REVISED
9/9/10
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS
MEETING OF THE
FINANCE COMMITTEE
SEPTEMBER 14, 2010
FINANCE COMMITTEE
Tuesday, September 14, 2010
1:15 – 2:15 p.m.
Board Room, The Rotunda
Committee Members:
(To Be Determined), Chair
A. Macdonald Caputo
Sheila C. Johnson
Hunter E. Craig
Mark J. Kington
The Hon. Alan A. Diamonstein
Randal J. Kirk
Helen E. Dragas
Vincent J. Mastracco Jr.
Marvin W. Gilliam Jr.
John O. Wynne, Ex-officio
Daniel Maxwell Meyers, Consulting Member
AGENDA
PAGE
I.
II.
CONSENT AGENDA (Mr. Sandridge)
2011 Operating and Capital Amendments to the
2010-2012 Biennial Budget
1
ACTION ITEMS (Mr. Sandridge)
A.
Signatory Authority for Medical Center Procurement
5
Environmental Services
B.
Signatory Authority for UVa Health Plan
7
Third-Party Administrator Contract (Mr. Sandridge
to introduce Susan Carkeek; Ms. Carkeek to report)
C.
Property Exchanges (Mr. Sandridge to introduce
Colette Sheehy; Ms. Sheehy to report)
1.
Acquisition of 1204 West Main Street,
10
Charlottesville (Barry & Bill Battle
Building at the University of Virginia
Children’s Hospital) from the University
of Virginia Foundation
2.
Disposition or Conveyance of Property Located
12
on Hickory Hill Lane, Albemarle County, Virginia
III. REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER (Mr. Sandridge)
A.
Vice President’s Remarks
B.
Annual Report on the UVa Health Plan and
Benefits (Ms. Carkeek to report)
14
15
C.
D.
Endowment Report – Market Value and Performance
as of July 31, 2010 (Mr. Sandridge to introduce
Michael Aked; Mr. Aked to report)
Report on Endowment Spending Rate (Written Report)
16
19
PAGE
E.
IV.
Miscellaneous Financial Reports
1.
Academic Division Accounts and Loans
Receivable
2.
Capital Campaign Summary Report
3.
Uses of Funds from Pratt Estate
4.
Internal Loans to University Departments
and Activities
5.
Quarterly Budget Report
6.
Endowment/Long-Term Investments for UVa and
Related Foundations
7.
Quasi-Endowment Actions
8.
Salary and Compensation for Full-Time
Instructional Faculty and University Staff
Salary Report
9.
Sponsored Programs Restricted Grants and
Contracts
ATTACHMENT
UVIMCO Annual Report, June 2010
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23
24
25
28
29
31
42
BOARD OF VISITORS CONSENT AGENDA
2011 OPERATING AND CAPITAL AMENDMENTS TO THE 2010-2012 BIENNIAL
BUDGET: In even numbered years, the University submits its
requested amendments to the biennial budget to the Department of
Planning and Budget for review by the Governor for inclusion in
his amended budget presented to the General Assembly in
December. Prior to this submittal, the Board of Visitors
reviews and approves the proposal to amend operating and capital
projects.
Since instructions for agencies to submit 2010-2012 budget
amendments have not been received from the Commonwealth in time
to finalize the items for inclusion in this booklet, the report
reflects the most critical operating needs of the University and
for the most part does not address new programmatic initiatives.
Items such as faculty and staff salary increases, base budget
adequacy, and undergraduate financial aid are cross-cutting
issues that will be addressed by the state for all institutions.
This list may be modified based on instructions received from
the state. Given the state’s financial situation it is likely
that the Governor will restrict the types of amendments he will
accept.
Depending on the outcome of the Governor’s budget process,
the University may want to submit these amendments, and possibly
others, to the legislative session in January. Any requests not
included on this list that might be submitted to the General
Assembly will be communicated to the Board of Visitors in
advance of the due date. Formal approval by the Board of
Visitors will be sought at its February 2011 meeting.
Operating amendments for the Academic Division (Agency
207) total $5.2 million general funds (GF) in year one and
$12.95 million GF in year two. The Academic Division will also
submit one capital request for $12.95 million in GF to address
maintenance requirements in the Rotunda. The Medical Center has
one amendment addressing Medicaid payment rates that totals $9.5
million in year one and $15.2 million in year two. The
University of Virginia’s College at Wise will request $339,522
GF in year one and $854,110 GF in year two to address
maintenance costs of new facilities coming on line.
AGENCY 207 – Academic Division:
Operations and Maintenance Costs for New Facilities ($5,176,960
GF in year one and $7,083,876 GF in year two) – The University
requests on-going support for operations and maintenance costs
1
of new facilities which have opened since July 2008 and those
that are scheduled to open in the 2010-2012 biennium.
Establish Fund for Faculty Start-Up Packages ($5,850,000 GF in
year two) – The University requests the establishment of a fund
for start-up packages necessary to recruit new faculty,
particularly in the STEM disciplines, to support expected
enrollment growth over the next four years. The $23.4 million
($5.85 million for four years) will provide critical resources
for laboratory renovations, equipment, and other support for 39
new faculty in the sciences and engineering fields.
Modify Appropriation Act Language to be Consistent with
Management Agreement, NGF Estimates (Language Only) - The
current Appropriation Act (Chapter 874) includes language which
is inconsistent with authority granted in the University’s
Management Agreement (Chapter 943 of the 2006 Acts of Assembly
as amended by Chapter 685 of the 2009 Acts of Assembly) with the
Commonwealth under Restructuring. The Management Agreement
provides that the University has sum sufficient appropriations
for all non-general fund revenues (meaning we are authorized to
spend whatever revenue we collect), yet the Appropriation Act
requires all institutions to submit a request to the Director of
the State Council of Higher Education in Virginia for nongeneral
fund revenues in excess of original estimates. The University
will submit language to exclude such review in accordance with
each respective institution’s management agreement with the
state.
Modify Appropriation Act Language to be Consistent with
Management Agreement, Reversion of NGF Savings (Language Only) The current Appropriation Act (Chapter 874) requires the
reversion of non-general fund savings from tuition, auxiliary
revenues, and patient revenues, an action which is inconsistent
with authority granted in the University’s Management Agreement
(Chapter 943 of the 2006 Acts of Assembly as amended by Chapter
685 of the 2009 Acts of Assembly) with the Commonwealth. The
Management Agreement provides that the University shall be
entitled to retain non-general fund savings generated from
changes in Commonwealth rates and charges, including but not
limited to health, life, and disability insurance rates,
retirement contribution rates, telecommunications charges, and
utility rates, rather than reverting such savings back to the
Commonwealth. The University will submit language to eliminate
the reversions of non-general fund savings in accordance with
our Management Agreement with the state.
2
Address Maintenance Requirements in the Rotunda, Phase I ($12.95
million GF) – This capital project will address critical repairs
in the Rotunda, the centerpiece and symbol of the University.
The Rotunda is listed on the Virginia Landmarks Register, is a
National Historic Landmark, and is within the boundaries of the
UNESCO-designated World Heritage Site. This phase of the
planned renovation will address work which threatens the
integrity of the building envelope, including the replacement of
the dome roof and the repair of the marble Corinthian capitals
on each portico. The total Phase I project cost will be $22.95
million, the balance to be funded by private funds.
AGENCY 209 – Medical Center:
Increase Medicaid Prospective Inpatient Payment Rates
($9,484,061 million GF in year one and $15,296,020 million GF in
year two) – The 2010-2012 Appropriation Act reduced the level of
reimbursement to the Commonwealth’s academic medical centers,
also leaving federal cost-matching dollars on the table.
AGENCY 246 – University of Virginia’s College at Wise:
Operations and Maintenance Costs for New Facilities ($339,522 GF
in year one and $854,110 GF in year two) – The College requests
on-going support for operations and maintenance costs of new
facilities scheduled to open in the 2010-2012 biennium.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL OF 2011 OPERATING AND CAPITAL AMENDMENTS TO THE 20102012 BIENNIAL BUDGET
WHEREAS, the 2010-2012 budget requests to the Governor were
submitted on September 1, 2009, pending approval by the Board of
Visitors; and
WHEREAS, the proposed 2010-2012 biennial budget requests
have been reviewed carefully; and
WHEREAS, the proposed biennial budget requests represent
the highest priority initiatives and are aligned with the
mission of the institution;
RESOLVED, the Board of Visitors of the University of
Virginia approves the 2010-2012 biennial budget requests
accompanying this resolution; and
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RESOLVED FURTHER, the Board of Visitors understands that to
the extent these initiatives are not included in the Governor’s
2010-2012 biennial budget, the University may want to pursue
similar requests to the Legislature; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized to transmit to the General
Assembly any request not funded by the Governor as long as there
are no material differences from the items already endorsed by
the Board of Visitors.
4
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
II.A. Signatory Authority for Medical
Center Procurement – Environmental Services
BACKGROUND: The Board of Visitors must approve any contract
where the amount per year is in excess of $5,000,000, which is
the procurement amount that the Board of Visitors has authorized
the Executive Vice President and Chief Operating Officer of the
University to execute without prior approval by the Board of
Visitors.
DISCUSSION: The Medical Center’s current contract for
environmental services expires on June 30, 2011. The Medical
Center is engaged in a competitive procurement process to
acquire environmental services for the Medical Center, with the
expectation that the resulting contract will be executed in late
2010.
