UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
JUNE 6, 2014
FINANCE COMMITTEE
Friday, June 6, 2014
10:45 – 11:15 a.m.
Auditorium of the Albert & Shirley Small
Special Collections Library, Harrison Institute
Committee Members:
Victoria D. Harker, Chair
John A. Griffin, Vice Chair
Frank B. Atkinson
Marvin W. Gilliam Jr.
Stephen P. Long, M.D.
Edward D. Miller, M.D.
Linwood H. Rose
George Keith Martin, Ex-officio
Daniel M. Meyers, Consulting Member
Martin N. Davidson, Faculty
Consulting Member
AGENDA
PAGE
I.
II.
ACTION ITEMS (Mr. Hogan)
A.
Adoption of Vesting Schedule for the Academic
Division Optional Retirement Plan
B.
Capital Project Approval: McCormick Road Residence
Hall Renovation (Pat Hogan to introduce Ms. Colette
Sheehy; Ms. Sheehy to report)
REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Hogan)
A.
Defined Contribution Retirement Plan: Retirement
Administrative Committee (Written Report)
B.
University of Virginia Investment Management
Company Report on the Long-Term Pool – Market Value
and Performance as of March 31, 2014 (Written Report)
III. MISCELLANEOUS FINANCIAL REPORTS
A.
Endowment/Long-Term Investments for University of
Virginia and Related Foundations
B.
Investment of Working Capital
C.
Academic Division Quarterly Financial Report as
of March 31, 2014
D.
Quasi-Endowment Actions
E.
Write-off of Non-Patient Bad Debts
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6
11
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31
37
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
June 6, 2014
COMMITTEE:
Finance
AGENDA ITEM:
I.A. Adoption of Vesting Schedule for the
Academic Division Optional Retirement Plan
BACKGROUND: The University provides academic faculty and
executive staff, and managerial and professional staff a choice
of either the defined benefit plan (VRS) sponsored by the
Commonwealth or the defined contribution plan (ORP) sponsored by
the University. The University also manages a separate defined
contribution plan for employees of the University of Virginia
Medical Center.
Currently, there is no vesting requirement in the ORP. VRS
includes a vesting requirement as does the University’s Medical
Center retirement plan.
DISCUSSION: The University sought legislation, which was
subsequently approved, to allow vesting in the ORP. The
language in the legislation is permissive, providing that
institutions of higher education in the Commonwealth “may”
establish a vesting schedule in their respective ORPs. The
legislation is also permissive in the type and length of the
vesting requirement.
"Vesting" refers to the employee’s ownership of the
employer contributions to the retirement plan. Employees are
always 100% vested in money they contribute directly to their
own retirement plan. There are two types of vesting schedules cliff vesting where 100% ownership transfers to the employee
upon reaching the established eligibility date and graded
vesting where the employee gradually increases ownership of the
employer-contributed funds over time.
An amendment to the ORP is recommended to adopt a two-year
cliff vesting schedule for employees hired on or after July 1,
2014. This would be consistent with the vesting schedule that
is in place for the Medical Center. Forfeitures received from
the return of non-vested funds will be used to offset plan
expenses and employer contributions.
1
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
AMENDMENT TO THE DEFINED CONTRIBUTION PLANS
WHEREAS, the Optional Retirement Plan for Employees of the
University of Virginia (the “Plan”) was established effective
July 1, 1989, and amended and restated effective January 1,
2010; and
WHEREAS, the University of Virginia intends to implement a
vesting schedule as provided by legislative authority (in
Virginia Code Section 51.1-126); and
WHEREAS, the Plan must be formally amended to provide for
vesting and forfeiture; and
WHEREAS, Section 7.1 of the Plan permits the University,
through affirmative action of the Board or its designee, to
amend the Plan;
RESOLVED, in accordance with the foregoing, Section 4 of
the Plan is hereby amended as follows effective July 1, 2014:
1.(a) A Participant hired prior to July 1, 2014 shall be
100% vested in the portion of his or her Accumulation Account
attributable to Employer contributions made pursuant to Section
3.1 starting from the date he/she commences participation in the
plan.
(b) A Participant hired on or after July 1, 2014 shall
be 0% vested in the portion of his or her Accumulation Account
attributable to Employer contributions made pursuant to Section
3.1 starting from the date he or she commences participation in
the Plan and shall become 100% vested after completing two
continuous years of participation.
Delayed vesting under subsection 1(b) is not applicable
when:
i. The Participant has less than two years of
participation in the Plan due to death or involuntary separation
from employment for a cause other than job performance or
misconduct, as determined by the University in its sole
discretion; or
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ii. A Participant transferred to UVa from another
state agency without a break in service and was enrolled in an
Optional Retirement Plan(ORP) prior to July 1, 2003, and
maintained continuous ORP enrollment.
(c) For purposes of this section, the two-year vesting
period shall be the continuous 24-month period that begins with
the Participant’s commencement of participation in the Plan.
(d) Any portion of a Participant’s Accumulation Account
in which he or she is not vested upon such Participant’s
termination of employment (a “forfeiture”) shall be used as
follows:
i. Any forfeiture shall first be used to pay for
Plan expenses and then used to reduce the Employer’s
contributions under Section 3.1 for the Plan Year in which the
forfeiture occurs. Any remaining forfeitures shall be held
unallocated in a suspense account and used to reduce Employer’s
contributions under Section 3.1 in the following Plan Year.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
June 6, 2014
COMMITTEE:
Finance
AGENDA ITEM:
I.B. Capital Project Approval:
Road Residence Hall Renovation
McCormick
BACKGROUND:
The Board of Visitors approves major capital
projects every two years with the update of the Major Capital
Projects Program. This plan was last approved in April 2013.
When the University identifies new projects outside the biennial
update cycle, approval by the Finance and Buildings and Grounds
Committees is required. The Finance Committee will review the
financial plans and the Buildings and Grounds Committee will
review the proposed projects for inclusion in the University’s
Major Capital Projects Program.
The proposed project supports the University's commitment
to house all first-year students, supporting the First Year
Experience program, and aligns with Pillar 1 of the Cornerstone
Strategic Plan to enrich and strengthen the University's
distinctive residential culture.
DISCUSSION:
The University recommends the following revision to
the multi-year capital program:
McCormick Road Residence Hall Renovation
Housing Cash
$18.2 - $ 18.2 million
Debt
$67.6 - $ 86.5 million
$85.8 - $104.7 million
The McCormick Road residential area comprises 10 buildings,
approximately 304,000 gross square feet (GSF) that opened in
1955. It houses 1,330 first-year residents and resident
advisors. In a five-phase renovation approach, the project
allows for the installation of air conditioning and elevators;
replacement of building systems that are past their useful life;
installation/enhancement of fire detection and suppression and
emergency power life safety systems; repairs to the buildings’
exterior envelopes, roofs, gutters, windows, and doors; and
conversion of ground floor spaces into residential programming
spaces and additional student rooms. This work will add
approximately 65 beds, extend the life of the facilities, and
more closely align them with the new first-year residence halls
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constructed in the Alderman Road residential area. The project
will be funded using housing reserves and University debt.
ACTION REQUIRED:
Approval by the Buildings and Grounds
Committee, by the Finance Committee, and by the Board of
Visitors
REVISION TO THE MAJOR CAPITAL PROJECTS PROGRAM – MCCORMICK ROAD
RESIDENCE HALL RENOVATION
WHEREAS, the University proposes the addition of the
McCormick Road Residence Hall Renovation to the Major Capital
Projects Program;
RESOLVED, the
the McCormick Road
cost between $85.8
University’s Major
Board of Visitors approves the addition of
Residence Hall Renovation, at an estimated
million and $104.7 million, to the
Capital Projects Program.
