swap rate. Source: Wells Fargo.
11
Projected Debt Mix – Past Practice
•
•
The University has historically refinanced its commercial paper with fixed rate bonds
Over time, variable rate exposure has fluctuated as commercial paper is drawn and then permanently
financed
Long-term WACC *
6/30/2014
6/30/2015
6/30/2016
6/30/2017
6/30/2018
4.17%
4.14%
4.14%
4.13%
4.30%
* Long-term WACC does not take into consideration outstanding commercial paper. FY15 fixed rate borrowing based on market rates as of October 14, 2014. FY18 fixed rate borrowing assumed at current
market rates plus 200 bps yield.
12
Financing Option 1 – Accelerated Variable
•
•
The University can issue long-term variable rate debt to refinance outstanding commercial paper
In FY18, the University would issue $80 million in fixed rate bonds to achieve 20% unhedged long-term
variable rate debt
Long-term WACC *
6/30/2014
6/30/2015
6/30/2016
6/30/2017
6/30/2018
4.17%
3.73%
3.74%
3.74%
3.69%
* Long-term WACC does not take into consideration outstanding commercial paper. FY15 fixed rate borrowing based on market rates as of October 14, 2014. FY18 fixed rate borrowing assumed at current
market rates plus 200 bps yield.
13
Financing Option 2 – Balanced Approach
•
•
The University can issue $120 million variable rate and $80 million fixed rate in FY 15 to refinance
outstanding commercial paper
In a rising interest rate environment, this approach results in a lower WACC and also mitigates risks
associated with variable rate debt
Long-term WACC *
6/30/2014
6/30/2015
6/30/2016
6/30/2017
6/30/2018
4.17%
3.90%
3.90%
3.90%
3.62%
* Long-term WACC does not take into consideration outstanding commercial paper. FY15 fixed rate borrowing based on market rates as of October 14, 2014. FY18 fixed rate borrowing assumed at current
market rates plus 200 bps yield.
14
Next Steps
• At February 2015 meeting:
– Seek BOV Authorizing Resolution for bond issue
– Seek BOV Approval to Amend the University’s Debt Policy to address:
•
•
•
•
•
Remarketing Procedures
Diversification of bank exposure
Staggered expiration of credit facilities
Staggered maturities of put-able debt
Reintroduction of debt burden ratio (as required by the Commonwealth)
• Consider Drafting a Liquidity Policy:
– Formalizing liquidity targets would provide transparency and help ensure support from rating
agencies and investors
15
E NDOWMENT R EPORT : M ARKET
VALUE AND P ERFORMANCE AS OF
J UNE 30, 2014
L AR RY K O C H AR D
CHIEF EXECUTIVE OFFICER OF UVIMCO
Outline
• Governance and Staffing
• Performance Review
• Asset Allocation
• Risk Management
• Going Forward
17
Governance and Staffing
Board of Directors
• 11 members led by David MacFarlane as Chair, three appointed by the
BOV, and one by the President
• BOV representatives are Mac Caputo, John Harris, and John Macfarlane
• Meets four times a year
Staff
• 32 UVIMCO team members
• Investment team comprised of CEO/CIO, three Managing Directors, three
Associates, three Senior Analysts, and one Analyst
• Average of 20 years of investment experience among senior staff
18
Performance Review
As of June 30, 2014
Long Term Pool
Policy Benchmark
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
Fixed Income, Cash & MAC
Marketable Alternatives and Credit
Government Bonds
Cash & Currency
Total Fixed Income, Cash & MAC
Barclays Aggregate Bond
Market Value
$ Millions
%
1 YR
3 YR
Annualized
5 YR
10 YR
20 YR
6,950
100.0
100.0
19.0
16.6
12.4
8.9
15.2
12.4
10.8
7.5
12.6
7.6
1,530
1,611
996
384
4,521
22.0
23.2