The contract will be for an initial term of five years,
with the option for the Medical Center to extend for an
additional five-year term. The cost of the contract for the
first year is expected not to exceed $12,000,000. Each year
thereafter the cost will be negotiated increases or decreases
based on the actual needs of the Medical Center. The total
projected expenditure over the life of the resulting contract is
estimated to be $95,000,000, assuming the Medical Center
exercises the five-year extension period. The vendor will
provide all environmental services, including but not limited to
housekeeping (custodial) services and waste management,
throughout the Medical Center.
ACTION REQUIRED: Approval by the Medical Center Operating
Board, by the Finance Committee, and by the Board of Visitors
SIGNATORY AUTHORITY FOR ENVIRONMENTAL SERVICES CONTRACT FOR THE
MEDICAL CENTER
RESOLVED, the Board of Visitors authorizes the Executive
Vice President and Chief Operating Officer of the University to
execute a contract for environmental services for the Medical
Center based on the recommendation of the Vice President and
5
Chief Executive Officer of the Medical Center in accordance with
Medical Center procurement policy.
6
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
II.B. Signatory Authority for UVa Health
Plan Third-Party Administrator Contract
BACKGROUND: The Commonwealth of Virginia manages a health plan
for all state employees. For many years, UVa employees received
health benefits through the Commonwealth’s plan. On April 4,
1995, an MOU was signed documenting an agreement between the
Commonwealth of Virginia and the Rector and Visitors of the
University of Virginia to allow UVa to offer the QualChoice of
Virginia Health Plan to all eligible employees as part of a
pilot program. QualChoice of Virginia was a subsidiary of Blue
Ridge Health Alliance, a joint venture among the University of
Virginia, the Health Services Foundation, and Martha Jefferson.
Ultimately, after January 1, 1998, QualChoice became the only
health care plan for University employees and retirees, thus
making UVa the only state agency to operate a self-insured
health plan separate from the Commonwealth. In 2001, QualChoice
was acquired by Southern Health Services and since that time,
the UVa Health Plan has continued to contract with Southern
Health to provide third-party administrative services, claims
administration, medical management, and network services. The
University has retained an external consulting firm, Segal
Company, to provide actuarial analysis, plan-design advice and
benchmarking for the Plan since 2002.
Recognizing that healthcare and pharmacy are dynamic and
fast moving industries, and that new products, services, and
programs are continually evolving, the University determined
that it was an appropriate time to formally procure medical and
pharmacy third-party administrative services through a
competitive Request For Proposal (RFP) process. The contracts
currently in place with the third-party administrators (Southern
Health and CVS/Caremark) are scheduled to end on December 31,
2010.
DISCUSSION: An RFP Committee was formed in the fall of 2009
with membership from around the Grounds, including academic and
Medical Center employees in collaboration with Segal and UVa’s
Procurement Services. The Committee began its work by
evaluating current benefit offerings, plan designs and vendor
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relationships. This work was the springboard for the creation
of a formal RFP, seeking claims administration, medical
management and network services for the medical and mental
health benefits and for the pharmacy program, to begin January
1, 2011. This report focuses on the selection of the Medical
Administrator, which due to the value of the contract requires
the Board’s approval. The Prescription Program Administrator
selection will be covered in the Annual Health Care Plan Review
as an information item.
The RFP was issued on December 18, 2009, and included 75
service requirements of the Medical Program Administrator.
Vendor proposals were due on February 17, 2010. The Committee
received a total of five proposals. Segal provided an analysis
of the financial aspects of the responses.
The Committee ranked the respondents based on the RFP’s
published criteria and weights considering such factors as
experience, responsiveness, references, cost, and utilization of
Small, Woman and Minority-Owned Businesses (SWAM). Based on the
ranking, four of the vendors were invited to make initial oral
presentations. The Committee selected two finalists for further
consideration. The two finalists were invited back to make a
final presentation and answer questions. From this process, the
Committee recommended the sole tentative finalist, Aetna.
The following factors set Aetna apart:
Aetna’s annualized three-year average administrative cost
of $5,238,892 is less than that of other comparable
administrative services.
Aetna's administrative cost includes the use of their
programs and services that evaluate the health of each
participant, actively address gaps in care, and identify
those who would benefit from enrollment in disease
management programs. Aetna has offered an annual claim
savings guarantee of four percent off claims costs of the
incumbent carrier based on the use of these programs.
Based on Segal's analysis, this will result in a claims
savings of $3,819,860.
Aetna has a proven program for effectively managing mental
health benefits.
Aetna has a seamless national network of providers as well
as providers in other countries.
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Aetna provides robust reporting capabilities.
References were very positive for Aetna. Some comments
from references: “What sets them apart is their willingness
to partner with the organization.” “They are flexible and
engaging and understand the needs of the organization and
deliver what they promise.” “Aetna is supportive of
electronic advances and technology.” “Customer service is
excellent. Aetna is very professional and has the right
people in the right places.”
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
SIGNATORY AUTHORITY FOR UVA HEALTH CARE PLAN THIRD-PARTY
ADMINISTRATOR CONTRACT
RESOLVED, the Board of Visitors approves of the selection
of Aetna as the Third-Party Administrator for Medical Program
Services. The term of this contract will commence upon
execution and will be effective through December 31, 2015, with
the ability to renew on the same terms and conditions, for two
five-year periods beginning January 1, 2016, and January 1,
2021, respectively; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer, or his designee, is authorized to negotiate
and execute a contract with Aetna for Medical Program Services.
9
UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
II.C.1. Acquisition of 1204 West Main
Street, Charlottesville (Barry & Bill Battle
Building at University of Virginia
Children’s Hospital) from the University of
Virginia Foundation
BACKGROUND: The University of Virginia intends to purchase from
the University of Virginia Foundation (the “Foundation”) the
land located at 1204 West Main Street, Charlottesville,
consisting of approximately 1.5 acres, and all improvements
located thereon, to include the proposed Barry and Bill Battle
Building at the University of Virginia Children's Hospital. The
Barry and Bill Battle Building will be constructed by the
Foundation prior to conveyance of the land to the University.
DISCUSSION: Construction of the 200,000 square foot facility is
scheduled to commence in 2011. It is anticipated that a portion
of the acquisition costs will be funded by debt issued by the
University. This resolution is presented to the Board at this
time consistent with bond counsel’s recommendation that Board
authorization of the acquisition and execution of a real estate
purchase agreement occur prior to issuance of the debt.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL TO PURCHASE 1204 WEST MAIN STREET, CHARLOTTESVILLE,
VIRGINIA, AND EXISTING AND FUTURE IMPROVEMENTS FROM THE
UNIVERSITY OF VIRGINIA FOUNDATION
WHEREAS, the Board of Visitors finds it to be in the best
interest of the University of Virginia to purchase from the
University of Virginia Foundation (the “Foundation”) land
located at 1204 West Main Street, Charlottesville, together with
all existing and future improvements, to include the Barry and
Bill Battle Building at UVA Children’s Hospital to be
constructed by the Foundation (collectively, the “Property”),
all of the foregoing to be used for University of Virginia and
University of Virginia Medical Center activities and
organizations, at a purchase price not to exceed $141.6 million;
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RESOLVED, the Board of Visitors approves the acquisition of
the Property; and
RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized, on behalf of the University, to
approve and execute purchase agreements and related documents,
to incur reasonable and customary expenses, and to take such
other actions as deemed necessary and appropriate to consummate
such property acquisition; and
RESOLVED FURTHER, all prior acts performed by the Executive
Vice President and Chief Operating Officer, and other officers
and agents of the University, in connection with such property
acquisition, are in all respects approved, ratified, and
confirmed.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
II.C.2. Disposition or Conveyance of
Property Located on Hickory Hill Lane,
Albemarle County, Virginia
BACKGROUND: The Management Agreement gives the Board of
Visitors authority to sell real property acquired with non-state
funds or by gift and retain the proceeds of the sale.
Periodically the University assesses its real property assets to
determine whether there are parcels that might be sold because
we have no immediate or future plans for them.
DISCUSSION: The University recently reviewed its land holdings
and identified a one acre lot located on Hickory Hill Lane; east
of Route 29 and approximately one mile south of the Route 29 and
Interstate 64 intersection. The property was received as a gift
from Robert E. Scully in December 1954. The property is not
adjacent to other University properties, is difficult to access
and there are no current plans for its use by the University.
Therefore, the University recommends the sale of the property.
ACTION REQUIRED: Approval by the Finance Committee and by the
Board of Visitors
APPROVAL TO SELL OR CONVEY PROPERTY LOCATED ON HICKORY HILL
LANE, ALBEMARLE COUNTY, VIRGINIA
WHEREAS, approximately one acre of land located near
Hickory Hill Lane and further described as Tax Map 75, Parcel
42B0 being the same property conveyed by Robert E. Scully to The
Rector and Visitors of the University of Virginia by deed dated
December 9, 1954, and recorded in Deed Book 314, Page 44, in the
Office of the Clerk of the Circuit Court of Albemarle County,
Virginia (the “Property”), is property that is not required for
University purposes, and the Board of Visitors finds it to be in
the best interest of the University of Virginia to dispose of
the Property; and
RESOLVED, the Board of Visitors approves the sale of the
Property to any interested party; and
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RESOLVED FURTHER, the Executive Vice President and Chief
Operating Officer is authorized, on behalf of the University, to
approve and execute 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 sale; 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
sale, are in all respects approved, ratified, and confirmed.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
III.A.
ACTION REQUIRED:
None
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.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
III.B. Annual Report on the UVa Health
Plan and Benefits
ACTION REQUIRED:
None
BACKGROUND: The University will provide its regular annual
report on the status of the University’s self-insured employee
health care plan. The UVa Health Plan currently covers 12,741
active employees, 561 non-Medicare eligible retirees, and 90
COBRA enrollees along with their dependents for a total
population of 28,209.