5
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
June 6, 2014
COMMITTEE:
Finance
AGENDA ITEM:
II.A. Defined Contribution Retirement Plan:
Retirement Administrative Committee
ACTION REQUIRED:
None
BACKGROUND: The University is the plan sponsor of a number of
defined contribution retirement plans, including the Optional
Retirement Plan for Employees of the University of Virginia and
the Optional Retirement Plan for Employees of the University of
Virginia Medical Center.
At its June 2, 2007 meeting, the Finance Committee of the
Board of Visitors approved a revised Retirement Program Policy.
The revised policy established the role of the Finance Committee
of the Board of Visitors to provide oversight of the retirement
plans and to report annually to the Board.
On May 19, 2014, Ms. Victoria Harker, Finance Committee
Chair, and Mr. John Griffin, Finance Committee Vice Chair, met
with the Executive Vice President and Chief Operating Officer
and representatives of the Retirement Administrative Committee
to review the Plan’s annual performance and to discuss the
overall program from participant and administrative
perspectives. Minutes of that meeting follow.
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Minutes
University of Virginia
Board of Visitors Finance Committee Appointee on Retirement
Administrative Committee
May 19, 2014
11:00 a.m.
Madison Hall President’s Conference Room
Board of Visitors Finance Committee Appointees (by phone):
Victoria Harker and John Griffin
Also in attendance: Pat Hogan, Executive Vice President and
Chief Operating Officer; Susan Carkeek, Vice President and Chief
Human Resource Officer; Barry Schmitt, CAPTRUST Financial
Advisors (by phone); Anne Broccoli, Director of Benefits (by
phone); Megan Lowe, Assistant Vice President and Chief of Staff
to the Executive Vice President and Chief Operating Officer; Jim
Matteo, Associate Vice President and Treasurer and Chair of the
Retirement Administrative Committee; Kristina Alimard, CFA,
Chief Operating Officer/Compliance Officer, UVIMCO and
Retirement Administrative Committee member
There were seven agenda items for this meeting: background of
Retirement Administrative Committee, the annual review of fund
performance, goals of the committee, excess revenue credits,
enhanced communication and education opportunities, adoption of
vesting amendments, and future initiatives being implemented.
1. Background of Retirement Administrative Committee: The
meeting began with a brief review of the governance
structure and responsibilities of the Board of Visitors
Finance Committee appointments and the Retirement
Administrative Committee (RAC). The BOV is the ultimate
fiduciary for the University’s defined contribution
retirement plans. These plans are referred to as the
“Optional Retirement Plans” by the Commonwealth of Virginia
as they represent an option to the state’s defined benefit
plan (the Virginia Retirement System or VRS). The BOV
delegates to the Finance Committee, which has carried out
its oversight responsibility through its Chair and one
additional Finance Committee member. The Chair and
appointee meet at least annually with the RAC to review
investment performance and other relevant issues. The
Chair then reports back to the full Finance Committee and
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Board, typically through a written report provided at the
spring meeting.
2. December 31st, 2013 Annual Performance Review: Barry
Schmitt, of CAPTRUST, serves as financial advisor to the
RAC. He provided an overview of the annual report on fund
performance, reminding the appointees that the RAC meets
quarterly with CAPTRUST to monitor fund performance. The
details of his report are provided in attachment A.
3. Goals of the Retirement Administrative Committee: Under
the leadership of the RAC chair, Jim Matteo, short-term,
intermediate, and long-term goals have been established for
the committee. Accomplishments against short-term goals
include appointment of a faculty representative on the RAC;
implementation of Roth 403(b), and introduction of a
vesting schedule on the Academic Division plan. For
intermediate and longer term goals, the committee is
consolidating fund line-ups and pursuing other improvements
to enhance administrative operations. The committee has
been engaged this past year in managing the excess revenue
credits, creating new communication/outreach programs, and
simplifying fund line-ups as will be discussed in
subsequent agenda items.
4. Cost Savings/Revenue Credits: With the assistance of
CAPTRUST, the RAC was able to achieve cost savings by
negotiating lower share class rates. For Fidelity, the
rates were reduced from .15% to .11%; and for TIAA-CREF,
from .17% to .15%. These “excess revenue credits” are
estimated to save approximately $700,000 per year. The
savings will be used to pay plan-related expenses and to
expand communication/outreach offerings (more on that
follows), with any remaining savings to be credited back to
participant accounts.
5. Communication, Education, and Advice Opportunities: Some
of the cost savings, will be used to enhance education and
outreach programs to help faculty and staff achieve better
financial outcomes with their retirement accounts.
Underway is the design of a comprehensive retirement
planning curriculum beginning with general education and
awareness programs to more advanced resources and services.
The plan is to incorporate “financial wellness” into the
University’s current wellness program offerings.
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6. Optional Retirement Plan Vesting Amendments: Legislation
sponsored by UVa was passed by the General Assembly and
signed by the Governor allowing higher education
institutions in Virginia to adopt vesting schedules in
their ORPs. The language in the legislation is permissive,
providing that institutions of higher education in the
Commonwealth “may” establish a vesting schedule in their
respective ORPs. The legislation is also permissive in the
type and length of the vesting requirement.
i.
"Vesting" refers to the employee’s ownership of the
employer contributions to the retirement plan.
Employees are always 100% vested in money they
contribute directly to their own retirement plan. There
are two types of vesting schedules - cliff vesting where
100% ownership transfers to the employee upon reaching
the established eligibility date and graded vesting
where the employee gradually increases ownership of
employer-contributed funds over time.
ii.
An action item is planned for the Finance Committee
consideration at the June 2014 meeting recommending the
ORP be amended to include a two-year cliff vesting
schedule for employees hired on or after July 1, 2014.
Forfeitures received from the return of non-vested funds
will be used to offset plan expenses and employer
contributions. It was noted that UVa is not the first
higher education institution to consider such a change.
In the region, similar schedules are already in place at
Duke and University of Kentucky. This would also be
consistent with the vesting schedule that is in place
for the UVa Medical Center.
7. Initiatives in Implementation (a) Closing/Mapping Funds and
(b) Introduction of a Brokerage Window: When a fund falls
below standards for approval, the RAC closes that fund for
future contributions and notifies employees to move their
individual assets. While it is common practice in the
private sector for the employer to map (or move) existing
assets in non-approved funds to an approved funds, it is
only a recent trend in higher education retirement plans
(using ERISA standards) to do so. As a result, UVa has 77
funds (approximately 10% of plan assets) holding employee
assets that are not being monitored. With assistance from
CAPTRUST, the RAC will be phasing-in a closing and mapping
strategy to pare down this fund structure. We will begin
by mapping assets in 33 funds with assets of less than
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$100,000 invested in each. Based on feedback received from
this process, additional fund assets will be mapped over
the course of the year.
i.
At the same time, UVa plans to offer a brokerage window
to allow faculty and staff access to a wide range of
investment options with no annual maintenance fee. The
combination of the strategies described above is
intended to simplify the fund line-up for the majority
of faculty and staff and at the same time providing
expanded choice for those sophisticated investors who
are seeking specific asset classes as part of their
individual overall financial strategy. This aligns with
the committee’s overall objective of providing a
comprehensive retirement program that attempts to
balance simplicity and choice in meeting the wide
ranging needs of our faculty and staff.
The meeting was adjourned at 11:45 a.m.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
June 6, 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
March 31, 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 March 31, 2014, report follows.
Quarter-End March 2014
SUMMARY: The following commentary provides an update on the
current market environment as well as the asset allocation,
performance (unaudited), risk management, and liquidity position
of UVIMCO’s Long Term Pool as of and for periods ending March
31, 2014. The Long Term Pool recorded a gain of 1.8% this
calendar quarter, nearly matching the 1.9% increase in our
policy benchmark over the same time period. The fiscal year-to11
date return on the Long Term Pool is 10.4% versus the fiscal
year-to-date policy portfolio return of 11.6%, with most of our
private investments marked at December 31 values. While we
report and comment upon short-term performance, we encourage all
of our investors to focus most on longer-term performance. Over
the twenty-year period ending March 31, 2014, the Pool’s
annualized return was 12.2%, exceeding the policy benchmark
return by 470 bps.