14.3
5.5
65.1
60.0
26.8
11.3
28.3
61.8
23.3
23.6
15.9
11.7
15.1
30.2
15.0
10.9
22.9
10.7
19.8
29.4
17.9
14.9
14.4
9.8
14.3
12.6
12.6
8.0
12.9
10.2
-21.1
14.9
7.6
527
340
867
7.6
4.9
12.5
10.0
14.7
27.1
19.3
11.6
12.1
11.6
11.5
9.7
1.0
26.0
15.5
18.6
(1.2)
21.2
10.7
8.7
3.8
-11.8
8.6
761
605
195
1,561
10.9
8.7
2.8
22.4
30.0
14.6
0.4
0.1
7.4
4.8
11.1
0.3
(0.0)
5.3
4.1
12.9
1.5
0.1
7.4
4.7
7.4
4.6
-5.8
4.9
8.1
6.6
-7.3
6.2
19
Performance Review
Annualized Returns of the Long Term Pool Versus Benchmarks and Peers
Periods Ending June 30, 2014
1 YR
3 YR
5 YR
10 YR
20 YR
Long Term Pool
19.0
12.4
15.2
10.8
12.6
Policy Portfolio Benchmark
16.6
8.9
12.4
7.5
7.6
Comparative Industry Data
TUCS All Master Trusts Top Quartile (1)
TUCS All Master Trusts Median
TUCS All Master Trusts Bottom Quartile
17.6
15.7
12.6
10.5
9.4
7.6
13.4
12.1
10.2
7.7
7.0
6.3
9.2
8.6
8.0
(1)
Trust Universe Comparison Service (TUCS) reports performance of over 900 institutions representing $3.5 trillion in assets under management
20
Asset Allocation
100%
90%
22.0%
80%
60%
Equity
70%
23.2%
60%
50%
40%
19.8%
30%
7.6%
10%
Real
Assets
4.9%
20%
10.9%
30%
Fixed
Income
10%
11.5%
0%
2001
2002
2003
Public Equity
Real Estate
Bonds & Cash
2004
2005
2006
2007
2008
Long/Short Equity
Resources
2009
2010
2011
2012
2013
2014
Policy Portfolio
Private Equity
Marketable Alternatives & Credit
As of June 30, 2014
21
Risk Management
Risk is the likelihood of a random, undesirable outcome
•
For the University of Virginia, risk is the impact that a portfolio loss may
have on the operations of the institution
o Short term – volatility in payout from the endowment
o Long term – decline in the real value of the endowment
o Trade-off between short term and long term risk
•
We bear risks only if doing so generates higher long-term returns
•
Types of Risk: Market, Manager, and Liquidity
•
Risk Committee
22
Going Forward
• Constantly reassess the current portfolio
o Recent analyses include real estate, resources, and public equity
o A deep dive into long/short equity scheduled for December
• Manage risk and rebalance
• Be opportunistic
• Most important, understand our edge
23
S EPTEMBER 30, 2014
A CADEMIC D IVISION
I NTERIM F INANCIAL R EPORT
MELODY BIANCHETTO
A S S O C I AT E V I C E P R E S I D E N T F O R F I N A N C E
September 30, 2014 Academic Division Interim Financial
Report
• Unaudited, modified GAAP-basis Financial Statements
 Statement of Net Position, compared to 6/30/14
 Statement of Revenues, Expenses, and Changes in Net Position,
compared to 9/30/13
• Cash-basis Comparative Statement of Operating Sources and
Uses, actual results as compared to the budget plan through
9/30/14
25
Academic Division Interim Financial Report Highlights
Modified GAAP-Basis Financial Statement
(Unaudited, in millions)
Statement of Net Position
Net Assets
Statement of Revenue, Expenses, Change in Net Position
Net Tuition
9/30/14
6/30/14
$ 6,547.0
9/30/14
$ 6,336.9
9/30/13
$ 251.6
$ 237.4
86.8
85.1
135.7
137.1
Gifts
37.9
28.2
Other
76.9
63.3
Operating Revenues
588.9
551.1
Operating Expenses
374.3
354.1
Net Operating Margin
214.5
197.1
(4.4)
134.4
$ 210.1
$ 331.5
Grants & Contracts
State Appropriations
Net Non-Operating Activity
Change in Net Assets
26
Academic Division Interim Financial Report Highlights
Cash-Basis Operating Sources and Uses, Budget vs. Actual
(in millions)
9/30/14 Budget
Net Tuition and Fees
Grants & Contracts
$
258.1
9/30/14 Actual
$
259.8
70.0
68.6
Endowment Distribution and Gifts
106.0
108.2