The University regularly monitors its employee health
claims and premiums, the adequacy of its reserves, and the
outlook for future health care costs. While it is anticipated
that health care costs will continue to increase, the University
slowed the impact of the increase through strategic cost-control
programs implemented on January 1, 2010.
DISCUSSION: The only plan design changes are expected to be
those required by the recent Affordable Care Act (ACA) and The
Mental Health Parity and Addiction and Equity Act (MPAEA).
Effective January 2011, the University will increase
premiums in the High Premium program. The High Premium increase
will cover projected claims costs and will keep the reserve at
an appropriate level based on those projected costs. Claims for
the Low Premium Plan are less than half of those for the High
Premium Plan, on a per person basis, and substantially below the
total funding rates (UVa funding plus employee contributions).
Therefore, premiums on the Low Premium Program will remain the
same next year.
A detailed report on the plan changes and costs, as well as
a review of the Pharmacy Program Administrator selection will be
provided during this meeting.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
III.C. Endowment Report – Market Value and
Performance as of July 31, 2010
ACTION REQUIRED:
None
BACKGROUND: The University of Virginia Investment Management
Company (UVIMCO) provides investment management 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 2010 Annual Report, which was delivered to
members of the Board of Visitors at the end of August, is
provided as an attachment to this book. The July 2010
Investment Report follows.
In July, global capital markets experienced a sharp rebound
following a sizeable second quarter 2010 decline. Most stock
sectors, large and small, growth and value, domestic and
international, rallied strongly. Public real estate and
commodities prices also recorded remarkable gains during the
month. UVIMCO’s Long Term Pool appreciated 2.5 percent in July,
which translated to a gain of just over $110 million. The
Pool’s public equity and resource portfolios contributed to the
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overall gain by returning 6.4 percent and four percent,
respectively, during the month.
The Pool’s strong absolute return of 2.5 percent in July
lagged on a relative basis versus the 6.1 percent return of the
policy benchmark. The Pool’s relative underperformance during
the month was broad-based and unsurprising given that UVIMCO’s
portfolio tends to trail during rapidly appreciating markets.
The long-term performance of the Pool remains strong. Over
the five- and ten-year periods ending July 31, 2010, UVIMCO’s
portfolio compounded at an annualized rate of 6.7 percent and
7.2 percent, respectively. This performance comfortably
surpasses both spending requirements and the 3.7 percent and 3.8
percent annualized returns that would have been earned by
investing in the passive policy benchmark over the same fiveand ten-year horizons.
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UNIVERSITY OF VIRGINIA
BOARD OF VISITORS AGENDA ITEM SUMMARY
BOARD MEETING:
September 14, 2010
COMMITTEE:
Finance
AGENDA ITEM:
III.D. Report on Endowment Spending Rate
(Written Report)
ACTION REQUIRED:
None
BACKGROUND: At its June 2008 meeting the Board of Visitors
adopted a resolution to change the parameters of the spending
policy. This policy, which became effective July 1, 2008, calls
for “a percentage increase in the annual distribution from the
endowment, unless such increase causes the distribution to fall
outside a range defined as four percent on the low end and six
percent on the high end of the market value of the Pooled
Endowment Fund.” If the distribution falls outside of this
range, the Finance Committee may recommend either raising or
lowering the rate of increase.
In fiscal year 2008-2009, the endowment experienced a 21
percent market loss. This resulted in the spending as
calculated by the formula to be above the high end of the range.
Therefore, at its September 2009 meeting, the Board of Visitors
reset the fiscal year 2009-2010 spending rate to 5.5 percent of
the June 30, 2009 market value.
DISCUSSION: In fiscal year 2009-2010, the endowment experienced
a return of 15.1 percent. The partial recovery enables the
application of the Board of Visitors’ policy without further
action by the Board. Applying the spending policy will result
in an annual endowment distribution for fiscal year 2010-2011 of
5.3 percent of the June 30, 2010 market value of the Pooled
Endowment Fund, which is within the approved band of four
percent to six percent. The endowment distribution will total
$143.9 million.
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MISCELLANEOUS FINANCIAL REPORTS
Finance Committee
University of Virginia
SEPTEMBER 14, 2010
UNIVERSITY OF VIRGINIA
ACADEMIC DIVISION
ACCOUNTS AND LOANS RECEIVABLE
AS OF JUNE 30, 2010
Summary of Accounts Receivable:
The University’s Academic Division’s total accounts receivable at June 30, 2010 was
$35,191,000 as compared to $33,814,000 at March 31, 2010. The major sources of receivables
at June 30, 2010, were Student Accounts of $17,953,000 and Sponsored Programs of
$15,351,000.
The past due receivables over 120 days old were $3,293,000 as of June 30, 2010, or 9.36 percent
of total receivables, which is below the Commonwealth’s management standard of 10 percent.
Student
Accounts
Gross Accounts
Receivable
Sponsored
Programs
Other
Receivables
Total
$ 17,953,000
$ 15,351,000
$ 1,887,000
$ 35,191,000
938,000
585,000
0
1,523,000
$ 17,015,000
$ 14,766,000
$ 1,887,000
$ 33,668,000
Less: Allowance for
Doubtful Accounts
Net Accounts
Receivable
Accounts Receivable
Greater than 120 Days
Past Due
$
2,083,000
$
1,171,000
$
39,000
$
3,293,000
SOURCE: Financial Administration
DATE:
August 11, 2010
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UNIVERSITY OF VIRGINIA
ACADEMIC DIVISION
ACCOUNTS AND LOANS RECEIVABLE
AS OF JUNE 30, 2010
Summary of Loans Receivable:
The default rate for the Perkins Student Loan Program was 5.55 percent for the quarter ending
June 30, 2010. This is based on the cohort default calculation and is well below the 15 percent
threshold set by federal regulations. The Health Professions Loan Program default rate remained
the same at zero percent. The Nursing Undergraduate Student Loan Program default rate
increased from 1.27 percent to 1.44 percent. Both medical loan programs are well below the five
percent federal threshold. The University Loan Program default rate decreased by 0.67 percent
to 2.37 percent for the quarter ending June 30, 2010.
Current
Default Rate
Inc./(Dec)
From Last Quarter
5.55%
0.38%
0%
0%
1,342,000
1.44%
0.17%
15,024,000
2.37%
-0.67%
Gross Loans
Receivable
Perkins Student Loans
Health Professions
Loans
Undergraduate
Nursing Loans
University Loans
Total Student
Loans Outstanding
$ 19,241,000
0
$ 35,607,000
SOURCE: Financial Administration
DATE:
August 11, 2010
21
UNIVERSITY OF VIRGINIA
CAPITAL CAMPAIGN SUMMARY
AS OF APRIL 30, 2010
All Units
Expendable
915,593,808
187,411,065
Endowment
425,655,011
49,034,495
Total
1,341,248,819
236,445,560
90,505,282
181,549,582
70,674,677
25,179,065
0
3,325,598
115,684,347
181,549,582
74,000,275
Gift and Pledge Total
1,445,734,414
185,359,008
503,194,169
52,246,787
1,948,928,583
237,605,795
Campaign Total
1,631,093,422
555,440,956
2,186,534,378
-73,784,414
1,371,950,000
1,124,855,831
1,628,050,000
1,051,071,417
3,000,000,000
Expendable
321,661,834
38,511,065
Endowment
241,169,395
7,220,654
Total
562,831,229
45,731,719
58,938,845
0
30,176,629
9,924,077
0
10,587
68,862,922
0
30,187,216
Gift and Pledge Total
449,288,373
117,670,629
258,324,713
3,692,539
707,613,086
121,363,168
Campaign Total
Additional Amounts To Be Raised
Total
566,959,002
TBD
566,959,002
262,017,252
TBD
262,017,252
828,976,254
TBD
828,976,254
4,642,889
0
4,642,889
200,000
295,648
0
0
200,000
295,648
5,138,537
0
5,138,537
Gifts and Pledge Payments
Outstanding Pledge Balances
Deferred Gifts
Private Grants
Gifts in Kind
Future Support
Additional Amounts To Be Raised
(1)
Total
Rector & Visitors Gift Accounts Only
Gifts and Pledge Payments
Outstanding Pledge Balances
Deferred Gifts
Private Grants
Gifts in Kind
Future Support
Rector & Visitors Unrestricted Giving
Gifts and Pledge Payments
Deferred Gifts
Outstanding Pledge Balances
Total
(1)
Excludes future or revocable support
SOURCE: Office of Development and Public Affairs
DATE:
August 9, 2010
22
USES
PRATTESTATE
ESTATE
USESOF
OFFUNDS
FUNDS FROM
FROM PRATT
FORFor
YEAR
JUNE
30, 2010
YearENDED
Ended June
30, 2010
6/30/09
Unexpended
Balance
Arts & Sciences
Biology
Student Support
Faculty Salary Support
Research & Equipment
$
2009-10
Allocations¹
6/30/10
2009-10
Unexpended
Expenditures
Balance
22,973 $
6,210
154,204
183,386
190,008 $
44,402
15,590
250,000
210,532 $
49,528
9,300
269,360
2,449
1,084
160,494
164,027
59,763
112,003
181,129
352,896
150,000
60,000
40,000
250,000
166,666
98,448
56,064
321,178
43,097
73,555
165,065
281,718
397,202
(156,652)
45,208
285,757
(160,135)
270,135
40,000
150,000
31,754
113,483
23,025
168,262
205,312
(0)
62,183
267,495
126,095
244,318
871,339
1,241,753
216,442
33,558
250,000
216,648
25,118
120,445
362,211
125,889
252,758
750,895
1,129,542
Presidential Science Initiative
Science & Technology Initiative (FEST)
Provost Faculty Start-Ups
Pratt Master - To be Allocated
Total Arts and Sciences
715,134
29,782
5,916,883
94,567
8,820,159
2,839,731
(39,731)
3,700,000
1,106,361
2,227,372
715,134
29,782
7,650,253
54,836
10,292,787
School of Medicine
Student Support
Research & Equipment
Science & Technology Initiative (FEST)
Decade Plan
Pratt Master - To be Allocated
Total School of Medicine
33,710
485,802
45,688
10,100,691
63,035
10,728,926
105,000
1,099,497
95,503
1,300,000
62,470
1,239,477
1,197,919
2,499,866
76,240
345,822
45,688
8,902,772
158,538
9,529,060
19,473,232 $
5,000,000 $
4,727,238 $
Chemistry
Student Support
Faculty Salary Support
Research & Equipment
Mathematics
Student Support
Faculty Salary Support
Research & Equipment
Physics
Student Support
Faculty Salary Support
Research & Equipment
TOTALS
$
-
19,821,847
1
Includes amounts approved by the Board of Visitors for 2009-10, less amounts that will not be needed for the original
aproved purpose and will be reverted to the endowment balance.