Each spring, we estimate the future long-term return of the
Long Term Pool by adding the nominal expected return of our
policy portfolio together with expected alpha from manager
performance and portfolio tilts. This year, the long-term (10
year) return forecast for the Long Term Pool remains unchanged
from last year’s estimate of 7.5%. As always, we expect this
forecast of long-term average returns will have little
relationship to the actual market direction of the upcoming
fiscal year. That said, we believe that valuation-based
estimates of long-term expected returns are an important
contributor to the construction of a strategic asset allocation
for a long-term institutional portfolio.
We make a few observations about the 7.5% estimate for
long-term expected returns. First, assuming a 5.0% spending
rate and a 2.5% rate of inflation, the 7.5% expected return
allows us to preserve the real spending power of the endowment,
but we project no real growth in the Long Term Pool over the
next 10 years. A second observation is that active management
will continue to be needed in order for the Long Term Pool to
keep pace with inflation over the next decade, and increased
competition could hamper UVIMCO’s ability to deliver the same
level of alpha as we have in the past. We certainly have a team
and portfolio capable of producing excellent results, but
declining alpha represents a big risk to our efforts falling
short of a 7.5% long-term return. Finally, although our
analysis underlying the 7.5% estimate is sound, there is much
uncertainty surrounding the inputs and this final figure.
Actual returns will deviate from the estimate in both the short
and long term.
MARKET ENVIRONMENT: After a strong year in 2013, the first
three months of 2014 proved to be a challenging environment for
U.S. equity markets. Domestic markets sold off in January,
rebounded in February, and experienced a sell-off in parts of
the markets again in March. The Dow Jones Index finished the
first quarter of 2014 down 0.2%, while the Russell 2000 Index
finished up 1.1% and the S&P 500 Index was up 1.8%. The
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Barclays U.S. Aggregate Bond Index ended up 1.8% for the
quarter.
Global investors continue to express concern about the
potential slowdown of GDP growth in China and other emerging
markets. Emerging market equities and currencies sold off in
the first quarter of 2014, and the MSCI Emerging Market Index
ended down 0.4% for the quarter. China had its first ever bond
defaults at the end of March, with a solar energy company and a
manufacturer of construction materials both defaulting on their
obligations to investors. Although these defaults were small,
they highlight the increased liquidity pressure on Chinese
companies from the expected slowdown in growth, and negate the
assumption that all Chinese debt has an implicit government
guarantee.
Investors also focused on Russia’s move into Crimea. On
March 16th, Crimea yielded a referendum to leave Ukraine and
become part of Russia, sparking tension from Western countries
that do not formally recognize this move. As this situation
continues to play out, investors worry about the systematic
risks to public markets.
In the U.S., Federal Reserve Chair Janet Yellen replaced
Ben Bernanke and began to reinforce the policies of her
predecessor. However, at her first post-FOMC news conference in
March, the new Chair made it clear that the current Fed Funds
rate would probably increase in mid-2015, an earlier date than
market participants had been expecting. Since then, she has
tried to back off from this statement. Meanwhile, President
Obama signed legislation that extends the federal debt ceiling
through March 2015, buying another year before having to face
potential political backlash from related negotiations.
During the first quarter of 2014, domestic equity markets
experienced the beginning of what may be a marked rotation from
expensive growth stocks to value stocks. Sectors with
relatively cheap price to estimated earnings measures including
telecom, financials and energy performed the best while biotech
and consumer discretionary stocks performed the worst. Although
the exact stimulus for the start of the rotation is unclear,
extreme earnings are likely a piece of the story. Research done
by Leuthold Group showed that Internet retail stocks had gained
an average of 88.9% over the year ending March 18, and biotech
stocks were up 65.7%. Also, at that point in time, Internet
retailers traded at an average of 158 times trailing 12-month
earnings and biotech companies traded at 44 times their
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earnings, compared to 21 times earnings for the broader market.
While we do not know if this rotation from expensive growth to
value stocks will continue, these sectors will be followed
closely by our managers and other market participants.
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 March 31, 2014
is 66.1% to equity managers, 12.4% to real asset managers, and
21.5% to fixed income (including marketable alternatives,
credit, and cash). Looking through to our managers’ underlying
investments, the Long Term Pool has a 58.1% allocation to
equities, 13.8% allocation to real assets, and 28.1% allocation
to fixed income (including credit) and cash as of March 31,
2014. The market risk of the Long Term Pool continues to be
consistent with the risk of the policy portfolio benchmark.
PERFORMANCE: The Long Term Pool returned 1.8% in the quarter
ending March 31, 2014 versus the policy benchmark gain of 1.9%.
Fiscal year-to-date, the Long Term Pool has returned 10.4%
versus 11.6% earned by the policy benchmark. As expected, Pool
performance has lagged the benchmark over the past nine months
in the face of rapidly rising equity markets.
EQUITIES:
Public Equity
The public equity portfolio returned 0.8% during the
quarter ended March 31, 2014 versus 1.2% earned by the MSCI All
Country World Index (MSCI ACWI). Fiscal year-to-date, the Long
Term Pool’s public equities gained 16.0%, trailing the 17.4%
return posted by the MSCI ACWI.
Two notable trends underpinned a relatively muted return
environment for equities in the first quarter of 2014. First,
while emerging market equities generally continued to
underperform developed markets, performance was quite
differentiated across the emerging countries. India, Indonesia,
and Brazil posted positive U.S. dollar returns while Chinese and
Russian markets fell, with Russian public equities losing 15%
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due to unrest in the Ukraine. Against this backdrop, UVIMCO’s
emerging markets managers performed well, particularly those
focused on India and Brazil. The second trend was the rotation
described above, where the prices of many higher growth
consumer, technology, and biotech companies that led rising
markets during the past several years declined by double digit
percentages in the first quarter of 2014. Our public equity
portfolio has long been tilted towards higher quality, consumerfacing stocks including both mature consumer staples companies
and faster-growing ecommerce retailers. This latter group was
hit particularly hard during the growth sell-off in March.
While these short-term trends are newsworthy, our focus
remains on the long-term. The annualized return of the Long
Term Pool’s public equity portfolio outpaced the MSCI ACWI by
700 bps over five years and by 540 bps over ten years, primarily
driven by exceptional stock selection and portfolio management
by our managers. Of note, our managers’ outperformance came on
top of exceptionally strong market performance over the past
five years, with the MSCI ACWI up 18.4% and the S&P 500 up 21.1%
per year since the market bottom in March 2009. While we do not
expect this level of outperformance to continue unabated, we
remain focused on maintaining long-term partnerships with
outstanding fundamental public equity managers. However, given
the continued appreciation in public markets, we have begun to
opportunistically reduce our public equity exposure and will
continue to do so as appropriate.
Long/Short Equity
The long/short equity portfolio declined 1.4% in the first
calendar quarter, compared to a 1.6% gain in the Dow Jones
Credit Suisse Long/Short Equity Index. Fiscal year-to-date, the
portfolio returned 7.7% versus 11.8% for the long/short index.
The aforementioned sharp decrease in consumer and technology
growth equity prices and commensurate outperformance of value
stocks proved to be a particularly difficult environment for our
long/short managers. Managers with a deeper value focus
generally performed well in the first quarter of 2014, but our
overall long/short equity portfolio lagged both the hedge fund
index and broader global equity markets in the period.
Longer-term results from the Long Term Pool’s long/short
equity managers continue to outpace the long/short index, with
our managers returning 10.1% and 9.3% over five and ten years,
respectively, versus gains of 9.3% and 6.8% for the index. Our
long/short portfolio has less market risk than the public and
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private equity portfolios, and provides downside protection to
the endowment in periods of market distress. Therefore, we
expect the long/short strategy to continue to play an important
role in the broader Long Term Pool. That said, the outsized
impact of the growth stock sell-off in March emphasizes the
importance of understanding the depth of our managers’ unique
fundamental research as well as the role of leverage in their
returns. We continue to evaluate these and other factors with
both existing and prospective relationships.
