UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
NOVEMBER 13, 2014
FINANCE COMMITTEE
Thursday, November 13, 2014
1:15 – 2:30 p.m.
Auditorium of the Albert and Shirley Small
Special Collection Library, Harrison Institute
Committee Members:
Victoria D. Harker, Chair
John A. Griffin, Vice Chair
Frank B. Atkinson
L.D. Britt, M.D.
Kevin J. Fay
John G. Macfarlane III
John L. Nau III
George Keith Martin, Ex-officio
Daniel M. Meyers, Consulting Member
Raymond C. Scheppach, Faculty
Consulting Member
AGENDA
PAGE
I.
II.
ACTION ITEM (Mr. Hogan)
•
Medical Center Acquisition and Renovation of
500 Ray C. Hunt Drive
REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Hogan)
A.
Treasury Report (Mr. Hogan to introduce Mr. James
Matteo; Mr. Matteo to report)
B.
University of Virginia Investment Management
Company Report on the Long-Term Pool – Market Value
and Performance as of September 30, 2014 (Mr. Hogan
to introduce Mr. Lawrence E. Kochard; Mr. Kochard
to report)
C.
Interim Academic Division Financial Report for
September 30, 2014 (Mr. Hogan to introduce Ms.
Melody Bianchetto; Ms. Bianchetto to report)
D.
2015-2016 Academic Division Budget Planning and
Preliminary Assumptions (Mr. Hogan to introduce Ms.
Colette Sheehy; Ms. Sheehy to report)
E.
AccessUVa Metrics Annual Report
F.
Executive Vice President’s Remarks
G.
Written Financial Reports
1.
Endowment/Long-Term Investments, Including
Related Foundations at September 30, 2014
2.
Quasi-Endowment Actions: July 1, 2014 –
September 30, 2014
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4
7
24
33
37
38
40
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
I. Medical Center Acquisition and
Renovation of 500 Ray C. Hunt Drive
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 Medical Center Operating Board and
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.
In keeping with the recently approved Health System
strategic plan to establish Fontaine as a predominately clinical
and research park, the Medical Center proposes to purchase from
the University of Virginia Physicians Group and renovate 500 Ray
C. Hunt Drive, a 59,000 square feet office building, into
medical clinics. We desire to streamline and add efficiencies
to the ownership and management of Health System buildings and
purchasing 500 Ray C. Hunt Drive is a tactical move towards that
goal. Although leasing space for Medicare provider based
clinics is consistent with the Medicare rules, it is more
conservative to own the buildings where the provider based
clinics operate.
The purchase price is estimated between $12.0 million and
$14.0 million, with the final purchase price at fair market
value to be based on two appraisals. The renovation cost is
estimated between $17.15 million and $21.0 million.
The specific planned use for the 500 Ray C. Hunt building
is to provide modern clinic space for Urology, which is
presently located in the West Complex in a challenging location
for patient access. This new location should increase clinic
visit volume and patient satisfaction. It would also allow
Cardiology to combine several clinics located in Northridge and
the Hospital into one comprehensive clinical service, which
would free up existing space in the Hospital and Northridge for
1
other clinical uses. We project that the improved access to the
clinics will directly contribute to an increase in clinic visits
for Cardiology and Urology consistent with the Long Range
Financial Plan.
Over the long-term, it is our plan to purchase the space
occupied by the U.Va./HealthSouth Hospital which is immediately
adjacent to the 500 Ray C. Hunt space to provide more space at
Fontaine as we continue to improve access to the U.Va. Health
System ambulatory clinics.
To facilitate the additional clinic space in 500 Ray C.
Hunt Drive will require the University Physician Group’s revenue
cycle functions to relocate to the UVA Research Park where they
will join most of the Medical Center’s revenue cycle staff.
This will allow the two separate revenue cycle functions to work
closely together as the Health System collaborates with Ernst &
Young to determine accurately the cost of revenue cycle for both
organizations and to design a model of operation between both
organizations to improve patient service, reduce cost, and
improve collections. Our goal is to reduce annual operating
cost by $8 million through this process redesign.
DISCUSSION: The University recommends the revision to the Major
Capital Projects Program as follows:
500 Ray C. Hunt Acquisition and Renovation
Hospital Operating Funds
$29.15 - $35.0 million
ACTION REQUIRED: Approval by the Medical Center Operating
Board, the Finance Committee, and by the Board of Visitors
ACQUISITION OF 500 RAY C. HUNT DRIVE PROPERTY
WHEREAS, the Board of Visitors finds it to be in the best
interest of the University of Virginia for the Medical Center to
acquire the real property located at 500 Ray C. Hunt Drive from
the University of Virginia Physicians Group, at a fair market
value purchase price not to exceed $14.0 million;
RESOLVED, the Board of Visitors approves the acquisition of
the 500 Ray C. Hunt Drive property at a fair market value
purchase price not to exceed $14.0 million; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized, on behalf of the University, to
2
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.
ACTION REQUIRED: Approval by the Medical Center Operating
Board, the Buildings and Grounds Committee, the Finance
Committee, and by the Board of Visitors
REVISION TO THE MAJOR CAPITAL PROJECTS PROGRAM, 500 RAY C. HUNT
DRIVE RENOVATION
WHEREAS, the University proposes the addition of the 500
Ray C. Hunt Drive Renovation to the Major Capital Projects
Program;
RESOLVED, the Board of Visitors approves the addition of
the 500 Ray C. Hunt Drive Renovation, estimated between $17.15
million and $21.0 million, to the University’s Major Capital
Projects Program.
3
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II.A.
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 these activities as we seek to
inform the Board or get its approval for certain actions.
Below we notify the Board of upcoming plans to issue debt.
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, 2014, the University had approximately
$1.39 billion of debt outstanding. Approximately 13% of
outstanding debt is variable rate, including any hedges of
debt. A portion of the University’s debt is issued as
commercial paper, which is primarily used to provide interim
funding for capital projects during construction. As of June
30, 2014, there was approximately $206 million in outstanding
commercial paper. As the outstanding commercial paper balance
grows, the University will issue long-term debt to refund it.
The University’s long-term debt is rated “AAA” by Moody’s,
S&P, and Fitch, resulting in the University 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 capital on long-term debt, as of
June 30, 2014, was 4.17%.
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Potential Financing Needs
The University intends to request the Board to pass an
authorizing resolution at the February 2015 Board meeting to
enable it to proceed with a new long-term financing. Potential
components of the financing are:
• Long-term refinancing of approximately $200 million in
outstanding commercial paper;
• Refunding $36 million of fixed-rate Series 2005 Bonds;
• Refunding $18 million of fixed-rate VCBA Series 2004B
Bonds;
• Restructuring $78 million of outstanding Series 2003 Bonds
to diminish liquidity requirements.