SOURCE: University Budget Office
DATE: August 13, 2010
23
UNIVERSITY OF VIRGINIA
INTERNAL LOANS TO UNIVERSITY DEPARTMENTS AND ACTIVITIES
AS OF JUNE 30, 2010
PURPOSE
DATE OF
LOAN
INTEREST
RATE
Cocke Hall
06/30/06
4.75%
1,941,787
1,533,351
408,436
June 2011
ITC ISIS Software
06/30/06
4.75%
1,575,000
1,230,107
344,893
July 2010
National Radio Astronomy
Observatory Piping
09/01/06
6.25%
706,833
522,882
183,951
August 2011
Varsity Hall
06/30/07
4.75%
1,517,726
955,512
562,214
March 2012
Wilsdorf Hall
11/01/06
4.75%
3,311,328
3,053,791
257,537
November 2011
Wise Football Facility
10/01/07
4.75%
629,171
121,005
508,166
October 2022
Total Internal Loans Subject to
ORIGINAL
PRINCIPAL PAYMENTS OUTSTANDING APPROXIMATE
LOAN AMOUNT
MADE TO DATE
PRINCIPAL
FINAL PAYMENT
$
9,681,845
$
7,416,648
$
2,265,197
1
$15M Limit Established by BOV
Notes:
1. Per January 1990 Board of Visitors resolution establishing the internal loan pool at $10 million and per April
2003 Board of Visitors resolution approving the expansion of the internal loan pool from $10 million to $15
million. All internal loans are subject to the approval of the Executive Vice President and Chief Operating
Officer.
2. The University's blended borrowing rate for tax exempt financing is 4.75%. A taxable rate of 6.25%
was charged for the National Radio Astronomy Observatory Piping project.
SOURCE: Financial Administration
DATE:
August 11, 2010
24
QUARTERLY BUDGET REPORT
AS OF JUNE 30, 2010
This report compares the actual results for the sources and uses of funds to the Academic
Division annual budget (excluding the Medical Center and the University of Virginia’s College
at Wise). At the end of 2009-10, 99.2 percent of the budgeted sources were collected and 97.1
percent of the budgeted uses were expended.
The operating budget is developed using differing rules and conventions from the audited
financial statements, which are developed in accordance with generally accepted accounting
principles (GAAP). In some cases, similar descriptions are used in both reports even though the
precise definitions and the specific amounts are not identical. However, both sets of figures are
accurate for their particular purposes, and both are drawn from the University’s financial
applications. Outlined below are several of the differing conventions used in the operating
budget and the actual results presented on the accompanying statement:
The operating budget is prepared on a cash basis.
The operating budget presents tuition and fees as gross income and the full amount of
student aid as an expense.
In the operating budget, depreciation is not funded and non-capital outlay purchases are
recognized as expensed rather than spread over the useful life of the purchase. Debt
service, major repair or renovation expenditures occur within the capital outlay accounts
– and off the operating budget.
The Federal Family Education Loan Program is excluded from the operating budget.
Sources of funds are shown net of transfers to capital reserves/projects in the operating
budget.
Fringe benefit expenditures are included in the operating budget using pooled benefit
rates.
The operating budget recognizes recoveries of indirect costs only upon distribution of
those revenues, and not when billed to granting agencies.
A definition of terms is included to explain the categories for the sources and uses of
funds.
SOURCE: University Budget Office
DATE:
August 31, 2010
25
Revision
University of Virginia Academic Division
2009-10 Operating Budget Report
As of June 30, 2010
(in thousands)
2009-10
Revised
Budget
Sources of Available Funds
Tuition & Fees for Operating Plan
State General Fund Appropriation for Operating Plan
Sponsored Research for Operating Plan
Endowment Distribution
Net Gifts Available for Operating Plan
Sales, Investment & Other
American Recovery and Reinvestment Act of 2009
Net Auxiliary Enterprises for Operating Plan
Total Sources of Available Funds
Variance
6/30/2010
Results
Percentage
$382,108
140,423
316,367
131,917
88,918
26,251
5,559
188,658
$1,280,201
$381,477
140,480
308,829
127,120
93,521
22,836
5,559
190,404
$1,270,226
$631
(57)
7,538
4,797
(4,603)
3,415
(1,746)
$9,975
99.8%
100.0%
97.6%
96.4%
105.2%
87.0%
100.0%
100.9%
99.2%
$318,591
310,369
132,511
38,670
83,216
80,754
138,113
$304,159
308,419
124,257
33,704
71,941
81,236
139,503
$14,432
1,950
8,254
4,966
11,275
(482)
(1,390)
95.5%
99.4%
93.8%
87.2%
86.5%
100.6%
101.0%
45,970
30,256
36,301
77,890
$1,292,641
48,247
29,748
34,811
79,351
$1,255,376
(2,277)
508
1,490
(1,461)
$37,265
105.0%
98.3%
95.9%
101.9%
97.1%
34,701
-
34,701
0.0%
$22,261
$14,850
$7,411
Uses of Available Funds
Direct Instruction
Research and Public Service
Library, Information Tech., & Academic Administration
Student Services
General Administration
Operation & Maintenance of Physical Plant
Scholarships, Fellowships, & Other Graduate Support
Athletics
Bookstore
Housing and Conference Services
Other Auxiliary Operations
Total Operating Expenses
6/30/2010
Actual
Results
Allocation of one-time appreciation, loans and balances
Net Sources and Uses for Operations
26
DEFINITION OF TERMS
Sponsored Research -- primarily research projects, but also includes activities restricted to
institutional and service programs.
Auxiliary Enterprises -- those activities which are supported entirely through fees charged to users,
such as housing, athletics, dining services, the telephone system and the bookstore.
Instruction -- expenditures for the primary mission of the University, which includes teaching
faculty, support staff, instructional equipment, and related routine operating costs.
Research -- includes expenditures for activities such as support for research faculty and sponsored
research. Activities include the Center for Public Service, the State Climatologist, and the Center
for Liberal Arts.
Public Service -- includes activities such as the Miller Center of Public Affairs, the Virginia
Foundation for the Humanities, and that portion of the medical school's clinical physicians’
salaries and fringe benefits related to patient care.
Library, Information Technology and Academic Administration -- encompasses the libraries, the
activities of the deans of the schools, and other related expenditures.
Student Services -- activities whose primary purpose is to contribute to the students' emotional and
physical well-being and to their intellectual, cultural, and social development outside the
classroom.
General Administration -- includes the financial, administrative, logistical, and development
activities of the University.
Operation and Maintenance of Physical Plant -- includes expenditures for activities related to the
operation and maintenance of the physical plant, net of amounts charged to auxiliary enterprises and the
Medical Center.
27
UNIVERSITY OF VIRGINIA
ENDOWMENT/LONG TERM INVESTMENTS FOR UVA AND RELATED FOUNDATIONS
AS OF JUNE 30, 2010
(in thousands)
The University of Virginia Medical School and related foundations
Rector and
Visitors Funds
Related
Foundation
Funds Invested
by UVIM CO
Alumni
Association
Funds Invested
by UVIM CO
Related Foundation
Funds Invested by
Direction of
Foundation Board
$
$
$
$
The College of Arts and Sciences and related foundations
633,845
28,166
6,844
-
Total
$
668,855
282,935
37,579
8,666
3,220
332,400
The University of Virginia Law School and related foundation
37,294
179,546
-
83,200
300,040
Darden School and related foundation
94,792
176,867
-
5,443
277,102
Batten School of Leadership and Public Policy
94,222
-
-
-
94,222
The McIntire School of Commerce and related foundation
66,110
-
19,488
761
86,359
School of Engineering and related foundation
71,561
265
2,319
2,107
76,252
University of Virginia's College at Wise and related foundation
36,415
4,120
1,758
2,617
44,910
Graduate School of Arts and Sciences
42,372
-
-
-
42,372
School of Nursing
33,474
-
1,588
-
35,062
Curry School of Education and related foundation
10,802
6,976
-
1,325
19,103
School of Architecture and related foundation
14,115
185
348
479
15,127
School of Continuing and Professional Studies
63
-
42
-
105
University of Virginia Medical Center and related foundations
333,687
55,700
3,742
18,901 **
412,030
Centrally Managed University Scholarships
131,061
-
-
-
131,061
Athletics and related foundation
33,879
53,440
320
531
88,170
Provost
76,147
-
-
-
76,147
Alumni Association
-
-
44,058
12,496
56,554
45,433
7,326
-
-
52,759
University of Virginia Foundation and related entities
-
52,135
-
194
52,329
Alumni Board of Trustees
-
44,241
-
-
44,241
42,354
-
40
-
42,394
University - Unrestricted but designated
263,427
-
-
-
263,427
University - Unrestricted Quasi and True Endowment
157,125
-
-
-
157,125
University - Unrestricted Other
127,728
-
-
-
127,728
All Other
174,919
8,770
-
390,055
131,274
$ 3,885,929
Miller Center and related foundation
University Libraries
$
2,803,760
$
655,316
206,366 *
$
295,579
$
*Includes funds on deposit for other areas/schools not individually listed.