Private Equity
The quarterly return for the Long Term Pool’s private
equity portfolio was 6.2% while its benchmark, the MSCI ACWI,
returned 1.2%. Fiscal year-to-date, the portfolio increased by
15.1% versus a 17.4% increase in the index. Separately, the
buyout portfolio returned 5.0% for the quarter ending March 31,
2014 and 8.8% for the first three quarters of the fiscal year,
while the venture portfolio returned 10.1% for the quarter and
39.3% fiscal-year-to-date. Over the last decade, the private
equity portfolio performance has outpaced its benchmark by a
wide margin by generating a 12.4% annualized return for the ten
years ending March 31, 2014 versus the MSCI ACWI return of 7.5%.
Separately, the buyout portfolio returned 13.1% and the venture
portfolio returned 10.7% for the past decade, both comfortably
ahead of the public markets.
On the M&A front, private equity firms invested $152.5
billion in 850 transactions during the first quarter of 2014, as
reported by Pitchbook. This level of activity is well above the
$137 billion invested in 956 transactions in the first quarter
of 2013. Thomson Reuters reported preliminary data on $710
billion in global M&A, up 54% compared to year to date 2013.
However, eliminating the Time Warner Cable deal causes the
increase to fall to 35%. In addition, we note that the number
of deals is actually down 14% from 2013 and represents the
lowest level of deal making since 2003 despite relatively easy
credit, robust stock markets and large stockpiles of cash in
both private equity funds and on corporate balance sheets.
The venture capital industry is enjoying some of its best
returns in years and the big story is the red-hot IPO market.
The first quarter of 2014 represented one of the strongest
environments in recent memory for companies backed by venture
capital firms, exceeded only by times when large IPOs like
Twitter and Facebook went public. Seventy-two companies went
public on U.S. stock exchanges during the first quarter of 2014,
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representing the largest number of first quarter IPO offerings
since 2000. Of the 72 IPOs, 24 were life sciences companies,
which is not surprising given the run-up in bio-tech and health
care stocks in 2013. In addition, the expected IPO of Alibaba,
a Chinese e-commerce company, garnered as much or even more
attention than any IPO that actually took place during the
quarter. Some analysts believe that the listing of Alibaba
could be the biggest-ever listing by a technology firm.
Does the wave of IPOs thus far in 2014 signal a bubble?
While the increase in IPO activity may reflect an elevated
interest in stocks and perhaps a frothy market, the seasoning of
most firms coming to market today is much higher than the IPOs
of the late 1990s bubble period. According to Renaissance
Capital, the average age of a company going public in 2014 is
approximately 13 years, compared to an average age of just over
5.5 years for companies that went public between 1997 and 2001.
In addition, while there are exceptions, today’s IPO companies
tend to be large and hold competitive positions in their
respective markets. A return to IPOs that are long on concept
but short on revenue and profits would be more of a “bubble”
signal.
The Long Term Pool’s private equity portfolio had cash
distributions of $43 million for the quarter and $48 million in
capital calls. Distributions for the fiscal year-to-date
totaled $150 million, while capital calls were $93 million,
resulting in net a cash flow of $57 million.
REAL ASSETS:
Real Estate
UVIMCO’s real estate portfolio returned 7.4% in the first
quarter of 2014, comparing favorably to the 5.1% return earned
over the same period by the weighted policy benchmark of
publicly traded U.S and international real estate securities.
The real estate portfolio also generated strong returns over the
last nine months, up 12.4% versus the policy benchmark of 3.9%.
As we have noted many times in prior commentaries, the public
real estate benchmark is significantly different from UVIMCO’s
real estate portfolio in that the benchmark is largely comprised
of domestic and international real estate securities and retail
assets.
U.S. REITs performed well in the first quarter of 2014,
generating a 10.0% return and regaining all the losses suffered
in the fourth quarter of 2013 that had been driven by concerns
17
over additional interest rate increases. U.S. REITs traded at
an 8% discount to NAV at the beginning of 2014 (according to SNL
Securities), but ended the first quarter at only a 3% discount
to NAV. One of the key statistics in tracking the rebound in
real estate markets is the percentage of lost jobs during the
recession that have since been regained. Nationwide, this
statistic currently stands at approximately 92% but varies
widely across metropolitan markets. Hot markets such as
Minneapolis, Austin, Washington, D.C., Ft. Lauderdale, Seattle,
and Durham have more than made up the lost jobs and have in many
cases created multiples of the jobs lost during the recession
(Austin has regained 454%). In contrast, weak cities such as
Atlanta, Cleveland, Philadelphia, Miami, Chicago, and Detroit
have regained as little as 33% of lost jobs.
During the first quarter, our real estate managers called
$7 million of capital and distributed $14 million, resulting in
a net inflow to UVIMCO of $7 million. This marks the third
quarter in a row of net inflows from real estate, with fiscalyear-to-date total net inflows totaling $30 million. Our real
estate managers have been taking advantage of attractive private
capital markets and realizing the latent value in their
portfolios.
Resources
The resources portfolio returned 0.2% for the first quarter
of 2014, underperforming the 5.1% return of the weighted policy
benchmark of publicly traded U.S. and international real estate
securities. As we have discussed in the past, the short-term
performance of our resources portfolio is not expected to mirror
the benchmark in any meaningful way. The Goldman Sachs
Commodity Index, a broad-based index of commodities, returned
2.9% in the first quarter and the S&P North American Natural
Resources Equity Index returned 2.7% over the same time period.
The SPDR S&P Oil and Gas Exploration and Production ETF returned
5.0% in the first quarter of 2014, reflecting a strong IPO
environment for exploration and production companies with oil or
natural gas assets in high returning basins. While it is
typical for UVIMCO’s resources portfolio to lag natural resource
equities in the short term, our resources portfolio has returned
only 0.4% over the past twelve months, lagging all three of the
aforementioned public equity benchmarks over the same time
period. We believe that our resources portfolio has latent
value, but there are many natural gas assets in our managers’
portfolios that it’s not economical to sell at today’s natural
gas prices.
18
The WTI crude oil price closed at $101.57 on March 31,
2014, essentially unchanged from year end. However, crude oil
prices fluctuated during the quarter, ranging from $92 to $104
as domestic oil production continued to expand, concerns
lingered regarding domestic processing capacity, and
geopolitical concerns buoyed the global oil price. Brent crude
oil closed the quarter at $107.65, flat versus the year end, and
thus the WTI to Brent spread was relatively constant.
The NYMEX Henry Hub Natural Gas spot price closed the first
quarter of 2014 at $4.48, also flat versus year end 2013.
However, natural gas prices were extremely volatile during the
first quarter as heavy storms and cold temperatures depleted
inventories and caused prices to spike to $5.47 in late January.
By the end of March, natural gas inventories had reached their
lowest level in the past eleven years. However, prices have
moderated amid continued strong production growth from shale
plays.
Our natural resource managers called $15 million of capital
in the first quarter of 2014 and returned $32 million, resulting
in a net cash inflow of $17 million. Fiscal year-to-date, we
have received net inflows of $69 million from our resource
investments.
FIXED INCOME AND MARKETABLE ALTERNATIVES:
Marketable Alternatives and Credit
For the first quarter of 2014, the marketable alternatives
and credit portfolio gained 2.4% versus a 3.0% return on the
Barclays High Yield Index and a 1.8% return on the Barclays U.S.
Aggregate Bond Index. Fiscal year-to-date, the portfolio
appreciated 9.2%, exceeding the two aforementioned benchmarks by
10 bps and 650 bps, respectively.