Debt Portfolio Structuring Considerations
With this upcoming issuance of long-term debt, the
University is seeking to restructure its debt portfolio to
achieve the following objectives:
•
•
•
•
Refund fixed-rate debt at lower rates
Reduce the amount of outstanding commercial paper
(Commercial Paper limit is $300 million)
Reduce the liquidity requirements on existing variable-rate
debt
Create a closer alignment between short-term investments
and short-term debt (i.e., asset liability management)
The University has flexibility in determining the
appropriate mix of fixed and variable rate debt with variable
rate debt being limited to no more than 50% of total outstanding
debt. The University will consider a number of factors before
deciding how best to structure this upcoming debt issue.
Suggested considerations for determining the appropriate
mix of fixed and variable rate debt include:
•
Asset-liability Management (“ALM”) – ALM utilizes the core
cash balance of the University to effectively serve as a
hedge for variable rate debt. The hedge reduces budgetary
cash flow volatility to the University. When properly
matched, increases or decreases in short-term investment
rates are offset by increases or decreases in short-term
borrowing rates. Under the ALM approach, having just 13%
variable rate debt would suggest that the University
increase its variable rate debt percentage.
5
•
Historical Rate Analysis – The University evaluates market
conditions based on the current yields compared to
historical averages. With long-term interest rates being
at historical lows this would suggest that the current
market environment is attractive for additional long-term
fixed rate debt.
Enhancing Our Policy Framework
In order to manage risks associated with certain variable
rate debt structures and to manage the University’s rating
agency and investor relations, the University will propose
revisions to its Debt Policy to coincide with the upcoming debt
issue. Those revisions include specifying remarketing
procedures, diversifying bank exposure, staggering expiration of
credit facilities, staggering maturities of put-able debt, and
reintroducing debt burden ratio (as required by the
Commonwealth).
Additionally, a greater focus is being placed on the
University’s liquidity supporting its debt and short-term
investments. This has been not only an internal focus but also
an item of increased attention by the rating agencies. The
University is drafting a liquidity policy that establishes
guidelines regarding appropriate levels of liquidity to support
operations and debt. This policy will better coordinate
liquidity decisions and provide additional assurance to outside
stakeholders regarding the structure and approach of our
liquidity management process.
6
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II.B. University of Virginia Investment
Management Company Report on the Long-Term
Pool – Market Value and Performance as of
September 30, 2014
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, 2014, report follows:
Quarter-End September 2014
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, 2014. The Long Term Pool fell 0.3% over the three
months ending September 30, 2014 while the policy portfolio
benchmark lost 1.4%. The majority of our private drawdown funds
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(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, 2014, the Pool’s annualized return was 12.4%,
exceeding the policy benchmark return by almost 5%.
The Long Term Pool’s asset allocation has remained
relatively constant for the past few years. However, our equity
exposure has continued to increase as equity markets have risen.
As our exposure to equities grows organically, we actively
reduce the Long Term Pool’s equity exposure by trimming certain
positions and hedging with portfolio overlays, when needed.
More information about actual exposures is available in the
attached report.
MARKET ENVIRONMENT: Global markets ended the third quarter of
2014 on a down note as public equities, commodities, and nonU.S. currencies posted negative returns in the month of
September. Concerns around Fed tapering, weak European growth,
and geopolitical events tempered what had been shaping up to be
another solid year in equity markets. The MSCI All Country
World Index (MSCI ACWI) declined 2.2% in the third quarter of
2014 but still generated a positive return of 4.2% through the
first nine months of the year. The Barclays Global Aggregate
Index returned 1.1% for the quarter and is now up 5.3% year-todate.
After growth in the Eurozone ground to a near halt in the
second calendar quarter of 2014 and inflation came in well below
target, the European Central Bank cut rates again in the third
quarter, and President Mario Draghi expressed a desire to
continue expanding the ECB’s balance sheet. These actions
pushed yields on Eurozone sovereign debt to record lows, and the
euro fell nearly 8% against the U.S. dollar to levels last seen
in 2012. Easy monetary policies around the world have resulted
in extremely low global bond yields, with the German 10-year
Bund yielding 90 basis points, the French 10-year bond at 1.3%,
the Japan 10-year at 50 basis points, and U.S. 10-year at 2.5%
at the end of September 2014. Domestically, the Federal Open
Market Committee (FOMC) took several steps toward winding down
the Fed’s historic bond purchasing program, but indicated plans
to leave its near-zero interest rate policy in place for “a
considerable time.” Fed Chair Janet Yellen reiterated that
there is room for improvement in the labor market, and although
8
inflation has risen in recent months, it remains below the Fed’s
unofficial 2.0% target.
Equity markets outside of the United States generally
declined in the third quarter, in part due to a strengthening
U.S. dollar, which gained 7.7% on a trade-weighted basis over
the three month period. The MSCI Europe ex-U.K. Index fell
7.4%, as the German equity market declined 11.2%. Although
positive in local currency terms, the Japanese market fell 2.2%
on U.S. dollar basis as economic data disappointed despite
improved earnings growth and a depreciating yen. While the
emerging markets index posted a small gain in the quarter,
returns varied strongly across regions. The Russian market
declined 15.1% on continued concerns around the situation in
Ukraine. Brazilian equities fell 8.6% as Brazil fell back into
recession, the real depreciated against the dollar, and one of
the leading Presidential candidates lost his life in a plane
crash. Conversely, China and India generated positive returns
for this quarter, with the MSCI India Index now up over 24% for
the calendar year as investors continue to take a favorable view
to Prime Minister Modi’s reform-minded administration.
Broad U.S. equity indices posted a positive return for the
three months ending September 30, 2014, but there was a high
level of return dispersion across market capitalizations and
sectors. Small cap stocks continued to underperform larger caps
amid concerns over high valuations and uncertain U.S. growth.
The mega-cap Russell Top 200 Index rose 1.7% over the three
months ended September 30, 2014 (up 8.4% for the year), while
the small-cap Russell 2000 Index fell 7.4% (down 4.4% for the
year). Dispersion was also evident across sectors, as
healthcare stocks returned 5.5%, but falling energy prices
pushed energy stocks down 8.6% for the quarter. The third
quarter also represented a busy period for corporate activity,
with M&A activity approaching peak levels. In addition, the
largest IPO in U.S. history occurred in September, with Chinese
e-commerce company Alibaba raising $25 billion and surging 38%
on its first day of trading.
Today, investors appear unsettled by numerous developments
ranging from Russia’s increasing rift with the West, escalating
geopolitical instability in the Middle East, concerns over
growth in China, Europe, and Japan, and the Fed’s potential end
to its bond-buying program. Political protests in Hong Kong and
increasing worries over the Ebola outbreak have also weighed on
investor sentiment. These concerns spilled over into October,
with global equity markets down sharply in the first few weeks
9
of the month and the U.S. 10-year Treasury yield briefly
dropping below 2%. This pullback in equity markets is expected
to create compelling investment opportunities for many of our
external managers. However, corporate profits remain generally
healthy and valuations are not at extremes, so we expect to
remain in a lower return environment for both equities and bonds
for the foreseeable future. Our ability to identify and partner
with exceptional managers is as critical as ever, as we seek to
generate overall Pool returns commensurate with the University’s
endowment spending requirements.