State Appropriations
142.6
135.7
Other
111.0
112.1
Sources of Funds
687.7
684.4
Instruction
76.0
75.4
Research and Public Service
90.0
90.3
Academic Support
48.0
48.3
Other Education and General
70.5
69.1
114.5
112.1
399.0
395.2
Financial Aid, Auxiliary, Debt, and Other
Uses of Funds
Net Sources in Excess of Uses
$ 288.7
$
289.2
27
A CCESS UVA M ETRICS A NNUAL
R EPORT
PAT R I C K D . H O G A N
E X E C U T I V E V I C E P R E S I D E N T A N D C H I E F O P E R AT I N G O F F I C E R
AccessUVa
Access
“Need-blind”
admission policy
Affordability
Commitment to meet
100% of students’
demonstrated
financial need
UVa is one of only two public universities with need-blind admissions and a
guarantee to meet 100% of all students’ demonstrated financial need
29
Ensuring Access and Affordability through AccessUVa
Goals:
Attracting, enrolling, and graduating a socioeconomically diverse student body
Ensuring financial support to students
demonstrating financial need
Preserving AccessUVa program’s position as one of
the strongest commitments to guaranteed needbased aid in the country
30
PERCENTAGE OF STUDENTS WITH NEED
35%
33.3%
AccessUVa Key
Information
30%
25%
20%
Since the inception of the
AccessUVa program, the
percentage of
undergraduate students
with financial need has
grown from 24% to 33%.
23.7%
15%
10%
5%
0%
Fall 2005
Fall 2007
Fall 2009
Fall 2011
Fall 2013
31
UVa First-Year Undergraduate Total Price of Attendance
Academic Year 2014-15
In-State
Tuition & Fees
Orientation Fee
Room
Board
Books, Travel, Other
Total
% students on aid:
For students on aid:
Average Grant Package
Average Net Price
Maximum Loan Offered
Low-income:
Others with Need:
Out-of-State
$12,998
210
5,492
4,560
4,157
$27,417
34%
$10,587
$16,830
Tuition & Fees
Orientation Fee
Room
Board
Books, Travel, Other
Total
% students on aid
For students on aid:
Average Grant Package
Average Net Price
Maximum Loan Offered
$42,184
210
5,492
4,560
5,390
$57,836
32%
$27,659
$30,177
$7,000
$3,500
$7,000
32
AccessUVa Measures
Pell grant
recipients
Need-based
financial aid
recipients
Student
indebtedness
Graduation
rates
UVa has been successful in
increasing socioeconomic
diversity, maintaining top
graduation rates, and
meeting 100% of need while
limiting student
indebtedness.
33
Total Undergraduate Pell Grant Recipients
Since the beginning of AccessUVa, the percentage of Pell Grant recipients among the
total undergraduate population has almost doubled.
25%
20%
In-State
Total
Out-of-State
AccessUVa
Fully Implemented
AccessUVa Begins
15%
13.2%
10%
7.5%
5%
0%
2000
2002
2004
2006
2008
2010
2012
2014
Fall Terms
Source: Student Information System and financial aid applications. NCES College Navigator for peer data.
34
Undergraduate Student Indebtedness
Average Total Student Debt upon Graduation
(includes all education loans)
$25,000
$20,000
$15,000
$10,000
$5,000
$-
Source: US News and World Report
In line with national trends, UVa’s
average undergraduate student
indebtedness has risen from $15,176 to
$22,933, an increase of 51%. This is
due to increased cost of attendance,
economic downturn, and funding
pressures for financial aid.
• UVa’s average total 2013-14 student debt
($22,933) is lower than the following 2011-12
averages (most recent data available):
•
•
•
State of Virginia
Public four-year
United States
$25,017
$29,309
$29,400
• A reflection of UVa’s low net price and robust
AccessUVa program, 35% of UVa students
borrow, compared to the national average of
71% and the State of Virginia average of
60%.