Credit markets were busy during the first quarter of 2013,
with a strong new issuance in high-yield bonds and credit
spreads continuing to tighten. The current yield for high-yield
bonds averages 5.23%, which represents tightening of
approximately 40 bps since year end 2013. It continues to be a
favorable environment for high-yield bonds with rates staying
low, demand for yielding assets remaining high, and corporate
defaults at trough levels. As yields drop, many of our liquid
credit managers have been reducing their participation in
domestic debt and finding more attractive opportunities in
19
foreign debt. In addition, our credit and marketable
alternative managers continue to find interesting opportunities
in illiquid credit. These managers invest in a diverse mix of
lending strategies, real assets, claims, and structured loans.
Our direct lending strategies have benefited from the strong
equity markets, and reduced bank participation in the space has
kept the pipeline full.
During the quarter, our credit managers who employ a
private equity fund structure called $4 million of capital and
distributed $11 million. Fiscal year to date, cash
distributions have totaled $31 million versus capital calls of
$26 million, resulting in a net inflow of $5 million.
Bonds and Cash
Our bond and cash portfolios continue to be managed as a source
of liquidity. As of March 31, 2014 our bond and cash portfolio
made up 10.2% of the Long Term Pool. Over time, we continue to
expect the sum of the liquid U.S. Treasury bond and cash
portfolios to vary between 8% and 12% of the Long Term Pool.
Although this is a drag on returns especially in a low interest
rate environment, it provides insurance against future turbulent
markets and will allow us to fund attractive investments that
will more than make up for the return drag.
Our government bond portfolio has been in short-term U.S.
Treasury notes and bonds with maturities under three years. The
average duration of this portfolio as of quarter-end was 1.08
years. We maintained our position in shorter duration bonds, as
we feel that the small additional return for longer duration
bonds does not compensate us for the risk of higher rates in the
near future. Our cash portfolio is invested in U.S. Treasury
bills and notes with maturities less than one year. The
duration of the cash portfolio as of quarter-end was 0.43 years.
The negligible returns reported for the short-term cash
investments are consistent with an environment in which current
interest rates remain 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
20
risk – and evaluate these factors relative to the risk tolerance
of the Long Term Pool shareholders.
Market Risk
The largest risk factor present in the Long Term Pool is
equity market risk. On a long-term basis we manage this
exposure through our investments in managers. On a short-term
basis we monitor our equity exposure with portfolio overlays
through the option and futures markets.
A common definition of market risk is the standard
deviation or volatility of a portfolio’s return. Volatility
provides a useful proxy for market risk if returns are normally
distributed. However, it is clear that both the broad market as
well as individual investment strategies are not normally
distributed, but rather are subject to a much higher probability
of negative “tail” events. Since investment returns are subject
to “tail risk”, it is useful to complement the standard
deviation statistic with an estimate of drawdown risk.
We manage market risk in the Long Term Pool by diversifying
across three broad asset classes: equity, fixed income, and
real assets. Our objective is to maintain estimated market risk
in the Long Term Pool that is less than or equal to the
estimated market risk of the policy portfolio. Our current
estimate of the volatility of the Long Term Pool returns is
10.9% versus 11.6% for the policy portfolio. In addition, the
one-percentile tail annual drawdown on the Long Term Pool is
estimated to be -26.6%, less than the drawdown estimate of 29.4% 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 March 31, 2014, our
21
largest manager exposure was 4.62% of the Long Term Pool, well
within the 7.5% maximum.
Over time, UVIMCO has been well compensated for assuming
manager risk. Attribution analyses suggest that manager
selection is the largest contributor to the Long Term Pool’s
long-term outperformance versus the policy benchmark and peers.
Liquidity Risk
At UVIMCO, we define liquidity risk as an inability to meet
any of the following four primary liquidity requirements: (i)
withdrawals by the University and Foundation investors, (ii) the
excess of capital calls over expected capital distributions from
private funds, (iii) the need to rebalance exposures following a
market decline, and (iv) the ability to deploy cash
opportunistically as new investment opportunities arise. We
manage this risk by maintaining a portfolio of Treasury bills
and bonds, maintaining sufficient liquidity with our public
equity and hedge fund managers, and managing the pace of
commitments to private investments.
Given our four primary liquidity requirements, we believe
that an appropriate target for liquidity is to have 10% of the
Long Term Pool invested in assets that are safe and highly
liquid, and at least 30% of the Pool should be available for
conversion to cash in any twelve-month period. As of March 31,
2014, we had 10% of the Long Term Pool invested in Treasuries,
34% of the Long Term Pool that could be turned to cash within
one quarter, and 45% of the Pool that could be turned into cash
within one year. We also limit our unfunded commitments to
private investments to be no more than 25% of the Long Term
Pool. Our goal is to have 15% unfunded commitments outstanding
on average. As of quarter-end, our unfunded commitments were
16.3% of the Long Term Pool.
22
INVES TMENT MANAGEMENT COMPANY
Board Report
March 31, 2014
Investment Activity
FYTD 2014 (1)
Month
$6,514,315,139.66
862,284.86
Beginning Net Asset Value (NAV)
Beginning Shares
$5,959,541,292.05
872,182.57
$7,554.71
$13,404,547.48
($2,724,306.10)
($9,690,498.67)
($1,085,719.19)
NAV Per Share at Beginning of Period
+ Contributions
– Redemptions
+ Investment Return
– Fees
$6,832.91
$43,136,948.19
($91,886,902.92)
$617,326,581.63
($13,898,755.77)
$6,514,219,163.18
863,556.76
$7,543.48
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
$6,514,219,163.18
863,556.76
$7,543.48
Shareholder Summary
Long Term Pool
% of NAV
$3,843,488,083.59
$1,460,296,653.61
$1,210,434,425.97
$6,514,219,163.18
University of Virginia Endowment
Affiliated Organizations
University Operating Funds
Total
59.0%
22.4%
18.6%
100.0%
Performance
Market Value (2)
$ Millions %
Long Term Pool
Total Equity
MSCI All Country World Equity
Real Assets
Real Estate
Resources
Total Real Assets
MSCI Real Estate (4)
Fixed Income, Cash & MAC
Marketable Alternatives & Credit
Government Bonds
Cash & Currency
Total Fixed Income, Cash & MAC
Barclays Aggregate Bond
3 YR
Annualized
5 YR 10 YR
100.0
(0.1)
1.8
10.4
13.0
11.8
15.1
10.0
12.2
100.0
0.3
1.9
11.6
10.3
7.8
15.0
7.0
7.5
1,588
1,537
861
316
24.4
23.6
13.2
4.9
(0.4)
(3.6)
2.7
1.5
0.8
(1.4)