ASSET ALLOCATION: UVIMCO’s policy portfolio continues to be an
allocation of 60% global public equity, 10% global public real
estate, and 30% global investment grade fixed income. This
portfolio is designed to provide long-term growth from equities,
an inflation hedge from real assets, and deflation hedge from
fixed income.
The Long Term Pool’s actual allocation as of September 30,
2014 is 65.4% to equity managers, 12.0% to real asset managers,
and 22.6% to fixed income (including marketable alternatives,
credit, and cash).
Looking through to our managers’
underlying investments, the Long Term Pool has a 53.0%
allocation to equities, 13.3% allocation to real assets, and
33.7% allocation to credit, fixed income, and cash as of
September 30, 2014. The market risk of the Long Term Pool
continues to be consistent with the risk of the policy portfolio
benchmark.
PERFORMANCE: Declining global equity markets over the three
months ended September 30, 2014 drove a 0.3% loss for the Long
Term Pool while the policy benchmark fell by 1.4%. Calendar
year-to-date, the Long Term Pool is up 9.4% for the nine months
ended September 30 versus the benchmark gain of 5.0%. Our
private equity, real estate, and resources portfolios have all
recorded double digit gains year-to-date, while public equity
and marketable alternatives earned respectable returns of 9.0%
and 6.6%, respectively. Long/short equity has returned only
1.1% year-to-date, but the asset class continues to perform well
over the long term. The 11.5% 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:
10
Public Equity
The public equity portfolio declined 1.1% in the quarter
ending September 30, 2014, compared to the loss of 2.2% recorded
by the MSCI ACWI. Through the first nine months of the calendar
year, our public equity portfolio gained 9.0%, outpacing the
4.2% return of the MSCI ACWI. Markets showed signs of weakness
in the third quarter of 2014 as discussed in the market
commentary section of this report. Small cap stocks were
particularly hard hit, with the Russell 2000 Index declining
7.4% and 4.4% in the quarter and year-to-date 2014,
respectively. Emerging market stocks kept pace or slightly
outperformed most developed regions in both the quarter and so
far in 2014, although the recent appreciation of the U.S. dollar
dampened non-U.S. equity returns. Our public equity managers
held up reasonably well in this mixed environment, with stock
selection from a handful of managers, particularly those in the
emerging markets, offsetting slightly weaker results from our
managers with a U.S. small cap bias.
Over the long term, our public equity returns are
outstanding. On a five and ten-year basis, our long-only public
portfolio has compounded annually at 18.7% and 13.8%,
respectively, outpacing the MSCI ACWI’s annualized five and tenyear returns of 10.6% and 7.8%, respectively. UVIMCO continues
to benefit from long-term style tilts to both emerging markets
and quality consumer companies. Most importantly, manager
selection and exemplary, disciplined security selection have
driven excess returns versus the passive index. We seek
partners who invest with a long-term view, utilize in-depth
fundamental research to analyze businesses, concentrate their
portfolios, ignore benchmarks, and align their incentives with
ours. Although we are unlikely to repeat the level of
historical outperformance generated by the public equity
portfolio, we continue to believe that building long-term
relationships with these types of managers provides UVIMCO with
the best opportunity to generate excess returns going forward.
Long/Short Equity
The long/short equity portfolio declined 0.8% for the three
months ending September 30, 2014 versus a decline of 2.2% for
MCSI ACWI and a gain of 0.1% for the Dow Jones Credit Suisse
Long/Short Equity Index (DJCS Long/Short Index). On a year-todate basis, our long/short portfolio’s gain of 1.1% lagged the
4.2% return of the MSCI ACWI and 3.2% earned by the DJCS
Long/Short Index. The calendar year-to-date returns of our
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long/short managers vary widely. A few of our long/short
managers lost money during the first nine months of the year,
driven in part by long exposure to Japan, long exposure to
select consumer discretionary holdings, and a difficult shorting
environment. Other long/short managers have produced doubledigit gains in calendar 2014. The increased volatility in
equities that was evident at the end of the third quarter, and
thus far into October, should provide improved opportunities to
generate positive returns from shorting.
Over the long term, our long/short portfolio continues to
perform well. On a five- and ten-year basis, our long/short
portfolio generated annualized gains of 10.2% and 9.5%,
respectively, comfortably outpacing annualized gains of 6.4% and
6.9% recorded by the DJCS Long/Short Index over those time
periods. While we do not expect our long/short investments to
outperform fully invested public market indices in all periods,
they have nearly kept pace with the 10.6% annualized gain of the
MSCI ACWI on a five-year basis, and have outperformed the 7.8%
annualized gain of the public market index over the past ten
years. As is the case with our public equity portfolio, manager
selection has been the biggest driver of long/short
outperformance versus the broader hedge fund industry. Our
attempts to partner with fundamental managers who focus on
generating absolute dollar profits on both longs and shorts, but
who also have the discipline and patience to manage through
difficult stretches on the short side, have paid off well. The
objective for our long/short equity program is to generate
returns that are less risky than our long-only public equity and
private equity programs, while having the opportunity to make
money from shorting stocks. We expect our long/short equity
program will generate attractive risk-adjusted returns over the
long-term. At 23.7% of the Long Term Pool, long/short equity
continues to play an important role within the broader
endowment.
Private Equity
Our private equity portfolio had a return of 1.7% for the
quarter versus the 2.2% loss of the MSCI ACWI. While positive
short-term returns are important, we focus more on the long
term. On a three, five, ten, and twenty-year basis, the private
equity portfolio has generated annualized returns of 18.9%,
21.2% 13.7% and 22.2% respectively, exceeding the benchmark by
1.7 to 14.9 percentage points per period.
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During the first three quarters of 2014, the appetite for
Initial Public Offerings (“IPOs”) placed public offerings
squarely in the headlines with the high point being the muchanticipated September IPO of Alibaba, a Chinese e-commerce
company. The Alibaba IPO attracted a wide range of investors
and celebrities to the floor of the New York Stock Exchange, and
the company did not disappoint as the first day of trading saw
the stock rise by 38%. Alibaba’s IPO raised $25 billion for the
company, and the positive reception it received could prompt
other Asian companies to come to market before year end.
Venture capital investing continued to thrive during the quarter
as over 1,600 companies raised $21 billion, the second-highest
quarterly total in a decade, as reported by Pitchbook. With all
of the IPO activity and the large amounts of capital flowing
into companies across the venture capital landscape, some
respected venture capitalists have expressed concern that the
risk in the sector is nearing levels last seen in the late 1990s
and early 2000s, just before the bubble burst. A correction in
the public markets over the next few months would likely dampen
some of the ardor associated with venture investments, and could
well be beneficial to all investors.
M&A activity continues to be tepid. In 2013, deal activity
showed a steady increase through the first three quarters of the
year, but this year’s deal activity has moved in the opposite
direction as investors seem to be having difficulty finding
quality companies at reasonable valuations. According to
Pitchbook, 588 M&A transactions took place during the third
quarter of 2014, a 27% decrease from 805 transactions that took
place during the first quarter of the year. The other side of
the coin is that while high valuations have made it difficult to
get deals done, the have spurred exit activity. According to
Pitchbook, there were 193 M&A exits during the third quarter of
2014, raising $47 billion in total.