**Excludes approximately $37.6 million of board designated pension funds.
SOURCE: Financial Administration
DATE:
August 20, 2010
28
UNIVERSITY OF VIRGINIA
QUASI-ENDOWMENT ACTIONS
APRIL 1, 2010 – JUNE 30, 2010
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 Vice President and Chief Financial
Officer, 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.
Amount
Additions from Gifts
Grinnalds Quasi-Endowment Fund
$
UVA Bookstore Quasi-Endowment for Excellence
75.00
200,000.00
President's Fund for Excellence Unrestricted Quasi-Endowment
20,026.16
University Quasi-Endowment Fund (1)
271,417.62
Total Additions from Gifts to Quasi-Endowments
$
491,518.78
Additions from Endowment Income (Capitalizations)
Anderson Lectureship Income Capitalization Quasi-Endowment
Antrim, Lottie C. Income Capitalization Quasi-Endowment
$
Athletics General Operations Quasi-Endowment
6,870.95
63,228.45
Chrysler, W. P. Fund for Engineering Library
1,468.36
Class of 1955 Fund
1,478.62
Class of 1956 Fund
5,033.77
Class of 1957 Fund
3,913.49
Class of 1958 Fund
4,975.42
Class of 1959 Fund
5,816.34
Class of 1960 Fund
4,902.67
Class of 1961 Fund
4,428.11
Class of 1962 Fund
6,463.02
Class of 1963 Fund
2,000.11
Class of 1964 Fund
3,936.71
Class of 1965 Fund
1,201.61
Dermatology General Investment Fund
23,647.04
Hecht-Cruachem Chemistry Quasi-Endowment #2
2,730.62
Hecht-Cruachem Chemistry Quasi-Endowment #3
2,767.55
Hecht, Sidney M. Fellowship in Chemistry
5,516.92
Horton, Charles E. Professorship in International Plastic Surgery Quasi-Endowment
9,187.51
Hughes Endowment Income Capitalization Quasi-Endowment
3,153.61
29
Additions from Endowment Income (Capitalizations) cont.
Jordan, Harvey E. Lectureship
1,083.38
Low, Emmet F. and N. Alyce Chair Quasi-Endowment
929.78
McIntire School of Commerce Operations Fund
840,880.72
McIntyre, Howard Quasi-Endowment in Neurology
17,695.02
Medical Center Capital Assets Quasi-Endowment (2)
4,800,670.22
Miller, Mae W. Cancer Research Quasi-Endowment
4,589.51
Moyston Quasi-Endowment for Ophthalmology
19,045.68
Moyston, Vernah Scott Professorship in Ophthalmology Investment Quasi-Endowment
3,304.33
Plastic Surgery Quasi-Endowment Fund
13,985.81
Radiology Fund Special Diagnostic
3,332.58
Samuels, Bernard Ophthalmology Library Quasi-Endowment
1,888.08
School of Medicine Quasi-Endowment
24,615.59
Taylor, Henry N. Fund
245.39
Virginia Quarterly Review - Anonymous
424.28
Total Additions from Endowment Income to Quasi-Endowments
$
5,895,411.25
$
273,000.00
Divestments
Carlson Psychiatry Research Fund
Center for SCAT Restricted Quasi-Endowment
25,000.00
McIntire School of Commerce Operations Fund
898,758.75
President's Fund for Excellence Unrestricted Quasi-Endowment
52,063.63
Total Divestments from Quasi-Endowments
$
1,248,822.38
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.
(2) Per February 7, 2008 BOV authorization, additional amounts up to $300 million can be made to this fund without further BOV approval.
SOURCE: Financial Administration
DATE:
August 11, 2010
30
UNIVERSITY OF VIRGINIA
SALARY AND COMPENSATION FOR FULL-TIME INSTRUCTIONAL FACULTY
AT AAU AND SCHEV PEER GROUP INSTITUTIONS
These reports provide average compensation and salary figures for institutions included
in the Association of American Universities, and average salary figures for the University's peer
institutions, as established by the State Council of Higher Education in Virginia. These figures
include instructional faculty paid on a full-time basis; all medical faculty have been excluded.
Salary figures for those faculty with 11- or 12-month duties have been converted to nine-month
figures by adjusting the total salaries by a factor of 9/11ths. The source for these figures is "The
Annual Report on the Economic Status of the Profession, 2009-2010," Academe, March-April,
2010, the bulletin of the American Association of University Professors.
SOURCE: Institutional Assessment and Studies
DATE:
August 2, 2010
31
UNIVERSITY OF VIRGINIA FACULTY SALARY AND COMPENSATION AVERAGES
Salary at AAU Institutions
AAU salary data includes all sources of funds.
The 60 institutions included in this year’s rankings are only the U.S. institutions. Two
Canadian institutions, the University of Toronto and McGill University, have been
excluded.
The UVa average in each of the years displayed represents the salary average as of
December 1 of that year and reflects the merit increase of that date.
The UVa actual percentage salary increase between 2008-2009 and 2009-2010 was zero
percent. The median for the AAU was 0.93 percent. Twelve AAU institutions reported
decreases in average salary. The University’s rank position of tied for 26th in 2008-2009
fell to 29th in 2009-2010 and has dropped eight positions in the past three years.
In 1989-90, before the first round of the Wilder budget cuts, UVa ranked 18th (69th
percentile) in the AAU. Since then our ranking has varied, never rising above 18th,
dropping as low as 32nd in 1996-97, and now stands at 29th (53rd percentile) in 2009-2010.
During that 20-year period the University’s average salary increased from $54,100 in
1989-1990 to $103,900 in 2009-2010 (a total increase of 92 percent, which is the
equivalent of an annual 3.32 percent increase applied and compounded each year).
The University’s current position in the AAU, 29th, is at least 10 positions short of the
BOV target range of 15th through 19th. This gap represents $7,000 in average salary. A
total of $8.6 million would be required to raise the salaries of the 1,227 full-time
instructional (non-medical) faculty included in this calculation to the 19th position (and
holding peer salaries unchanged). A total of $15.8 million in current dollars would be
required to award the same salary increase to the 2,256 total FTE teaching and research
faculty at the University.
Compensation at AAU Institutions
As in the case of the average salary, average compensation was reported as of December
1 of those years. The average compensation includes both salary and benefits.
The UVa percentage compensation increase between 2008-2009 and 2009-2010 was 0.38
percent. This was somewhat below the median for the AAU (1.52 percent) but resulted
in no change to our compensation ranking (28th).
In 1989-1990 UVa ranked 20th (65th percentile) in compensation. Since then our ranking
has varied, never rising above 20th, and now stands at 28th (54th percentile) in 2009-2010.
During that 20-year period our average compensation increased from $66,800 in 1989-90
to $130,900 in 2009-10 (a total increase of 96 percent, which is the equivalent of an
annual 3.54 percent increase applied and compounded each year).
32
State Salary at SCHEV Peer Institutions
In the summer of 2007, SCHEV approved a new sample of peer institutions for the
University. The attached table includes the salary averages for the old peer group in
2006-2007 and compares it to the salary averages of the new peer group in 2006-2007
through 2009-2010. Again, the UVa state salary average represents the salary average as
of December 1 each year. The UVa state salary averages listed in the table represent the
authorized state salary averages rather than the actual averages. They are intended to
exclude all UVa endowment funds.
The implementation of the new peer group did not change UVa’s percentile rank (41st) in
2006-2007. The UVa percentage increase in the State authorized salary average between
2007-2008 and 2009-2010, was zero percent each year, resulting in the authorized
average remaining at $96,384 for two consecutive years. UVa’s rank among the new
sample peers has dropped to the 17th position (30th percentile) in 2009-2010.
In 1989-1990, UVa ranked 10th in the State peer group that was in effect at that time.
Two new peer groups have been approved since then. In the current peer group,
approved by SCHEV in summer 2007, the University
-2008 at position 15,
st
th
th
at the 41 percentile, and has dropped to 17 (30 percentile) in 2009-2010.
SOURCE: Institutional Assessment and Studies
DATE:
August 2, 2010
33
34
35
36
37
38
UNIVERSITY STAFF SALARY REPORT
SEPTEMBER 2010
Background: Implemented in January 2009, the new University Staff Human Resources Plan is
in its second year of operation in 2010. All staff hired after July 1, 2006 are covered by the Plan
as a new category of employee, University Staff. The University tracks Market Range
Penetration for University Staff employee salaries as a performance measure to determine how
well the University maintains strategic alignment of staff salaries. This is similar to the work
done for faculty salary benchmarking, and aids in staff recruitment and retention, which in turn
ensures optimal faculty support. As expected, the suspension of most types of salary adjustments
over the last several years has challenged the University’s ability to use the University Staff Plan
to make progress towards the desired competitive positioning of staff salaries.