35
Undergraduate Six-Year Graduation Rates
100%
• UVa has the highest overall graduation
rate of any public institution in the nation.
90%
• UVa has the second highest graduation
rate of Pell recipients among any public
institution in the nation.
80%
Students without Need
70%
Students With Need but not Pell
Pell Recipients
60%
50%
2000
Includes all 1st-time 1st-year students who entered in the given year.
2001
2002
2003
2004
2005
2006
2007
2008
Entering Fall Term
Objective is to bring the Pell recipient
graduation rate up to the level of students
without need by:
• providing robust student programming
to guide incoming students’ transition to
and persistence in the University,
• monitoring academic performance, and
• providing one-to-one support
throughout their University career.
Source: Institutional Assessment & Students and US News & World Report dataset
36
Looking Ahead
AccessUVa continues to be the premier need-based aid program for a
public institution in the United States, supporting the University’s efforts to
increase socioeconomic diversity.
Focused
Effort:
Bringing graduation rates of Pell recipients to the level of undergraduate
students without need
Moderating student indebtedness, mindful of the rising cost of attendance
An important challenge going forward is meeting the increasing need of
middle-income families through an appropriate balance of grants and loans.
37
The following five slides outline AccessUVa funding
sources and provide a demographic breakdown of
the undergraduate need-based financial aid recipients,
as well as the institutional funds distributed
to support their financial aid.
38
AccessUVa Key Information
Sources of Funding
Most notable areas of growth include tuition grants and loans.
39
Undergraduate Need-Based Financial Aid Recipients
Fall 2014
All Undergraduate Students
All Undergraduate Students
Total
Notes:
Students with
All
Need
Undergraduate (AccessUVa
Students
Recipients)
15,544
5,179
Minority
Students
$0 - 46,100
$46,101 - $92,200
>92,200
Did not Apply for Aid
Subtotal
1,069
700
1,284
1,485
4,538
1,051
668
605
0
2,324
Other
Students
$0 - 46,100
$46,101 - $92,200
>92,200
Did not Apply for Aid
Subtotal
798
823
3,222
6,163
11,006
750
759
1,346
0
2,855
33% of undergraduate student population
1. The above figures include all undergraduate students who submitted a FAFSA and who had financial need based on federal guidelines
as of November 6, 2014.
2. Need and income categories above are based on federal need and federal income as reported on the FAFSA. The income ranges used
above correspond with the 2012 federal poverty guidelines for a family of four.
3. “Minority Students” includes African American, Native American, Asian, Hispanic, Native Hawaiian, and multi-race.
SOURCE:
University of Virginia Institutional Assessment and Studies
40
Undergraduate Need-Based Financial Aid Recipients
Fall 2014
In-State Undergraduate Students
In-State Undergraduate Students
Total
Minority
Students
Notes:
$0 - 46,100
$46,101 - $92,200
>92,200
Did not Apply for Aid
Subtotal
Students with
All
Need
Undergraduate (AccessUVa
Students
Recipients)
10,742
3,680
783
536
1,028
1,201
3,548
767
508
427
0
1,702
$0 - 46,100
632
592
$46,101 - $92,200
628
569
Other
>92,200
2,292
817
Students
Did not Apply for Aid
3,642
0
7,194
1,978
Subtotal
1. The above figures include all undergraduate students who submitted a FAFSA and who had financial need based on federal guidelines
as of November 6, 2014.
2. Need and income categories above are based on federal need and federal income as reported on the FAFSA. The income ranges used
above correspond with the 2012 federal poverty guidelines for a family of four.
3. “Minority Students” includes African American, Native American, Asian, Hispanic, Native Hawaiian, and multi-race.
SOURCE:
University of Virginia Institutional Assessment and Studies
41
Undergraduate Need-Based Financial Aid Recipients
Fall 2014
Out-of-State Undergraduate Students
Out-of-State Undergraduate
Students
Students with
All
Need
Undergraduate (AccessUVa
Students
Recipients)
Total
Minority
Students
Notes:
$0 - 46,100
$46,101 - $92,200
>92,200
Did not Apply for Aid
Subtotal
4,802
1,499
286
164
256
284
990
284
160
178
0
622
$0 - 46,100
166
158
$46,101 - $92,200
195
190
Other
>92,200
930
529
Students
Did not Apply for Aid
2,521
0
3,812
877
Subtotal
1. The above figures include all undergraduate students who submitted a FAFSA and who had financial need based on federal guidelines
as of November 6, 2014.