As of September 30, 2014, private equity represented 19.7%
of the Long Term Pool. During the quarter, our private equity
managers called $46 million of capital and returned $83 million
via distributions, resulting in a net cash flow to UVIMCO of $37
million. Calendar year to date, cash distributions have totaled
$178 million versus capital calls of $141 million, resulting in
a net cash inflow of $37 million.
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REAL ASSETS:
Real Estate
The real estate portfolio generated a 0.7% return during
the third quarter of 2014 versus a 2.4% loss for the benchmark,
the blended MSCI Real Estate Index. Calendar year-to-date, the
real estate portfolio returned 10.5% versus the benchmark return
of 10.2%. It is important to note that our predominantly
private, domestic-oriented real estate portfolio varies
materially from the publicly traded blended benchmark of U.S.
and international real estate securities. Both global (down
6.1%) and U.S. publicly traded REITs (down 5.4%) sold off in
September, reflecting renewed concerns of increasing long-term
interest rates and their potential impact on capitalization
rates. REIT returns continued to exhibit correlation with fixed
income securities as the Constant Maturity 10-year U.S. Treasury
rate ticked up approximately 10 basis points in September and
held constant over the quarter.
According to Green Street Advisors, U.S. REITs were trading
at an approximate discount of 5% to their NAV as of September
30, 2014, meaningfully below their 4% long-term premium to NAV.
The Green Street Advisors Commercial Property Index increased 3%
during the third quarter and now stands at 112.3. Meanwhile,
commercial property values have eclipsed the high water index
mark of 100 set in 2007. Generally speaking, the increase in
valuation since 2007 and over the third quarter of 2014 has been
driven by decreasing capitalization rates in real estate
transactions. Based on NAREIT data, real estate capital markets
remain open and accommodating, with $41.1 billion of capital
raised thus far in 2014.
As of September 30, 2014, real estate represented 7.5% of
the Long Term Pool. During the third quarter, our real estate
managers called $24 million of capital and returned $34 million
via distributions, resulting in a net cash inflow of $10
million. Calendar year to date, cash distributions have totaled
$83 million versus capital calls of $42 million, resulting in a
net cash inflow of $41 million to UVIMCO.
Resources
UVIMCO’s resources portfolio lost 2.6% during the three
months ending September 30, 2014 versus a 2.4% loss recorded by
the formal real assets benchmark, the blended MSCI Real Estate
Index. The Goldman Sachs Commodity Index lost 12.5% in the
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quarter while the S&P North American Natural Resources Equity
Index fell by 10.0%. Comparatively, the SPDR S&P Oil and Gas
Exploration and Production ETF, which is comprised solely of
exploration and production companies as opposed to the broaderbased energy companies in the S&P North American Natural
Resources Equity Index, lost 16.3% in the third quarter.
The poor performance by North American energy equities
reflected deteriorating oil and gas prices as well as concerns
about refining bottlenecks in the U.S. Gulf Coast. WTI closed
at $90.27 on September 30, 2014, down 14% over the quarter.
Brent crude closed the quarter at $95.32, down 15% over the
quarter. The decrease in oil prices reflects a softening in the
global oil demand outlook (particularly in Europe and Asia),
increased production from Libya (previously disrupted) and
continued growth in U.S. production. Further weighing on
domestic oil prices are oversupply concerns relating to light
sweet crude coming primarily from the Permian and Eagle Ford
basins. U.S. refiners are not configured to process large
volumes of light sweet crude without meaningful capital
expenditures. Refiners have decreased their imports of light
sweet crude in order to process the cheaper domestic supply, but
they are approaching their light sweet capacity limits. While
persistently lower oil prices would undoubtedly weigh on our
managers’ returns, our managers target assets in basins with the
lowest marginal cost of production and typically earlier on the
development curve, which should help to mitigate some of the
downward price pressure.
The NYMEX Henry Hub Natural Gas spot price ended the
quarter at $4.12, down approximately 7% from the beginning of
the quarter. After a very volatile spring and early summer
(through July), natural gas prices were relatively stable over
the quarter as strong production led to above-average storage
injections. While inventories are still below their five-year
average, the gap is closing and inventories are appearing
sufficient to handle the expectedly lower winter demand relative
to previous years.
As of September 30, 2014, resources represented 4.5% of the
Long Term Pool. During the third quarter, our resources
managers called $23 million of capital and returned $41 million
via distributions, resulting in a net cash flow to UVIMCO of $18
million. Calendar year to date, cash distributions have totaled
$91 million versus capital calls of $62 million, resulting in a
net cash inflow of $29 million.
15
FIXED INCOME AND MARKETABLE ALTERNATIVES:
Marketable Alternatives and Credit
For the three months ending September 30, 2014, our
marketable alternatives and credit portfolio lost 0.8% versus
0.7% gained by the Barclays Aggregate Bond Index and a 1.9%
decline of the Barclays High Yield Index. Calendar year-to-date
through September 30, the marketable alternatives and credit
portfolio generated a return of 6.6% versus 4.7% earned by the
Barclays Aggregate Bond Index and 3.5% gained by the Barclays
High Yield Index.
During the third quarter of 2014, widening spreads weighed
on riskier credits including emerging market debt, high-yield
corporate bonds and treasury inflation-protected securities.
However, today’s credit spreads still remain below long-term
averages. Amid a backdrop of solid balance sheets and cash
flows, corporations continue to take advantage of low borrowing
costs and flexible terms, as U.S. corporate bond issuance hit
$1.1 trillion during the first nine months of 2014. Our
marketable alternative and credit managers possess a wide
variety of expertise, and many have flexible mandates and varied
skill sets that enable them to move within equity and credit
spaces based on the current opportunity set. In 2014, these
managers have found better opportunities in equities versus
credit markets. Several are maintaining high levels of cash,
but have still managed to perform well year-to-date versus
broader indices and other public hedge fund strategies.
As of September 30, 2014, marketable alternatives and
credit funds represented 11.0% of the Long Term Pool. During
the quarter, our credit managers that employ drawdown fund
structures called $5 million of capital and distributed $6
million. Calendar year to date, cash distributions have totaled
$44 million versus capital calls of $25 million, resulting in a
net inflow of $19 million.
Bonds and Cash
Our bond and cash portfolios continue to be managed as
sources of liquidity and risk control for the Long Term Pool.
As of September 30, 2014, our bond and cash portfolio comprised
11.5% of the Long Term Pool, unchanged from the previous
quarter. We expect to maintain the sum of our liquid U.S.
Treasury bond and cash portfolios within a range of 8% and 12%
of the Long Term Pool. Although this level of liquidity creates
16
a drag on returns in the current interest rate environment, we
believe it provides insurance against future turbulent markets
and will allow us to opportunistically fund attractive
investments going forward.