Competitive Position Measure: Market Range Penetration: The University adopted the
concept of market relevance in building competitive pay ―market ranges.‖ These ranges were
developed by applying generally accepted compensation practices to reflect similar pay
opportunities in the marketplace. As depicted below, each market range is displayed as annual
salary values with a Lower Reference (minimum), 33rd Percentile, 67th Percentile, and an Upper
Reference (maximum):
Market Range
Figure 1: Market Range
Each market range is segmented into ―thirds.‖ For purposes of analysis, the ―middle
third‖ pay interval is considered the ―competitive range.‖ How far into the market range a
University Staff employee salary is positioned is called ―range penetration.‖ Therefore, a salary
level between 33 percent and 67 percent has a pay penetration within the middle third and would
be considered appropriate for a fully qualified and fully competent performer in the job.
While the goal for UVa faculty salaries is to rank between the 70th and 75th percentile of
the AAU Peer Group, the initial goal for staff is to have the salary average at the 50th percentile
of the market range. The University recognizes that excellent staff provides a successful support
infrastructure for faculty and students, and that an even more aggressive salary goal may be
39
appropriate in the future. However, given that there was no direct link between the State
Classified Pay Bands and market data for many years, we have much work to do to create a
correlation between University Staff pay and market data. Furthermore, with no salary increases
during the past two years, it is difficult to make progress. Therefore, the initial target of the 50th
percentile of the market ranges is an appropriate and realistic starting goal.
The graph in Figure 2 below shows the distribution curves of staff salaries at UVa as of
the third quarter of FY 2009-2010. The market range ―thirds‖ are shaded in green, yellow, and
red to reflect the market range segments described in Figure 1.
Market Range Penetration
50th Percentile Target
Current
Range Penetration = 34.9%
Figure 2: Market Range Penetration of Employee Pay by Employee Type
As can be seen in the above graph, the peak of the University Staff salary line is currently
positioned below the targeted 50th percentile of the market ranges. Given that the University is
still in the early stages of using market data for staff salaries, it is not unexpected to see
distribution curves with salaries positioned outside of the market pay ranges. The shape of the
distribution curve is explained in part by the fact that University Staff is a new category and
therefore employees in that category would be expected to have fewer years of service (and
therefore lower salaries). For comparison purposes, data are also provided for Classified Staff
40
and Administrative & Professional Faculty employee categories. The graphed data for these
employee categories have more normally positioned salary distributions than do University Staff.
Analysis: Figure 2 depicts that 54 percent of University Staff salaries fall below the middle third
(45 percent in Lower Third plus nine percent below the Lower Reference). This represents an
improvement from 59 percent last year. Figure 2 also shows the University’s targeted goal of
market range penetration at the 50th percentile and the current actual market range penetration of
34.9 percent (an improvement from last year’s result of 24.4 percent). This represents the
composite positioning of all University Staff salaries in relation to the 50th percentile. The
positive movement is primarily attributable to the impact of using market ranges for new hires.
However, employees who are fully qualified, performing competently, and whose salaries are
positioned in the lower third are considered ―at risk‖ employees – at risk of turnover or low
engagement and satisfaction levels.
Of even greater and more immediate concern is the large number of University Staff
(nine percent) with salaries still below the Lower Reference. While progress is being made—
this is down from the 14 percent reported last year—restoration of targeted funds to address this
issue should be a high priority. The cost to the University as a whole to increase those salaries
above the Lower Reference is approximately $515,000, with the ―State‖ portion being
approximately $150,000.
In the years immediately prior to the recent budget reductions, the University had been
improving the pay positioning of staff salaries. The supplemental funding approved by the
Board of Visitors as part of the annual operating budget, as well as the implementation of an
effective pay decision-making tool for managers (―Pay Action 7‖), were instrumental in directing
funds to those employees whose salary most warranted adjustments based on consideration of
their pay positioning as well as other relevant factors. Continued use of these processes,
monitoring and targeted pay actions will facilitate pay improvement.
Our ability to attract, motivate and maintain highly qualified talent is in part dependent
on maintaining competitive and rewarding compensation levels. Moving staff salaries closer to
the 50th percentile through a disciplined, fiscally responsible, and well-informed movement to
the right of the range penetration curves will establish market competitive salaries, necessary to
sustain excellent services in support of the University’s core missions of teaching and research.
2011 Compensation Increases: Considering continued State and University budgetary
concerns, in 2011 the University is providing a one-time bonus payment. This one-time bonus
awarded to eligible employees and paid in November 2010, will not increase the fixed base
salary cost of the University. The one-time funding has been approved in the budget for nonrecurring payments of three percent of the total annualized salary expenses for University Staff.
In the meantime, a five-year staff salary strategy has been prepared to achieve the 50th percentile
goal and more appropriately align University Staff base salaries as soon as recurring funds
become available.
SOURCE: Human Resources
DATE:
August 23, 2010
41
UNIVERSITY OF VIRGINIA
SPONSORED PROGRAMS RESTRICTED GRANTS AND CONTRACTS
FISCAL YEAR 2009-2010
SUMMARY:
For Fiscal Year 2010, the University received sponsored program awards totaling
$375.34 million, an increase of approximately 15 percent over the fiscal year 2009 amount of
$327.41 million. This year’s award total includes $85.40 million in facilities and administrative
(indirect) costs as compared to $65.92 million last year.
Once again, federal agencies continue to account for most of our funding, with 74 percent
of the total. The Department of Health and Human Services continues to be the University’s
largest individual sponsor of awards, accounting for 52.5 percent of the total.
The School of Medicine was awarded almost 61.6 percent of all award dollars, followed
by the School of Engineering with 15.7 percent and the College of Arts and Sciences, which
accounted for 13.3 percent of the funds. The remaining 9.4 percent was distributed among
various areas within the University.
It is important to note that as in last year’s report we have the addition of American
Reinvestment and Recovery Act (ARRA) funding. This year 154 awards were made to the
University under this program. These awards accounted for $48.3 million. Of these awards, 119
were from the National Institutes of Health and 26 were from the National Science Foundation
with the balance coming from the Department of Energy, the Department of Defense, the
Department of Justice and the Virginia Department of Social Services.
The University received significant increases in federal award dollars from the
Department of Health and Human Services, the Department of Education, the Department of
Energy, and the National Science Foundation. The increased funding from the Department of
Health and Human Services ($40.9 million) and the National Science Foundation ($3.1 million)
are largely attributed to the increases in new stimulus funding ARRA awards. A $5.2 million
increase in funding from the Department of Education is largely due to four new and
supplemental awards given to the School of Education totaling $4.75 million. A $5.7 million
increase in funding from the Department of Energy is largely a result of six funding instruments
given to the College of Arts and Sciences totaling $5 million, which includes two new stimulus
awards totaling $782,000. These increases in funding compensate for a $10 million decrease in
overall award funding received from the State, when compared with FY2009.
SOURCE: Office of Sponsored Programs
DATE:
August 11, 2010
42
UNIVERSITY OF VIRGINIA
SPONSORED PROGRAM GRANTS AND CONTRACTS
MID-YEAR COMPARISON REPORT OF AWARD DATA
FISCAL YEAR 2010
(in millions)
SCHOOL
DHHS
DOD
DE
DOE
NASA
State
Total FY
2010
Total FY
2009
%
Increase/
Decrease
0.15
0.05
0.33
0.59
-45%
1.74
5.57
1.56
50.07
44.06
14%
0.90
0.16
3.61
2.14
14.57
15.27
-5%
11.68
6.04
15.10
3.51
58.97
47.82
23%
0.10
0.73
0.07
0.90
3.31
-73%
0.75
50.35
3.60
231.23
185.71
25%
1.13
0.13
3.11
2.75
13%
Other
Federal
Non-Federal
0.12
15.86
NSF
Architecture
Arts & Scs.
12.21
Education
1.54
Engineering
8.83
1.79
1.42
7.79
2.12
6.23
11.38
1.13
1.31
Law
Medicine
172.71
Nursing
1.72
1.94
1.32
0.35
0.22
0.13
Other*
1.52
0.04
1.16
2.27
3.64
7.53
16.15
27.89
-42%
375.34
327.41
15%
Total FY 2010
197.00
15.11
9.31
10.27
3.78
29.82
11.17
80.28
18.59
Total FY 2009
156.13
15.09
4.13
4.51
4.13
26.70
9.10
79.05
28.59
26%
0%
125%
128%
-8%
12%
23%
2%
-35%
% Increase/Decrease
1) * "Other" includes Associate Provost For Academic Support & Classroom Management; Darden School of Business;
University Librarian; Vice President for Research; Miller Center; President's Office; Executive Vice President and Provost;
School of Continuing and Professional Studies; Center for Public Service; UVA College at Wise; Virginia Foundation for
the Humanities; Vice President and Chief Student Affairs Officer; Southwest Virginia Higher Education Center.
2) Totals may be slightly off due to rounding.
SOURCE: Office of Sponsored Programs
DATE:
August 11, 2010
43
ATTACHMENT
Attachment
INVESTMENT MANAGEMENT COMPANY
Annual Report
June 2010
Contents:
Letter from UVIMCO................................................................................................
2
Portfolio Overview.....................................................................................................