5.0
10.1
16.0
7.7
8.8
39.3
17.8
11.0
11.5
47.5
15.9
11.7
13.2
29.9
25.4
10.1
19.4
24.1
12.9
9.3
13.1
10.7
12.4
9.9
-20.5
4,303
66.1
60.0
(0.9)
0.5
1.4
1.2
12.7
17.4
15.5
17.2
14.6
9.1
17.9
18.4
11.5
7.5
14.4
7.5
541
268
8.3
4.1
4.6
(1.4)
7.4
0.2
12.4
3.0
18.7
0.4
12.1
7.7
809
12.4
2.5
4.9
9.0
11.4
10.6
12.4
11.7
11.4
10.0
0.2
5.1
3.9
(0.2)
8.1
23.9
7.3
8.3
736
444
223
11.3
6.8
3.4
1.0
(0.0)
(0.0)
2.4
0.1
(0.1)
9.2
0.3
(0.1)
13.8
0.3
(0.2)
10.0
0.2
(0.1)
14.9
1.5
0.1
7.0
4.3
--
7.7
6.5
--
1,403
21.5
0.5
1.2
4.8
6.8
4.8
8.4
5.5
7.1
30.0
(0.0)
1.9
2.7
0.6
4.1
4.7
4.4
6.0
(0.0)
0.0
0.0
(0.0)
(0.1)
--
--
--
--
--
6,514
Policy Benchmark (3)
Equity
Public
Long / Short
Buyout
Venture Capital
Portfolio Overlays (6)
Time-Weighted Returns
MO
CYTD FYTD
1 YR
(5)
(1)
23
(1.1)
20.5
(0.2)
21.4
20 YR
3.7
--
Board Report
March 31, 2014
Short-Term Liquidity(7)
Actual Liquidity (Cumulative Total % of NAV)
Weekly
Public Equity
Monthly
Quarterly
Semi-Annually
Annually
5%
7%
13%
15%
15%
Long / Short Equity
-
0%
10%
11%
15%
Marketable Alternatives & Credit
-
-
0%
0%
5%
Government Bonds
7%
7%
7%
7%
7%
Cash
3%
3%
3%
3%
3%
Total
15%
18%
34%
37%
45%
Available Liquidity ($ in Millions)
1,007
1,161
2,220
2,384
2,933
Private Funds Market Values and Commitments (8)
($ in Millions)
Market Value of Private Investments
Amount
Public Equity
% of NAV
Uncalled Commitments
Amount
% of NAV
Private Aggregate
Amount
% of NAV
159
2%
52
1%
211
13
0%
35
1%
48
1%
1,177
18%
409
6%
1,586
24%
Real Estate
541
8%
190
3%
731
11%
Resources
268
4%
224
3%
492
8%
Marketable Alternatives & Credit
256
4%
154
2%
410
6%
2,415
37%
1,064
16%
3,478
53%
North
America
Europe
Asia
LAMA(10)
Long / Short Equity
Private Equity
Total
3%
Market and Currency Exposure Estimates (9)
(% of NAV)
Equity
Policy Ranges
Actual
Exposure
40 - 70
58.1
32.7
10.2
12.2
3.0
Real Assets
5 - 20
13.8
11.5
1.7
0.5
0.2
Credit
0 - 20
4.8
3.7
0.5
0.0
0.6
Government Bonds
5 - 20
6.9
6.9
-
-
-
Total Market Exposure
70 - 100
83.7
54.8
12.5
12.7
3.8
Policy Ranges
Cash & Currency
Currency Exposure
Policy Ranges
--
--
25 - 75
0 - 40
0 - 40
0 - 20
0 - 30
16.3
17.0
(2.0)
(0.3)
1.6
---
100.0
--
71.8
50 - 100
10.4
0 - 30
12.4
0 - 30
5.4
0 - 20
24
Short Term Pool
March 31, 2014
Investment Activity
FYTD 2014 (1)
Month
NAV Per Share at Beginning of Period
+ Net Contributions / (Redemptions)
+ Investment Returns
– Expenses
$292,128,653.54
291,819.32
$1,001.06
($24,498,604.97)
$34,188.58
($10,695.04)
$81,260,692.60
81,195.76
$1,000.80
$186,313,766.75
$155,298.39
($76,215.63)
Ending Net Asset Value (NAV)
Ending Shares
NAV Per Share at End of Period
$267,653,542.11
267,348.78
$1,001.14
$267,653,542.11
267,348.78
$1,001.14
Short Term Pool
% of NAV
$168,806,992.38
$18,830,144.51
$80,016,405.22
$267,653,542.11
63.1%
7.0%
29.9%
100.0%
Beginning Net Asset Value (NAV)
Beginning Shares
Plan Account Summary
Long Term Pool Cash
Affiliated Organizations
University Operating Funds
Total Short Term Pool
Performance
MO
Time-Weighted Returns
CYTD FYTD
1 YR
Since Inception (Oct 2012)
Annualized Cumulative
Yield to
Maturity
Short Term Pool
0.01
0.01
0.04
0.06
0.08
0.12
0.05
3-Month Treasury Bills
0.00
0.01
0.04
0.07
0.08
0.12
0.03
Portfolio Composition
Maturity Distribution
70%
60%
U.S. Treasury
Bills
93.4%
50%
41.1%
43.0%
90-179
Days
180-364
Days
40%
30%
20%
Overnight
Funds
6.6%
10%
6.6%
5.6%
0.0%
0.0%
3.7%
0%
0%
20%
40%
60%
80%
0-4
Days
100%
25
5-14
Days
15-29
Days
30-59
Days
60-89
Days
Investment Report
March 31, 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 2014 policy target allocations: 60% Equity, 10% Real Assets, 30% Fixed Income.
(4)
The Real Estate component of our Fiscal Year 2014 policy portfolio is comprised of 50% MSCI U.S. Real Estate Index and
50% MSCI All Country World Real Estate Index. Prior to January 1995, the benchmark is comprised of 100% FTSE National
Association of Real Estate Investment Trusts Equity Index.
(5)
The Fixed Income component of our Fiscal Year 2014 policy portfolio is comprised of 50% Barclays Capital U.S. Aggregate
Bond Index and 50% Barclays Capital Global Aggregate Bond Index (Hedged in U.S. Dollars). Prior to January 1990, the
benchmark is comprised of 100% Barclays Capital U.S. Aggregate Bond Index.
Represents the current market values and performance of overlay positions designed to change the Long Term Pool exposures.
Performance is calculated to reflect the impact of overlays relative to the entire Long Term Pool
(6)
(7)
Represents securities and funds that may be readily sold for cash within the designated time periods.
(8)
Represents the market values of investments where distributions are at the sole discretion of the managers, plus all uncalled
commitments.
(9)
Market and currency exposures are estimated by looking through managers and funds to the underlying security positions.
Policy ranges express the expected variation in asset class, regional, and currency exposures during normal market
circumstances. Totals may not add due to rounding.
(10)
Latin America, Middle East, and Africa.
26
27
MISCELLANEOUS FINANCIAL REPORTS
Finance Committee
University of Virginia
June 6, 2014
UNIVERSITY OF VIRGINIA
Endowment/Long-Term Investments, Including Related Foundations
March 31, 2014
(in thousands)
Endowment/Long Term Investments for UVa and Related Foundations
March 31, 2014
Unaudited
(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
$
$
$
$
The College of Arts and Sciences and related foundations
908,377
51,153
10,421
-
Total
$
969,951
413,193
78,007
12,522
2,050
505,772
49,479
261,166
-
119,437
430,082
Darden School and related foundation
125,228
249,696
-
10,705
385,629
Batten School of Leadership and Public Policy
124,473
-
-
-
124,473
School of Engineering and related foundation
106,353
11,035
-
1,938
119,326
The McIntire School of Commerce and related foundation
52,406
-
47,879
697
100,982
University of Virginia's College at Wise and related foundation
51,452
8,686
2,668
1,612
64,418
Graduate School of Arts and Sciences
60,458
-
-
-
60,458
School of Nursing
49,682
-
2,672
-
52,354
Curry School of Education and related foundation
14,939
10,476
-
1,570
26,985
School of Architecture and related foundation
19,360
2,858
452
923
23,593
School of Continuing and Professional Studies
2,281
-
55
-
2,336
University of Virginia Medical Center and related foundations
501,136
66,350
1,465
25,753 **
594,704
Centrally Managed University Scholarships
197,952
-
-
-
197,952
-
-
89,243
40,822
130,065
45,460
66,110
474
166
112,210
103,707
-
-
-
103,707
-
81,198
-
178
81,376
58,264
11,198
-
-
69,462
-
61,670
-
-
61,670
61,223
-
230
-
61,453
University - Unrestricted but designated
352,651
-
-
-
352,651
University - Unrestricted Quasi and True Endowment
185,613
-
-
-
185,613
University - Unrestricted Other
170,579
-
-
-
170,579
All Other
243,605
257,594
14,105
566,873
219,956
$ 5,554,674
The University of Virginia Law School and related foundation
Alumni Association
Athletics and related foundation
Provost
University of Virginia Foundation and related entities
Miller Center and related foundation
Alumni Board of Trustees
University Libraries
$
3,897,871
$
1,217,197
51,569 *
$
219,650
$
*Includes funds on deposit for other areas/schools not individually listed.