Our government bond portfolio is invested in short-term
U.S. Treasury notes and bonds with maturities under three years.
The average duration of this portfolio as of September 30, 2014
was 1.24 years. We continue to maintain our position in shorter
duration bonds, as we feel that the small additional return
earned by longer duration bonds does not compensate us for the
risk of higher rates in the near future. The bond portfolio
returned 0.0% for three months ending September 30, 2014
compared to the longer duration Barclays U.S. Treasury
benchmark, which gained 0.3% for the same period.
Our cash portfolio is invested in U.S. Treasury bills with
maturities less than one year. The duration of the cash
portfolio as of September 30, 2014 was 0.32 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 by re-allocating capital between our external
investment managers. On a short-term basis, we monitor our
equity exposure and rebalance using 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
17
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 consistent with the estimated market
risk of the policy portfolio. Our current estimate of the
volatility of the Long Term Pool returns is 10.8% versus 11.5%
for the Policy Portfolio. In addition, the one-percentile tail
annual drawdown on the Long Term Pool is estimated to be -25.2%,
less than the drawdown estimate of -28.1% on the Policy
Portfolio.
Manager Risk
The Long Term Pool invests with more than one hundred
external managers. We seek to maintain a portfolio of managers
that generates sufficient returns to compensate us for bearing
both market risk and the additional risk inherent in working
with individual managers. Manager risk includes tracking error
or active bets away from the benchmark, operational or business
risks, lack of transparency, and leverage. UVIMCO mitigates
manager risk by diversification and employing extensive and
ongoing due diligence to assess both the investment and
operational aspects of our external fund managers. Our
Investment Policy Statement ensures a minimum level of
diversification by limiting our exposure to any single manager
to 7.5% of the Long Term Pool. As of June 30, 2014, our largest
manager exposure was 4.4% of the Long Term Pool.
Liquidity Risk
At UVIMCO, we define liquidity risk as an inability to meet
any of the following four primary liquidity requirements: (i)
withdrawals by the University and foundation investors, (ii) the
excess of capital calls over expected capital distributions from
private funds, (iii) the need to rebalance exposures following a
market decline, and (iv) the ability to deploy cash
opportunistically as new investment opportunities arise. We
manage this risk by maintaining a portfolio of Treasury bills
and bonds, maintaining sufficient liquidity with our public
equity and hedge fund managers, and managing the pace of
commitments to private investments.
18
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, at least 20% of the Pool available for conversion to
cash within one quarter, and at least 30% of the Pool available
for conversion to cash in any twelve-month period. As of June
30, 2014, we had 12% of the Long Term Pool invested in
Treasuries, 34% of the Long Term Pool that could be turned to
cash within one quarter, and 41% of the Pool that could be
turned to cash within one year.
We also limit our unfunded commitments to private
investments to be no more than 25% of the Long Term Pool, with
the goal of maintaining unfunded commitment levels that average
15% of the Pool. As of September 30, 2014, unfunded commitments
were 14% of the Long Term Pool.
19
INVES TMENT MANAGEMENT COMPANY
Investment Report
September 30, 2014
Investment Activity
FYTD 2015 (1)
Month
$7,002,139,163.06
Beginning Net Asset Value (NAV)
$6,949,542,818.84
853,941.94
Beginning Shares
854,659.59
$8,131.36
$43,954,173.83
($21,932,241.89)
($17,491,526.59)
($3,476,636.53)
$6,000,000.00
$8,199.78
$37,450,673.21
($11,934,494.36)
($75,891,731.05)
($1,167,023.19)
$6,000,000.00
NAV Per Share at Beginning of Period
+ Contributions
– Redemptions
+ Investment Return
– Fees
+ Fee Rebates
$6,956,596,587.67
857,683.71
$8,110.91
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
$6,956,596,587.67
857,683.71
$8,110.91
Shareholder Summary
Long Term Pool
% of NAV
$4,056,575,800.45
$1,550,782,150.43
$1,349,238,636.79
$6,956,596,587.67
University of Virginia Endowment
Affiliated Organizations
University Operating Funds
Total
58.3%
22.3%
19.4%
100.0%
Performance
Market Value (2)
$ Millions %
Long Term Pool
6,957
Policy Benchmark (3)
Equity
Public
Long / Short
Private
Total Equity
MSCI All Country World Equity
Real Assets
Real Estate
Resources
Total Real Assets
Total Fixed Income, Cash & MAC
Annualized
5 YR 10 YR
20 YR
100.0
(1.1)
(0.3)
9.4
15.3
13.9
13.8
10.5
12.4
(2.6)
(1.4)
5.0
9.5
12.9
9.2
7.2
7.5
1,536
1,646
1,367
22.1
23.7
19.7
(3.1)
0.1
(1.3)
(1.1)
(0.8)
1.7
9.0
1.1
26.9
16.9
8.8
34.8
21.0
13.2
18.9
18.7
10.2
21.2
13.8
9.5
13.7
12.5
10.1
22.2
4,550
65.4
60.0
(1.4)
(3.2)
(0.2)
(2.2)
10.8
4.2
18.6
11.9
17.4
17.2
16.2
10.6
12.3
7.8
14.6
7.3
521
313
7.5
4.5
(1.4)
(0.4)
0.7
(2.6)
10.5
20.4
12.3
22.5
12.1
12.6
2.1
26.0
834
12.0
(1.1)
(0.6)
14.2
16.0
12.3
16.1
10.0
11.7
10.0
(5.8)
(2.4)
10.2
9.1
15.4
12.9
7.5
8.6
11.0
8.7
2.8
(0.6)
(0.0)
0.0
(0.8)
0.0
0.0
6.6
0.3
0.1
11.6
0.3
0.1
10.7
1.1
0.1
7.3
4.3
--
7.7
6.6
--
769
605
198
1,571
Barclays Aggregate Bond (5)
Portfolio Overlays (6)
3 YR
100.0
(4)
MSCI Real Estate
Fixed Income, Cash & MAC
Marketable Alternatives & Credit
Government Bonds
Cash & Currency
Time-Weighted Returns
MO FYTD CYTD
1 YR
2
10.9
0.2
(0.0)
(1.9)
20.4
3.7
--
22.6
(0.3)
(0.4)
3.3
5.9
5.2
6.0
5.6
7.1
30.0
(0.5)
0.7
4.7
4.7
3.2
4.2
4.6
6.2
0.0
0.0
(0.0)
(0.0)
(0.1)
--
--
--
--
20
Investment Report
September 30, 2014
Short-Term Liquidity(7)
Actual Liquidity (Cumulative Total % of NAV)
Weekly
Public Equity
Long / Short Equity
Marketable Alternatives & Credit
Monthly
Quarterly
Semi-Annually
Annually
5%
7%
11%
12%
12%
-
0%
10%
12%
15%
2%
-
-
2%
2%
Government Bonds
9%
9%
9%
9%
9%
Cash
3%
3%
3%
3%
3%
Total
17%
19%
34%
37%
41%
Available Liquidity ($ in Millions)
1,148
1,308
2,338
2,565
2,820
Private Funds Market Values and Commitments (8)
($ in Millions)
Market Value of Private Investments
Amount
Public Equity
Long / Short Equity
Private Equity
% of NAV
Uncalled Commitments
Amount
% of NAV
Private Aggregate
Amount
% of NAV
234
3%
27
0%
261
4%
15
0%
30
0%
45
1%
1,366
20%
406
6%
1,772
25%
Real Estate
521
7%
165
2%
686
10%
Resources
313
5%
222
3%
536
8%
Marketable Alternatives & Credit