4
Portfolio Liquidity...................................................................................................... 6
Performance................................................................................................................ 6
Risk and Return Expectations..................................................................................... 8
Organization................................................................................................................ 9
Investment Report....................................................................................................... 10
Post Office Box 400215 · Charlottesville, Virginia 22904-4215
434-924-4245 · Fax: 434-924-4092
http://www.virginia.edu/uvimco
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
LETTER FROM UVIMCO
To the Rector and Visitors of the University of Virginia, Foundation Trustees, and other
members of the University community:
We are pleased to report strong absolute and relative investment performance for the 2010 fiscal
year. The Long Term Pool appreciated 15.1% during the twelve-month period ending June 30,
2010. By comparison, the policy portfolio benchmark comprised of 60% equity, 10% real estate,
and 30% fixed income returned 13.3% over this same period. While we are content to report a
solid return for the year, we would note that it is unrealistic and generally counter-productive to
expect investment outperformance over each discrete, short-term measurement period.
As long-term investors, we believe the pool’s performance is most appropriately evaluated over
multi-year periods. With time, the merits or deficiencies of an investment approach and its
execution become evident. Over the five- and ten-year periods ending June 30, 2010,
UVIMCO’s portfolio compounded at an annualized rate of 6.7% and 7.1%, respectively. This
performance comfortably exceeds the 3.0% and 3.1% annualized returns available through
ownership of the passive policy portfolio over the same five- and ten-year time horizons.
Importantly, the trailing ten-year period includes both the demise of the Internet mania, as well
as the on-going rupturing of the credit and housing bubble. It was not an easy decade during
which to invest, either forward-looking or in hindsight.
Considered from a different perspective, a foundation which invested $1.00 in the Long Term
Pool five years or ten years ago would own $1.38 and $1.98, respectively, as of June 30, 2010.
The end values of that same dollar invested in a range of alternatives are summarized below:
UVIMCO Portfolio
Policy Portfolio
60/40 Portfolio
MSCI AC World
S&P 500
(1)
(2)
(3)
(4)
5 Year
Annualized Return
6.7%
3.0%
3.5%
1.7%
-0.8%
End Value of $1.00
$1.38
$1.16
$1.19
$1.09
$0.96
Annualized Return
7.1%
3.1%
2.9%
0.2%
-1.6%
End Value of $1.00
$1.98
$1.36
$1.34
$1.02
$0.85
10 Year
(1)
The Policy Portfolio Benchmark is the geometrically linked monthly average of the underlying asset classes' benchmarks, weighted by the Fiscal Year 2010
(2)
60/40 Portfolio is the geometrically linked monthly average of a 60% equity/40% bond portfolio, represented by the MSCI All Country World Equity and the
policy target allocations: 60% MSCI All Country World Equity, 10% MSCI Real Estate, and 30% Barclays Aggregate Bond.
Barclays Aggregate Bond indices, respectively.
(3)
MSCI All Country World Equity Index, total returns in USD.
(4)
S&P 500 Equity Index, total returns.
At 4.0% per annum, we believe that the level of outperformance contributed over the past decade
exceeds reasonable and objective long-run expectations. We will be fortunate to experience
investment outperformance of this magnitude over the next ten years, and we should calibrate
our collective expectations accordingly.
Annual Report
Fiscal Year-End June 2010
2
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
*****
A sensible investor recently commented on the broad willingness of the investment community
to share its insights and to write about kernels of investment wisdom. He deduced that while this
activity is a gift to those pursuing self-improvement in the field of investments, the corollary is
that there is little left to contribute in the way of novel commentary. We concur with this insight.
Published commentary about the current economic and investment climate is full of descriptive
extremes, highlighting both the uncertainty of the current environment, as well as the potential
magnitudes of various outcomes attached to the eventual resolution of these uncertainties.
Deflation versus Inflation; Stimulus versus Austerity. The polar viewpoints are well outlined,
engaging, and important.
We certainly have informed expectations, views, and concerns related to the current investment
landscape, but we appreciate that the future exists as a multitude of potential outcomes.
Consistently predicting the timing and route of the singular path of history that will unfold in
front of us requires a heroic mix of skill and luck that few possess. Instead, we do our best to
respect and prepare for the broad range of future storylines the Long Term Pool may be forced to
navigate.
It is important to recognize, however, that the pool cannot be perfectly protected against all
possible future benign and extreme scenarios at the same time. The pool has exhibited significant
volatility in the past, and it may do so again in the future. This volatility is tolerated as the
coincident companion of the higher returns achieved over time.
*****
On the personnel front, UVIMCO’s former CEO, Chris Brightman, departed the organization in
March 2010. The balance of the UVIMCO team, in partnership with our Board of Directors,
continues to progress along a steady path and is well-equipped to manage the pool until an
appropriate replacement is identified. The timing of this hiring process, like most aspects of
investing, is uncertain.
*****
We thank you for your confidence in these interesting times. We will work hard to ensure that it
is well-compensated over the long-term.
With kind regards,
University of Virginia Investment Management Company
Annual Report
Fiscal Year-End June 2010
3
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
PORTFOLIO OVERVIEW
The UVIMCO Board has established a traditional policy portfolio benchmark comprised of
public market indices. This policy benchmark is 60% equity, 10% real estate, and 30% fixed
income. It represents the investable global securities market, and its historical returns closely
track the average returns of the broad universe of institutional investors. Our Board directs us to
actively manage the pool, primarily by employing external investment managers, to pursue longterm returns in excess of this passively investable policy benchmark.
We research investment strategies seeking opportunities to employ skilled managers within all
asset classes and regions of the world. Some of our managers focus in specific niches while
others have a global reach. Some use leverage and/or sell securities short. Some invest in private
markets. While few of these individual investment strategies resemble the market capitalization
weighted indices that comprise our policy benchmark, our mix of strategies, once aggregated,
produces a set of asset class exposures and risks similar to our policy portfolio benchmark.
Public Equity
The objective of our public equity strategy is to achieve capital appreciation through the
ownership of publicly-listed businesses on a global basis. Capital appreciation is achieved by
acquiring ownership stakes at attractive prices and by participating in the long-term economic
value that these businesses create. Because we try to achieve returns in excess of available
market indices, we pursue market dynamics and regions where inefficiencies are prevalent. We
typically allocate 15% to 25% of our pool to public equity.
Long/Short Equity
Our objective when investing in long/short equity is high returns through unconstrained security
selection. Removing traditional constraints on shorting and leverage often requires fund terms
that impose less liquidity, less transparency, and higher fees relative to public equity. While we
do not accept lower long-term expected returns than those available in liquid public equity, we
anticipate that the pattern of returns over multi-year periods will be very different. We typically
allocate 15% to 25% of our pool to long/short equity.
Private Equity
Private equity is a strategy categorization that encompasses a broad range of investment
activities. Our private equity strategy is a higher risk, illiquid alternative to public equity. Our
objective is to pursue high long-term returns through active value creation at the operating
business or asset level. We typically allocate 15% to 25% of our pool to private equity.
Annual Report
Fiscal Year-End June 2010
4
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
Real Estate
The objective of our real estate strategy is to generate long-term capital appreciation and to
provide diversification from equity markets. To maximize return, we invest with managers that
buy and improve properties through refurbishing, repositioning, or developing. Because real
estate markets possess unique supply and demand characteristics requiring specialized
knowledge, skills, and contacts, we invest with small private managers with focused strategies.
While we expect to allocate approximately 10% of our pool to real estate over time, our
allocation is currently 4%.
Resources
Similar to real estate, we expect that our resources strategy will provide an attractive long-term
return with low correlation to equity markets. Our resource managers develop oil and gas,
metals and minerals, and energy and power infrastructure. Resource strategies provide long-term
investors with the valuable real option of accelerating production when market prices spike and
slowing production as prices decline. We typically allocate 5% to 10% of our pool to resources.
Absolute Return
Our absolute return strategy generates wealth from idiosyncratic investments. As such, these
returns should not be highly correlated with equity, credit, or real estate market risk. We only
invest with absolute return managers who we believe have the ability to preserve or increase a
portion of pool assets during severe equity market contractions. While we consider this
allocation to be opportunistic, over time we would expect to allocate approximately 10% of the
pool to absolute return investments.
Credit
The objective of our credit strategy is to generate long-term appreciation from investments that
provide greater capital preservation than equity investments because they are secured by high
quality assets or backed by a senior claim on stable cash flows. Because credit investments have
limited opportunity for capital appreciation in normal markets, we opportunistically invest during
or in anticipation of periods of distress. Our current allocation to credit is approximately 6%.
Government Bonds and Cash
Our government bond portfolio is primarily a source of liquidity and secondarily a stable,
diversifying complement to our large equity allocation. Our bond allocation is invested entirely
in liquid developed market sovereign debt instruments and related derivatives.
We typically target a 10% allocation to cash and government bonds.
Annual Report
Fiscal Year-End June 2010
5
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
PORTFOLIO LIQUIDITY
Liquidity is one of the principal considerations in our portfolio construction. This discussion
describes the liquidity needs of the pool and our liquidity management practices.
We identify 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 evolve. Combining these
four requirements, we believe that an appropriate target for liquidity is to have 10% of the pool
invested in assets that are safe and highly liquid. In addition, we require the pool to have at least
30% of its assets available for conversion to cash in any forward twelve month period. At any
moment in time, the precise amount of liquidity we have available is a function of both the size
and nature of our private portfolio and the terms governing our public investments.
Five years ago, we set a long-term target to invest 35% of the pool’s assets in private funds. To
support this target private portfolio, we expect to have, on average, 25% of the pool in uncalled
fund commitments. These uncalled commitments represent liabilities that we will fund as our
managers identify attractive investment opportunities on our behalf.
One of our internal measures of private portfolio risk is called the ―private aggregate,‖ which is
the sum of our private invested assets and uncalled commitments. We expect that, on average,
our private aggregate will approximate 60% of the pool. Due to the illiquid nature of private
investments and the variable timing of future capital calls and distributions, the private aggregate
will normally measure across a range of 50% to 70%. The pool currently has $1.7 billion in
private assets (39%) and a further $1.2 billion (26%) in uncalled commitments. Our private
aggregate is therefore 65% of pool assets, which is slightly above average but well within our
normal expected operating range. On page 11, we display our private aggregate by strategy
group.