**Excludes approximately $67.6 million of board designated pension funds.
Source: Associate Vice President for Finance
Date: May 5, 2014
29
UNIVERSITY OF VIRGINIA
INVESTMENT OF WORKING CAPITAL
AS OF MARCH 31, 2014
Source: Associate Vice President and Treasurer
Date: May 5, 2014
30
UNIVERSITY OF VIRGINIA
Interim Academic Division Financial Report as of March 31, 2014
The unaudited financial report for the University’s Academic Division for the nine months ended
March 31, 2014 follows and includes:



statement of net position compared to June 30, 2013;
statement of revenues, expenses, and changes in net position compared to the nine
months ended March 31, 2013; and
cash-basis operating sources and uses, budget versus actual results through March 31,
2014.
Statement of Net Position
This statement, on the following page, provides Academic Division’s net positions as of March
31, 2014 and June 30, 2013. The unaudited statement is developed based on Generally Accepted
Accounting Principles (GAAP).
The $43 million in current receivables are primarily comprised of sponsored research ($24.8
million), tuition ($5.5 million), and auxiliary operations ($2.2 million). Past due receivables over
120 days are only $2 million, just under 1% and well within the Commonwealth of Virginia’s
management standard of 10%.
Endowment and other long-term investments are up $386.9 million, on the strength of the 8%
return on investments through the third quarter of 2014. Further information on the
endowment’s performance this year is included in the written report from the University of
Virginia Investment Management Company (UVIMCO) beginning on page 12.
Student loan receivable programs, depending on payment schedules, are included in accounts
payable and long-term debt. Student loan receivables of $41.4 million include $21 million
through the Federal Perkins Loan Program, $1.0 million through the Federal Nursing Student
Loan Program, and $19.4 million through loan programs managed by the University using
philanthropy given for this purpose. The default rates by University students on the federal loan
programs are below required thresholds: 4.4% for Perkins versus the federal requirement of
15.0% and 2% for Nursing versus the 5.0% federal threshold. Collectively, the default rate on
University managed loan programs stands at 2.1%.
Net position is up $520 million, or 9.3%, due primarily to the timing of the state appropriation,
tuition, and auxiliary revenue recognition, as well as the strong performance of the University’s
endowment and other long-term investments, which show an 8% return through the first nine
months of FY14. At March 31, 2014, state appropriations, tuition, and auxiliary revenues have
been recognized for the full year, while expenses are spread throughout the fiscal year.
31
UNIVERSITY OF VIRGINIA - Academic Division Only
Statement of Net Position (Unaudited)
As of 3/31/2014
As of 6/30/13
(in 000s)
ASSETS
Current Assets
Cash and short term investments
Receivables (accounts, notes, other)
Inventories, prepaids and other
Total current assets
$
Noncurrent Assets
Endowment and other investments
Receivables (pledges and notes)
Deposits with bond trustees & other
Capital assets, net
Total noncurrent assets
569,122
43,030
266
612,418
$
4,410,310
23,059
64
2,174,579
6,608,012
Total assets
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Unearned revenues and deposits
Commercial Paper
Internal deposits held for Wise, SWVHEC and agencies
Total current liabilities
7,220,430
$
6,750,055
$
24,451
92,878
193,393
4,978
315,700
$
17,150
152,071
139,593
9,873
318,687
Total Liabilities
NET POSITION
Net investment in capital assets
Restricted:
Nonexpendable
Expendable
Unrestricted
Total Net Position
$
32
4,023,415
21,166
22
2,161,194
6,205,797
$
Noncurrent Liabilities
Long-term debt
Other long-term liabilities
Total noncurrent liabilities
Total Liabilities & Net Position
495,297
48,695
266
544,258
768,406
460
768,866
815,078
494
815,572
1,084,566
1,134,259
1,282,424
1,220,059
510,342
2,649,743
1,693,355
6,135,864
498,277
2,541,985
1,355,475
5,615,796
7,220,430
$
6,750,055
Statement of Revenues, Expenses, and Changes in Net Position (SRECNP)
Shown on the following page, this statement outlines the Academic Division’s revenues,
expenses, and other changes in net position as of March 31, 2014 as compared to the same period
last year. It is developed based on GAAP but is unaudited.
The March 31, 2014 net position is up $520 million due to the performance of the endowment
and other investments, as well as the recognition of the major unrestricted revenues for the full
year.
Operating Revenues:
Total operating revenues for the period ended March 31, 2014 were $1.05 billion, up 2.1% over
the prior year. Student tuition and fees are reported net of discounts and allowances, and are up
5.9% 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
April 2013.
As anticipated, the federal budget uncertainty with Continuing Resolutions and Sequestration
that occurred in calendar year 2013 has adversely affected federally funded grant activity which
is down $17.4 million, or 9.1%. State, local, and industry/foundation grants are down as well, by
a combined $7.8 million.
State appropriations increased $5.4 million or 3.8%, with the additional funding coming to
support the July 2013 faculty and staff salary increase and employee benefits.
Investment income is $424.2 million, reflecting the investment performance on the UVIMCO
Long Term Pool through March 31, 2014. Additions to permanent endowments are up slightly
at $9.3 million.
Operating Expenses:
Operating expenses were down $11.8 million, or 1.2% for the period ended March 31, 2014
compared to the same period in Fiscal Year 2013. A decline in sponsored programs expenditures
is the single biggest reason for the decrease. Modest increases were seen in the public service,
depreciation, and auxiliary expense categories.
33
UNIVERSITY OF VIRGINIA - Academic Division Only
Statement of Revenues, Expenses, and Changes in Net Position (Unaudited)
OPERATING REVENUES AND EXPENSES:
Operating Revenues
Student tuition and fees, net
Grants and contracts (federal, state, nongovernmental)
State appropriations
Gifts
Sales and services of educational departments
Auxiliary enterprises revenues, net
Pell grants
Total operating revenues
Nine Months
Nine Months
Ended 3/31/2014 Ended 3/31/2013
(in 000s)
$
459,413
212,397
145,491
108,009
22,447
93,373
8,337
1,049,467
$
433,988
237,550
140,104
105,552
12,676
90,317
7,773
1,027,960
Operating Expenses
Instruction
Research
Public service
Academic support
Student services
Institutional support
Operation of plant
Student aid, net
Auxiliary
Depreciation
Other
Total operating expenses
Operating revenues less operating expenses
247,009
205,857
28,681
109,291
30,585
59,777
65,313
53,687
97,704
82,933
8,254
989,091
60,376
255,620
219,343
25,331
108,339
29,099
58,149
64,163
58,286
93,380
76,353
12,868
1,000,931
27,029
NONOPERATING REVENUES AND EXPENSES
Nonoperating Revenues
Capital appropriations, grants and gifts
Investment income
Additions to permanent endowments
Other
Total nonoperating revenues
44,177
424,231
9,346
5,842
483,596
58,345
326,440
8,053
6,260
399,098
Nonoperating Expenses
Interest on capital asset related debt, net
Loss on capital assets
Total nonoperating expenses
Nonoperating revenues less nonoperating expenses
23,151
753
23,904
459,692
24,664
1,999
26,663
372,435
1,533,063
1,012,995
520,068
1,427,058
1,027,594
399,464
Total Revenues
Total Expenses
Increase (decrease) in net position
NET POSITION
Net position - July 1 (beginning)
Net position -- March 31 (ending)
$
34
5,615,796
6,135,864
$
5,141,004
5,540,468
Cash-Basis Operating Sources and Uses, Budget vs. Actual
This report, on the following page, reviews actual results as of March 31, 2014 compared to
budgeted outcomes for the sources and uses of funds of the Academic Division. The cash-based
operating plan differs from the GAAP SRECNP in the following ways:
•
External debt service, UVa Health Plan activity, and endowment investment performance
are excluded, while repayments of debt to the internal bank and the expendable
endowment distribution are included.