256
4%
126
2%
382
5%
2,705
39%
976
14%
3,681
53%
Europe
Asia
LAMA(10)
Total
Market and Currency Exposure Estimates (9)
(% of NAV)
Equity
Policy Ranges
Actual
Exposure
North
America
40 - 70
53.0
27.0
8.1
14.7
3.2
Real Assets
5 - 20
13.3
10.6
2.4
0.1
0.2
Credit
0 - 20
4.4
3.2
0.5
0.1
0.6
Government Bonds
5 - 20
9.5
9.5
-
-
-
Total Market Exposure
70 - 100
80.2
50.3
11.1
14.8
--
--
25 - 75
0 - 40
0 - 40
0 - 20
(1.9)
(0.3)
0.9
9.2
0 - 30
14.6
0 - 30
4.9
0 - 20
Policy Ranges
Cash & Currency
Currency Exposure
Policy Ranges
0 - 30
19.8
21.1
---
100.0
--
71.4
50 - 100
21
4.0
Short Term Pool
September 30, 2014
Investment Activity
Beginning Net Asset Value (NAV)
Month
FYTD 2015 (1)
$231,631,115.99
$266,823,936.10
231,311.83
266,498.60
Beginning Shares
NAV Per Share at Beginning of Period
+ Net Contributions / (Redemptions)
+ Investment Returns
– Expenses
$1,001.38
($22,995,582.93)
$11,817.31
($1,855.30)
$1,001.22
($58,223,700.67)
$50,895.80
($5,636.16)
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
$208,645,495.07
208,350.33
$1,001.42
$208,645,495.07
208,350.33
$1,001.42
Short Term Pool
% of NAV
$106,794,069.30
$21,804,581.29
$80,046,844.48
$208,645,495.07
51.2%
10.4%
38.4%
100.0%
Plan Account Summary
Long Term Pool Cash
Affiliated Organizations
University Operating Funds
Total Short Term Pool
Performance
MO
Time-Weighted Returns
FYTD CYTD
1 YR
Since Inception (Oct 2012)
Annualized Cumulative
Yield to
Maturity
Short Term Pool
0.00
0.02
0.04
0.04
0.07
0.15
0.03
3-Month Treasury Bills
0.00
0.01
0.03
0.05
0.07
0.14
0.02
Portfolio Composition
Maturity Distribution
70%
60%
U.S. Treasury
Bills
79.2%
50%
40%
30%
33.6%
20.8%
19.2%
20%
Overnight
Funds
20.8%
10%
0.0%
0.0%
5-14
Days
15-29
Days
14.4%
12.0%
0%
0%
20%
40%
60%
80%
0-4
Days
100%
22
30-59
Days
60-89
Days
90-179
Days
180-364
Days
Investment Report
September 30, 2014
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 2015 policy target allocations: 60% Equity, 10% Real Assets, 30% Fixed Income.
(4)
The Real Estate component of our Fiscal Year 2015 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 2015 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.
23
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II.C. Interim Academic Division Financial
Report for September 30, 2014
ACTION REQUIRED:
None
BACKGROUND: The unaudited financial report for the University’s
Academic Division for the three months ended September 30, 2014
follows and includes:
•
•
•
Statement of net position compared to June 30, 2014;
Statement of revenues, expenses, and changes in net
position compared to the period ended September 30, 2013;
and
Cash-basis operating sources and uses, budget versus
actual results through September 30, 2014.
Statement of Net Position
This statement, on page 26, provides the Academic
Division’s net positions as of September 30, 2014 and June 30,
2014. The unaudited statement is developed based on Generally
Accepted Accounting Principles (GAAP).
The $59 million in current receivables are primarily
comprised of sponsored research ($23.2 million), tuition and
other student charges ($29.9 million), and auxiliary operations
and other receivables ($5.9 million). Past due receivables over
120 days are only $1 million, or 1.8% and well within the
Commonwealth of Virginia’s management standard of 10%.
Endowment and other long-term investments are essentially
unchanged due to nearly flat investment returns for the first
three months of the year. Further information on the
endowment’s performance this year is included in the written
report from the University of Virginia Investment Management
Company (UVIMCO) beginning on page 7.
Student loan programs include $20.9 million through the
Federal Perkins Loan Program, $1.0 million through the Federal
Nursing Student Loan Program, and $20.9 million through loan
24
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: 1.4% 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%.
Net position is up $210 million since June 30, 2014, due
primarily to receipt of the major unrestricted revenues at the
beginning of each fiscal year, such as tuition and fees.
25
26
Statement of Revenues, Expenses, and Changes in Net Position
(SRECNP)
Shown on page 29, this statement outlines the Academic
Division’s revenues, expenses, and other changes in net position
as of September 30, 2014 as compared to the same period last
year. It is developed based on GAAP but is unaudited.
The September 30, 2014 net position is up $210 million due
to fall semester tuition collections and the full recognition of
the University’s 2014-2015 state appropriation in the first
quarter of FY 2015; these monies will be spent as the University
progresses through the fiscal year.
Operating Revenues:
Total operating revenues for the three months ended
September 30, 2014 were $589 million, an increase of 6.8% over
the prior year. There were modest increases in most revenue
categories. After two years of declines, grants and contracts
revenue shows a slight increase of 2% three months into FY 2015.
Student tuition and fees are reported net of discounts and
allowances, and are up 6% as compared to last year, due to
undergraduate enrollment growth and increases in undergraduate,
graduate, and professional tuition and fees approved by the
Board of Visitors in February and April of 2014.
State appropriations are $1.4 million less than at this
same point last year. The FY 2015 appropriation incorporates a
permanent $8.2 million, or 6.6%, budget reduction for FY 2015,
partially offset by technical adjustments related to health
insurance, retirement, and other benefit adjustments.
Auxiliary revenues have increased by 13% through the first
quarter primarily due to additional ACC revenue distribution and
earlier receipt of Athletics corporate sponsorship revenues.
There was investment loss of $19 million, reflecting the
slight loss on the UVIMCO Long Term Pool through September 30,
2014.
Operating Expenses:
Operating expenses were up $20 million, or 5.7% for the
period ended September 30, 2014 compared to last year. Primary
increases were in instruction (5.6%) and academic support (18%).
These increases were driven by increased faculty support, the
27
assessment of annual data/voice charges in the first quarter
(versus second quarter in FY 2014), and additional library
collections purchased. The increases were offset by an 11%
decrease in expenses in the auxiliary units, related to earlier
recoveries of annual data/voice charges and a decline in
inventory purchases by Cavalier Computers in the first quarter.