Within our public portfolio, we currently hold 13% of the pool’s assets in highly liquid
government-issued debt securities. In addition, we can access over 50% of the pool’s assets
within the forward twelve month period. This represents a level of liquidity above our long-term
normal range. On page 11, we display our unencumbered liquid investments grouped by
manager category and time horizon.
PERFORMANCE
Our 15.1% return in fiscal year 2010 exceeded the 13.3% return of our policy benchmark. Over
the trailing five- and ten-year periods, our portfolio achieved annualized returns of 6.7% and
7.1%, respectively, significantly outperforming the 3.0% and 3.1% annualized returns delivered
by the policy benchmark.
The table below summarizes the performance of the pool and its component strategies over time:
Annual Report
Fiscal Year-End June 2010
6
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
UVIMCO Strategy Allocations and Investment Returns
June 2010
Annual Return (%)
Annualized Return
Allocation(1) FY 2010 FY 2009 FY 2008 FY 2007 FY 2006
5 YR
10 YR
Equity
Public
Long / Short
Private
Total Equity
MSCI All Country World Equity
20.0
23.5
18.7
62.3
27.8
1.8
19.7
15.3
12.3
(31.1)
(17.1)
(35.5)
(25.9)
(28.9)
(8.3)
17.8
13.8
8.2
(8.8)
37.7
23.8
29.4
30.0
25.8
24.2
9.9
25.1
17.0
18.6
6.7
6.2
7.3
7.0
1.7
7.7
9.0
1.2
6.6
0.2
Real Assets
Real Estate
Resources
Total Real Assets
MSCI Real Estate (2)
4.0
7.1
11.1
(28.1)
40.9
9.0
31.7
(45.4)
(23.5)
(34.9)
(39.2)
(11.9)
28.6
3.7
(18.8)
12.5
28.9
22.2
21.2
27.7
28.1
28.9
23.0
(13.1)
18.0
3.0
(0.6)
(4.5)
21.6
8.5
7.1
9.9
5.9
4.6
8.4
17.9
29.0
6.4
0.5
2.1
(10.8)
17.8
27.0
4.2
(6.9)
6.8
(1.5)
10.2
15.6
6.3
6.3
7.8
0.1
1.7
3.7
8.3
4.4
7.7
6.8
7.1
8.5
8.5
--
(2.2)
26.6
0.2
16.5
0.9
5.8
3.9
(0.1)
5.3
9.9
1.9
4.8
-7.2
-7.6
8.6
6.6
6.0
5.5
(0.4)
5.2
6.1
15.1
(21.0)
5.9
25.2
14.6
6.7
7.1
13.3
(19.6)
(5.3)
19.1
13.1
3.0
3.1
Fixed Income, Cash & AR
Absolute Return
Credit
Government Bonds
Cash & Currency
Short-Term Borrowing(3)
Total Fixed Income, Cash & AR
Barclays Aggregate Bond (4)
Long Term Pool
Policy Benchmark (5)
100.0
(1)
% of Net Asset Value
(2)
50% M SCI U.S. Real Estate and 50% M SCI All Country World Real Estate (prior to January 1995 100% FTSE NAREIT)
(3)
Net implied borrowing resulting from the manager's index exposure and other derivative positions
(4)
50% Barclays U.S. Aggregate Bond and 50% Barclays Global Aggregate Bond Hedged in USD (prior to 1990 100% Barclays U.S. Aggregate Bond)
(5)
Geometrically linked monthly average of 60% M SCI All Country World Equity, 10% M SCI Real Estate, and 30% Barclays Aggregate Bond
As the above table indicates, different investment strategies will make positive contributions to
the overall portfolio’s performance over different periods of time. In some years, such as fiscal
year 2007, we were fortunate to receive strong contributions across the full set of strategies. In
other periods, such as fiscal year 2010, select strategies drove overall performance. Our public
equity, private equity, resources, absolute return, and credit strategies powered this year’s strong
returns.
Over the past five years, our mix of active equity strategies delivered an annualized return of
7.0%, producing more than 5% of excess return per year relative to the 1.7% return of the
benchmark MSCI All Country World Index. In 2006, 2007, and 2010, our public and private
equity strategies far surpassed our long/short strategy. In 2008, long/short provided the highest
return and then declined by far less in fiscal year 2009. The combined performance of our three
equity strategies exceeded our global equity benchmark in four out of the past five years,
including fiscal year 2010.
Our real asset strategies have produced a five year annualized return of 3.0%, more than 3%
above the -0.6% annualized loss of the benchmark real estate index. While the performance of
Annual Report
Fiscal Year-End June 2010
7
UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
our real estate funds has been negative over this period, our resource funds produced the best
returns of all the strategies in which we invested. Real estate was a small portfolio allocation in
fiscal year 2010 at only 4% of the pool, limiting the negative impact of the strategy’s decline.
Our allocation to the diversifying collection of cash, bond, credit, and absolute return strategies
produced a five-year annualized return of 7.2%, outperforming the 5.2% annualized return of the
benchmark Barclays Aggregate Bond index by 2% per annum. Similar to our experience in
equities, different components within these diversifying strategies contributed to our
performance at different points during this period, enabling the group as a whole to outperform
over the five-year horizon.
To evaluate our performance, we also compare our returns to peers. Universities with large
endowments typically report returns in late September or October after completing their fiscal
year-end audits. As a result, official endowment peer comparisons for the 2010 fiscal year were
not available at the time of this report’s distribution. Peer comparison data will be distributed to
shareholders when it becomes available.
The table below compares UVIMCO’s returns for the periods ending June 30, 2010 with the
relevant data sets that were available at the time of this report’s distribution:
UVIMCO Performance Compared to Peers
Periods Ending June 30, 2010
UVIMCO Long Term Pool
(1)
Policy Benchmark
TUCS All Master Trust Median(2)
1-Year
15.1
3-Years
(1.2)
5-Years
6.7
10-Years
7.1
20-Years
11.7
13.3
(4.8)
3.0
3.1
6.9
12.5
(3.3)
2.9
3.4
8.0
(1)
Passive allocations of 60% global equity, 10% real estate, and 30% fixed income (credit & government bonds) indices rebalanced monthly.
(2)
Trust Universe Comparison Service (TUCS) reports performance of 700 institutions.
RISK & RETURN EXPECTATIONS
We determine the University’s investment risk tolerance by balancing competing objectives of
stable current spending and long-term growth. Low risk and return investments decrease the
probability of significant near-term depreciation and a corresponding reduction in spending, but
also decrease expected long-term growth. High risk and return investments raise the probability
of a near-term decline in spending but also raise expected long-term growth.
We begin our process for setting return expectations by studying the long-term history of
investment market returns. The U.S. equity market has provided a long-term average annual
return of 9%. This historical return is broken down into three components: inflation, dividend
yield and growth, and change in market valuation. Because inflation has averaged 2%, the real
long-term average annual return has been 7%. Dividend yield and growth is relatively stable
over the decades, providing a 5% real return. Over any particular decade, the change in market
valuation may be positive or negative. Over the long-term history of the U.S. equity market,
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UNIVERSITY OF VIRGINIA INVESTMENT MANAGEMENT COMPANY
change in market valuation has added 2% per year to the sum of dividends and growth, boosting
the total real return to 7% per year.
Looking forward, we observe today’s dividend yield of 2% and estimate long-term real growth
of 2%. Because we cannot reliably forecast future changes in valuation, we expect the equity
market to provide a 4% annual real return.
Forecasting the real return on bonds and the inflation rate is simpler; both are transparently
priced by the bond market. At this writing, long nominal government bonds are priced to yield
3% per year, long-term consumer price inflation is priced at 2% per year, and long-term inflation
linked bonds are priced to provide an annual real return of 1%.
Combining these estimates, we expect a 4% real return for equities, 1% for bonds, and 3% for an
institutional portfolio comprised of a 70%/30% mix of stocks and bonds. Adding the market’s
estimate for long-term inflation of 2% per year, we expect a traditional institutional portfolio to
provide an average annual return of 5%.
Over recent decades, large university endowments have achieved returns approximately 3% per
year above a traditional institutional portfolio comprised of a 70%/30% mix of stocks and bonds.
Assuming this 3% value added is achieved in the future, large university endowments may be
expected to achieve average annual returns of 8%.
ORGANIZATION
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. The University of Virginia endowment, managed by UVIMCO, is the University's
source of sustainable private support for instruction, service, and research. The University's
endowment consistently ranks among the five largest endowments of public institutions and
among the thirty largest of all colleges and universities in the nation. Equally important, the
endowment per student has consistently ranked among the largest in the nation for a public
university.
UVIMCO is governed by a Board of ten Directors, including three who are appointed by the
Board of Visitors and one who is appointed by the University’s President. The Board meets four
times a year to discuss investment strategy, to set asset allocation policy, and to monitor
performance. Biographical sketches of our Board members are available on the UVIMCO
website.
Daily investment management is delegated to UVIMCO's full time staff and directed by the
Chief Executive Officer (CEO). As we are in the process of hiring a new CEO, UVIMCO’s
management and operations are temporarily supervised by members of its Board of
Directors. We employ five senior investment directors, six investment analysts and associates, a
General Counsel, a Chief Operating Officer, and twelve operations and administration staff.
Biographical sketches of our staff members are available on the UVIMCO website.
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