•
Depreciation is excluded and most equipment purchases are reported as a use of funds,
and are not capitalized.
•
Only gifts received and available for the operating plan are included. Pledges, non-cash
gifts, gifts transferred to the endowment or capital program, and gifts held at foundations
are excluded.
•
The operating plan nets financial aid funded from tuition from gross tuition, but does not
exclude financial aid funded from other sources (gifts, endowments, and grants).
•
The operating plan reflects mandatory fees collected for auxiliaries and internal revenues
collected from internal departments as other tuition and fee and sales, investment, &
other revenue.
•
The operating plan excludes unrealized gains.
Through March 31, 2014, actual net sources exceeded uses by $187.5 million due to the
collection of all expected operating revenue (regular session tuition and the state general fund
appropriation) for the year by the end of the third quarter, while normal annual operating
expenses (compensation primarily) will continue to be incurred through the remaining quarter.
Sources of Funds:
Actual available sources of funds for the Academic Division as of March 31, 2014 were $1,271.1
million, or 0.9% greater than the $1,259.9 million budgeted for the period, related to the higher
than projected gifts transferred in from affiliated foundations and the revenue sharing
contribution from the Medical Center to the School of Medicine.
Uses of Funds:
Total uses of available funds for the Academic Division through March 31, 2014 totaled
$1,083.6 million, which is 1.8% below the $1,103.7 million budgeted for the period, primarily
related to the timing of expenses and faculty hiring, as well as efforts to reduce operational costs.
35
UNIVERSITY OF VIRGINIA - Academic Division Only
Comparative Statement of Sources and Uses of Funds, Year to Date
2013-14
Quarterly
Budget
2013-14
Annual Budget
Sources of Available Funds
Tuition and Fees
Undergraduate
Less: Tuition to financial aid
Net Undergraduate
$
Actuals
Through
03/31/2014
(in 000s)
Actuals Over Actuals as a
(Under)
% of
Quarterly
Quarterly
Budget
Budget
266,871 $
(32,624)
234,247
267,000 $
(33,000)
234,000
269,220 $
(33,716)
235,504
Graduate
Less: Tuition to financial aid
Net Graduate
41,662
(27,231)
14,431
42,000
(26,000)
16,000
Professional (Law, Darden, McIntire & SEAS Exec.)
Less: Tuition to financial aid
Net Professional
103,123
(7,813)
95,310
School of Medicine
Less: Tuition to financial aid
Net School of Medicine
2,220
(716)
1,504
0.8%
2.2%
0.6%
42,201
(25,647)
16,554
201
353
554
0.5%
-1.4%
3.5%
103,000
(7,800)
95,200
102,812
(6,933)
95,879
(188)
867
679
-0.2%
-11.1%
0.7%
29,007
(510)
28,497
29,000
(510)
28,490
28,742
(510)
28,232
(258)
(258)
-0.9%
0.0%
-0.9%
Other
Less: Tuition to financial aid
Net Other
Total Net Tuition & Fees
97,996
(1,193)
96,803
469,288
97,000
(570)
96,430
470,120
97,057
(478)
96,579
472,748
57
92
149
2,628
0.1%
-16.1%
0.2%
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
144,890
229,328
63,200
158,422
100,571
25,434
184,911
39,199
145,000
177,000
48,500
157,000
78,500
18,800
165,000
-
145,491
177,116
46,608
158,301
81,680
19,103
170,040
-
491
116
(1,892)
1,301
3,180
303
5,040
-
0.3%
0.1%
-3.9%
0.8%
4.1%
1.6%
3.1%
n/a
11,167
0.9%
Total Sources of Available Funds
$
1,415,243
$
1,259,920
$
1,271,087
$
368,937
300,526
146,912
42,976
76,256
110,261
101,517
156,508
$
274,000
234,000
110,000
30,000
62,000
90,000
98,700
130,000
$
262,078
232,768
108,433
29,725
60,342
88,916
100,353
127,794
73,223
(1,777)
-2.4%
Total Uses of Available Funds
$
1,412,920
$
1,103,700
$
1,083,632
$ (20,068)
-1.8%
Net Sources in Excess of Uses
$
2,323
$
156,220
$
187,455
$
20.0%
$
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
109,028
36
75,000
$ (11,922)
(1,232)
(1,567)
(275)
(1,658)
(1,084)
1,653
(2,206)
31,235
-4.4%
-0.5%
-1.4%
-0.9%
-2.7%
-1.2%
1.7%
-1.7%
UNIVERSITY OF VIRGINIA
Quasi-Endowment Actions
January 1, 2014 – March 31, 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
Access UVA Scholarships
Darden, Barbara B. Endowed Scholarship
Gaden, Elmer L. Jr. Endowed Award for Excellence in Doctoral Studies 1
President's Fund for Excellence Unrestricted Quasi-Endowment
Research Activities Quasi-Endowment Fund
Strategic Investment for Anesthesiology Research Chair Quasi-Endowment 1
University Quasi-Endowment Fund 2
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
Dermatology General Investment Fund
Hecht, Sidney M. Fellowship in Chemistry
Hecht-Cruachem Chemistry Quasi-Endowment #3
HOPE Physician Incentive Quasi-Endowment
Hughes Endowment Income Capitalization Quasi-Endowment
Jordan, Harvey E. Lectureship
Low, Emmet F. and N. Alyce Chair Quasi-Endowment
McIntire, Howard Quasi-Endowment in Neurology
Medical Center Capital Assets Quasi-Endowment 3
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
Taylor, Henry N. Fund
Virginia Quarterly Review - Anonymous
Total Additions from Endowment Income to Quasi-Endowments
Divestments
Thaler, Myles H. Quasi-Endowment for HIV Research
Total Divestments from Quasi-Endowments
Amount
293,500
55,000
25,815
196,422
250,000
1,000,000
619,615
$
2,440,352
$
$
$
9,582
87,524
1,782
32,733
9,214
1,521
67,448
1,995
1,500
1,287
23,669
7,103,688
6,353
4,574
19,360
4,613
2,614
92,344
7,031
6,764
17,203
339
587
7,503,725
$
$
50,000
50,000
Notes:
1
Quasi-endowment newly established or originally funded since January 1, 2014.
2
Includes current unrestricted gifts to the University which, under a standing Board of Visitors resolution, are required to be added to the University's
Unrestricted Endowment Fund.
3
On February 7, 2008, the BOV authorized additional amounts up to $300 million without further BOV approval.
37
UNIVERSITY OF VIRGINIA
Write-off of Non-Patient Bad Debts
Fiscal Year 2014
The University's write-off of non-patient bad debts for the fiscal year 2014 is $579,189. The largest
category, tuition and fees, represents only 0.08 percent of the fiscal year 2013 tuition and fee
revenue. The below write-offs do not constitute a compromise, settlement, of discharge of the debts,
but rather an acceleration of the use of collection agencies, state tax liens, and the court system for
the collection of these debts. For the past ten years, the University is averaging a collection rate of
approximately 48% on previously written off student debts.
FY
2013-14
FY
2012-13
FY
2011-12
FY
2010-11
FY
2009-10
$ 285,297
$ 306,609
$ 229,970
$ 599,950
$ 327,460
137,085
139,391
129,545
80,430
46,005
Other Charges
73,327
82,104
82,012
19,215
27,413
Auxiliary Services Fines and Charges
40,759
27,864
32,457
92,674
69,173
Uncollectible Salary Overpayments
21,234
52,785
58,671
13,039
7,094
University Student Loans
10,759
15,944
8,319
38,460
23,784
Library Fines and Charges
10,727
12,688
8,609
16,855
6,111
$ 579,189
$ 637,385
$ 549,583
$ 860,623
$ 507,040
Tuition and Fees
UVA's College at Wise
TOTAL
Source: Associate Vice President for Finance
Date: May 6, 2014
38