28
29
Comparative Statement of Sources and Uses of Funds
This report, on page 32, reviews actual results for period
ended September 30, 2014 compared to budgeted sources and uses
of funds of the Academic Division. The cash-based operating
plan differs from GAAP in the following ways:
• 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 cash-based operating plan nets financial aid funded
from tuition from gross tuition, but does not net financial
aid funded from other sources (gifts, endowments, and
grants).
• The cash-based operating plan reflects mandatory fees
collected for auxiliaries and internal revenues collected
from internal departments as other tuition and fee and
sales, investment, and other revenue.
• The cash-based operating plan excludes unrealized gains.
Through September 30, 2014, actual net sources exceeded
uses by $289.2 million, only a slight variation form the budget
of $288.7 million.
Sources of Funds:
Actual available sources of funds for the Academic Division
as of September 30, 2014 were $684.4 million, or 0.5% less than
the $687.7 million budgeted for the period. The 2014-2015
original budget reflects the appropriation approved by the
General Assembly in June 2014; actual appropriations reflect the
recent action to further reduce the state general fund
appropriations by $8.2 million.
30
Uses of Funds:
Total uses of available funds for the Academic Division
totaled $395.2 million which is $3.9 million or 1.0% below the
fiscal year 2015 projection.
31
UNIVERSITY OF VIRGINIA - Academic Division Only
Comparative Statement of Sources and Uses of Funds, Year to Date
2014-15
Original
Budget
2014-15
Quarterly
Budget
SOURCES OF AVAILABLE FUNDS
Tuition and Fees
Undergraduate
Less: Tuition to financial aid
Net Undergraduate
Actuals
Over
(Under)
Budget
Actuals
Through
9/30/2014
Actuals as a
% of
Budget
(in 000s)
$ 292,112 $ 148,000 $ 148,691 $
(39,061)
(20,000)
(19,867)
253,051
128,000
128,824
691
133
824
0.5%
-0.7%
0.6%
Graduate
Less: Tuition to financial aid
Net Graduate
48,138
(30,348)
17,790
25,000
(15,000)
10,000
25,399
(15,050)
10,349
399
(50)
349
1.6%
0.3%
3.5%
Professional (Law, Darden, McIntire & SEAS Exec.)
Less: Tuition to financial aid
Net Professional
105,499
(8,198)
97,301
54,000
(4,600)
49,400
53,901
(5,027)
48,874
(99)
(427)
(526)
-0.2%
9.3%
-1.1%
School of Medicine
Less: Tuition to financial aid
Net School of Medicine
29,442
(510)
28,932
15,000
(255)
14,745
14,692
(255)
14,437
(308)
(308)
-2.1%
0.0%
-2.1%
Other
Less: Tuition to financial aid
Net Other
Total Net Tuition & Fees
97,929
(1,188)
96,741
493,815
56,000
56,000
258,145
57,504
(228)
57,276
259,760
1,504
(228)
1,276
1,615
2.7%
n/a
2.3%
0.6%
State Appropriations
Grants & Contracts
Facilities & Administrative Cost Recoveries
Endowment Distribution & Fee
Gifts-Via Affiliated Foundations
Expendable Gifts
Sales, Investment & Other
Operating Cash Balances
144,822
224,877
59,600
157,126
101,255
26,451
192,244
30,478
142,600
70,000
19,000
71,000
32,000
3,000
92,000
-
135,699
68,568
18,764
72,667
32,611
2,961
93,346
-
(6,901)
(1,432)
(236)
1,667
611
(39)
1,346
-
-4.8%
-2.0%
-1.2%
2.3%
1.9%
-1.3%
1.5%
n/a
$ 1,430,668
$ 687,745
$ 684,376
$
(3,369)
-0.5%
$ 380,067
291,292
146,868
45,763
95,320
108,734
106,285
167,289
81,841
$ 76,000
90,000
48,000
11,200
24,300
35,000
47,000
47,000
20,500
$ 75,430
90,347
48,331
11,180
23,960
33,874
45,845
45,548
20,634
$
(570)
347
331
(20)
(340)
(1,126)
(1,155)
(1,452)
134
-0.8%
0.4%
0.7%
-0.2%
-1.4%
-3.2%
-2.5%
-3.1%
0.7%
Total Uses of Available Funds
$ 1,423,459
$ 399,000
$ 395,150
$
(3,850)
-1.0%
Net Sources in Excess of Uses
$
$ 288,745
$ 289,226
$
Total Sources of Available Funds
USES OF AVAILABLE FUNDS
Direct Instruction
Research & Public Service
Academic Support
Student Services
General Administration
Operation & Maintenance of Physical Plant
Scholarships, Fellowships, & Other
Auxiliary Enterprises
Internal Debt Service/Transfers
32
7,209
481
0.2%
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II. D. 2015-2016 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 20152016 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 2015-2016 budget process are
to: (1) demonstrate commitment and resources available to
address high-priority items included in the Cornerstone Plan and
the President’s priorities of faculty retention and recruitment,
curriculum enhancement, and research; and (2) complete
transition to an activity-based resource allocation model
starting with 2015-2016.
Revenue Assumptions:
•
The Finance Subcommittee on Affordable Excellence together
with the administration 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 2015-2016 will reflect
rates that will be approved by the Board of Visitors at a
later date.
o The third year of a four-year phase-in of the School of
Engineering and Applied Science differential tuition will
be implemented, with first-, second-, and third-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
33
aid, reallocation of funds where appropriate, and
consideration of market sensitivity.
•
The administration will consider the reallocation of existing
resources before increasing mandatory student fees. Increases
in total mandatory auxiliary fees should range between 2-2.5%.
In considering new or increased fees, the administration will
evaluate:
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 2015-2016, the University takes a conservative estimate
regarding the state general fund appropriation, assuming no
growth and the continuation of the $8.2 million budget
reduction approved by the General Assembly in fiscal year
2014.
•
According to Board of Visitors policy the 2015-2016 endowment
spending distribution will be 4.28% of the June 30, 2014,
market value.
•
Consistent with prior years, a 0.5% administrative fee (based
on the endowment’s June 30th market value for the preceding
fiscal year end) will be assessed to each endowment with 100%
of the fee directed to the endowment’s corresponding activity
center under the new financial model.
•
In 2015-2016, funds from annual giving will be projected based
upon estimates from University Advancement and school
officials.
•
Reimbursements for direct and indirect costs related to
externally-sponsored research (primarily federally funded) are
currently projected to increase by less than 1%. The final
2015-2016 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
34
a 58% Facilities and Administrative cost recovery rate on new
grants.
•
For 2015-2016, preliminary projections indicate a 2.5%
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 2015-2016 will incorporate approximately $9
million in organizational excellence savings.
•
Full funding will be provided for the projected cost of
AccessUVa.