2. Need and income categories above are based on federal need and federal income as reported on the FAFSA. The income ranges used
above correspond with the 2012 federal poverty guidelines for a family of four.
3. “Minority Students” includes African American, Native American, Asian, Hispanic, Native Hawaiian, and multi-race.
SOURCE:
University of Virginia Institutional Assessment and Studies
42
Undergraduate Need-Based Financial Aid
Recipients and Institutional Funds, Fall 2013-14 and 2014-15
2013-2014
AccessUVa
# Students,
with federal
need
# Diverse
Students, with
federal need
In-state - family income range: $0 - $46,100
1,355
754
In-state - family income range: $46,100 - $92,200
1,109
In-state - family income range: above $92,200
1,158
Total In-State
3,622
2014-2015
Institutional
Funds
# Diverse
Students, with
federal need
Institutional
Funds
9,009,931
1,359
767
513
5,817,453
1,077
508
6,720,086
391
1,075,992
1,244
427
1,385,509
1,658
$
# Students,
with federal
need
15,903,376
3,680
1,702
$
8,776,797
16,882,392
Out-of-state - family income range: $0 - $46,100
441
266
15,745,217
442
284
15,042,740
Out-of-state - family income range: $46,100 - $92,200
326
149
7,949,898
350
160
9,162,273
Out-of-state - family income range: above $92,200
711
190
6,114,866
707
178
6,965,775
Total Out-of-State
1,478
605
29,809,981
1,499
622
31,170,788
Total In-State and Out-of-State
5,100
2,263
$ 45,713,357
5,179
2,324
$ 48,053,180
Notes:
The schedule shows how only unrestricted dollars from tuition and unrestricted private funds are distributed through the AccessUVa program. In addition, roughly an
additional $30M in grants funded from federal, state, external, and restricted gifts and endowment sources are distributed. From all sources, more than half of all grants are
allocated to in-state students and half of all grants are allocated to out-of-state students each year. In-state tuition is used only for aid to in-state students, while out-ofstate tuition is used only for aid to out-of-state students.
The above figures include all undergraduate students who submitted a FAFSA and who had financial need based on federal guidelines.
The income ranges used above correspond with the 2012 federal poverty guidelines for a family of four.
Data as of 11/06/14.
SOURCE:
University of Virginia Institutional Assessment and Studies
43
E XECUTIVE V ICE P RESIDENT ’ S
R EMARKS
PAT R I C K D . H O G A N
E X E C U T I V E V I C E P R E S I D E N T A N D C H I E F O P E R AT I N G O F F I C E R
Executive Vice President’s Remarks
• Merit Salary Increases
45
Results of Recent Merit-Based Compensation Adjustments
October 2014
• Teaching & Research Faculty – Board-approved 4.75% merit pool
• University Staff, Professional Research Staff and A&P Faculty – Boardapproved 3% merit pool
• Classified Staff – 0%, not legislatively-authorized
Faculty and Staff Merit-Based Salary Increases
• Total investment $15.4 million
– $7.3 million other sources (grants, contracts, auxiliary, etc.)
– $8.1 million BOV-authorized funds
46
Results of Recent Merit-Based Compensation Adjustments
October 2014
Employee
Type
Total #
Eligible
# Received
Increase
% Received
Increase
Average %
Increase
2,293
1,679*
73%
4.5%
Professional Research Staff
327
217
66%
2.6%
Administrative + Professional Faculty
468
398
85%
3.1%
2,987
2,718
91%
2.9%
6,075
5,012
83%
Teaching + Research Faculty
University Staff
TOTAL
*Excludes SOM clinical faculty with the opportunity for compensation increases through UPG.
Note: In 2013-14, UVa’s compensation ranking among AAU peer institutions was #27. The goal is to reach the 20th position.
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