•
Compensation: The following assumptions will apply to
salaries and benefits in 2015-2016:
o Teaching and Research (T&R) Faculty: FY 2015-2016 will be
the third 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 20162017. A merit pool equivalent to 4.75% of base T&R faculty
salaries will be included in the budget.
o Other Faculty and University Staff: A 3% merit increase
for University staff and Administrative and Professional
faculty will be budgeted in 2015-2016.
o Classified Staff: Any classified staff salary increase for
2015-2016 will be authorized by the state in the approved
budget.
o The minimum hiring rate for salaried staff will increase in
July 2015 by 2% from $11.76 to $12.00 per hour, or $24,960
per year.
o As planned for the last several years, all schools and
units will budget for the 27 (rather than 26) bi-weekly
payroll periods for the 2015-2016 fiscal year.
o Estimated 2015-2016 fringe benefit rates are outlined
below.
35
Full-time (FT) Faculty and
University Staff—Executive
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
2014-2015
DHHS-Approved
Rates
27.7%
Preliminary
2015-2016
Rates
27.8%
36.5%
38.5%
27.7%
27.8%
6.0%
7.0%
Reserves and Other:
•
Unit planning will advance compliance 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.
36
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II.E.
ACTION REQUIRED:
None
AccessUVa Metrics Annual Report
BACKGROUND: The Board of Visitors authorized the AccessUVa
program in February 2004 to ensure that an undergraduate
education at the University would be available to all students
regardless of their financial circumstances. The program has
been successful in increasing socioeconomic diversity, limiting
student loan debt, and meeting 100% of need for any student with
financial need. This program has brought the University
significant acclaim as the premiere need-based aid program for a
public institution in the United States. The success of
AccessUVa has allowed us to continue to admit prospective
students based on merit and not ability to pay.
DISCUSSION: The program’s goals include attracting, enrolling,
and graduating a socio-economically diverse student body;
ensuring financial support to students demonstrating financial
need; and, preserving AccessUVa program’s position as one of the
strongest commitments to guaranteed need-based aid in the
country. The University carefully monitors several metrics to
ensure the program’s effectiveness and reports annually on its
progress. Executive Vice President and Chief Operating Officer,
Pat Hogan, will provide an overview of the AccessUVa program and
will report on several measures of the program’s vitality,
including Pell grant recipients, need-based financial aid
recipients, student indebtedness, and graduation rates.
37
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
November 13, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II.F.
ACTION REQUIRED:
None
Executive Vice President’s Remarks
BACKGROUND: The Executive Vice President and Chief Operating
Officer will inform the Board of recent events that do not
require formal action, but of which it should be made aware.
38
MISCELLANEOUS FINANCIAL REPORTS
Finance Committee
University of Virginia
November 13, 2014
UNIVERSITY OF VIRGINIA
Endowment/Long-Term Investments, Including Related Foundations
September 30, 2014
(in thousands)
The University of Virginia Medical School and related foundations
Rector and
Visitors Funds
Related
Foundation
Funds Invested
by UVIMCO
Alumni
Association
Funds Invested
by UVIMCO
Related
Foundation Funds
Invested by
Direction of
Foundation Board
$
$
$
$
-
$ 1,022,470
434,803
83,293
13,003
5,754
536,853
52,040
270,798
-
116,279
439,117
Darden School and related foundation
131,713
270,454
-
11,029
413,196
Batten School of Leadership and Public Policy
130,922
-
-
-
130,922
School of Engineering and related foundation
111,901
11,648
-
2,402
125,951
The McIntire School of Commerce and related foundation
55,127
-
53,372
623
109,122
University of Virginia's College at Wise and related foundation
57,469
13,619
2,789
-
73,877
Graduate School of Arts and Sciences
63,604
-
-
-
63,604
School of Nursing
52,308
-
2,833
-
55,141
Curry School of Education and related foundation
15,712
11,047
-
-
26,759
School of Architecture and related foundation
21,418
3,755
471
-
25,644
School of Continuing and Professional Studies
2,356
-
57
-
2,413
527,157
71,317
1,380
15,819 *
615,673
-
263,397
-
13,749
277,146
211,245
-
-
-
211,245
47,907
68,367
495
-
116,769
109,182
-
-
-
109,182
Alumni Association (Funds Held for Others)
-
-
59,302
38,546
97,848
Alumni Association
-
-
89,540
-
89,540
University of Virginia Foundation and related entities
-
85,442
-
-
85,442
Miller Center and related foundation
61,359
11,590
-
-
72,949
University Libraries
68,656
-
240
-
68,896
Alumni Board of Trustees
-
66,323
-
-
66,323
University Investment Management Company
-
5,256
-
-
5,256
University - Unrestricted but designated
371,359
-
-
-
371,359
University - Unrestricted Other
214,298
-
-
-
214,298
University - Unrestricted Quasi and True Endowment
195,499
-
-
-
195,499
University - Restricted
144,443
-
-
-
144,443
204,201
74,865
$ 5,841,802
The College of Arts and Sciences and related foundations
The University of Virginia Law School and related foundation
University of Virginia Medical Center and related foundations
955,951
Jefferson Scholars Foundation
Centrally Managed University Scholarships
Athletics and related foundation
Provost
University Charitable Remainder Trusts
$
74,865
4,111,294
$
1,349,239
2,294,038
University Operating Funds - Short Term Investments
1,292,042
$
10,783
234,265
$
944,799
University Operating Funds - Long Term Investments w/ UVIMCO
Source:
$
55,736
Total
Associate Vice President for Finance
Date: October 24, 2014
40
UNIVERSITY OF VIRGINIA
Operating Funds, Endowment and Long-Term Investments
as of September 30, 2014
41
UNIVERSITY OF VIRGINIA
Quasi-Endowment Actions
July 1, 2014 – September 30, 2014
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 that the central loan program has balances, they may be invested in the long term investment
pool managed by UVIMCO or in other investment vehicles as permitted by law.
Additions from Gifts
President's Fund for Excellence Unrestricted Quasi-Endowment
School of Medicine Quasi-Endowment
University Quasi-Endowment Fund 1
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
Gilbert, Harry Bramhall Merit Scholarship
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
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
Shea, Eleanor Quasi-Endowment Professorship in Music
Shea, Eleanor Quasi-Endowment Professorship in Art History
Southwest-Dishner Gift Quasi-Endowment Fund
Strategic Investment for Anesthesiology Research Chair Quasi-Endowment
Taylor, Henry N. Fund
Virginia Quarterly Review - Anonymous
Total Additions from Endowment Income to Quasi-Endowments
Amount
24,791
1,950,000
240,684
$ 2,215,475
$
$
$
10,208
93,239
1,806
651
34,871
2,931
9,816
1,620
71,852
2,125
1,598
1,371
25,215
6,768
4,873
20,624
4,914
2,784
98,374
5,024
4,833
18,326
22,293
362
626
447,104
Divestments
Total Divestments from Quasi-Endowments
$
-
Notes:
1
Includes current unrestricted gifts to the University which, under a standing Board of Visitors resolution, are required to be
added to the University's Unrestricted Endowment Fund.
Source:
Associate Vice President for Finance
Date: October 24, 2014
42