Board of Visitors Finance Subcommittee Meeting September 10, 2014

Transcription

1 Board of Visitors Finance Subcommittee Meeting September 10,

2 Agenda I. Introduction and Comments from Chair II. Reports A. Research B. Philanthropy C. Observations from Completion of Recent Admissions Cycle D. Strategies to Leverage the University s AAA Balance Sheet 2

3 I. Introduction and Comments from Chair 3

4 Finance Subcommittee Charge Develop a financial/pricing model (including a long term financial plan) that promotes: Affordability for low-income and middle-income students and their families Predictability of tuition and fee costs and associated financial aid A sustainable student financial aid program Sustainable funding for instruction that preserves and enhances academic excellence Diversity and inclusiveness Process efficiencies and savings achieved through the Organizational Excellence initiative 4

5 II.A. Research 5

6 Research Background UVa decided to be research intensive long ago Attracts top students and faculty, achieves UVa mission Research is important lever for academic excellence and supports Cornerstone Plan However not a revenue lever to subsidize tuition Every dollar of research revenue must translate into at least one dollar of research expenditure Federal agencies and sponsors support some costs associated with research infrastructure (F&A) Institution and state must co-invest 6

7 Research Requires Investment Research does not generate net dollars F&A are those costs which cannot be identified readily and specifically with a particular sponsored project Examples: Shared resources such as libraries, electricity, maintenance of buildings, and administrative support Actual UVa F&A costs are 67%, government grants provide F&A of 58%, our overall recovery due to mix of grants is 39%, so UVa F&A subsidy is 28% Research costs UVa about 17 cents on every dollar of research (i.e. we pay $0.28 for every $1.67 of research conducted) Research provides a deep discount of 83% on our $275M+ annual portfolio, which is critical to our research university mission 7

8 UVa Research Awards vs Recovered F&A FY $400,000,000 $350,000,000 $300,000,000 5% uptick in 2014 research awards $250,000,000 $200,000,000 $150,000,000 Stability due to F&A rate increase negotiated with gov t., and some diversification of grant sources Awards F&A $100,000,000 F&A recoveries lag awards $50,000,000 $ Stimulus (ARRA) 8

9 UVa Research Eco-Cycle Landscape view & pan-university, school & scholar level programs Philanthropy & university investments Seeding research, creative scholarship, Innovation, ideas PEOPLE: hiring, renewal, retention Top faculty & students Premiere Research University Grants and Contracts New understanding, creations, discoveries, innovations Reputation and impact Impact on the World New Ideas Philanthropy New ventures, licensing revenues, corporate partnerships An eco-cycle of people, actions, and resources producing UVa impact 9

10 UVa Research Growth UVa annual sponsored research is equivalent to nearly $5 billion in additional endowment Research distinguishes UVa from other institutions attracts great faculty and graduate students, and provides experiences for undergraduate students Research is an important lever for academic excellence... but is not a revenue lever To grow, we must seed early-stage research and plan for generational faculty turnover Strategic recruitment leads to targeted research growth To support growth we need investments 10

11 II.B. Philanthropy 11

12 Post-Campaign Analysis Impact of Big Gifts Profile of $1M Donors Principal Gift Pipeline

13 Recent Progress Restructuring and Rebuilding the Team in University Development Organizational Discipline and Collaboration Initial Campaign Planning

14 Impact of Big Gifts

15 Profile of $1M+ Donors

16 Principal Gift Pipeline Principal Gift Pipeline Score Description Annual Gift Dollar Range # Prospects Tier 1 $1 Million+ 168 Tier 2 $750,000 - $1 Million 831 Tier 3 $500,000 - $750,000 1,373 Tier 4 $250,000 - $500,000 2,592 Note that figures above count Individuals, not Households

17 Geographic Distribution of Principal Gift Prospects ,

18 Restructuring/Rebuilding Regional Fundraiser Redeployment Priority Based Principal Gifts Model Gift Planning Parents Development Expansion Foundation Focus Discovery Team **No Additional Funding all redeployment of existing funds

19 Organizational Discipline Performance Metrics Travel Planning Strategic Goal Setting

20 Need-Based Scholarships Regional Development vs. Need-Based Development Redeployed three FTEs (July 14) Presidential Events Communications/Matching Challenge Website Presidential Direct Mail Appeal E-newsletter Pilot Initial Results: $9M+ in commitments since late 13

21 Samples of Success Penn Goal of $600 million for Scholarship over $360 million raised 797 new scholarships and additions to 793 existing scholarships Matching funds encouraged over 65 people to give over $2 million each Matching funds at multiple levels, including recent alums

22 Samples of Success Penn State $500 million for scholarships in the last campaign $120 million+ was raised through Trustee Matching Scholarship Program--matched the endowment yield in perpetuity (1:1 and 2:1 matches) Match went into effect immediately

23 Going Forward Tell the Students Stories Formalize a Matching Program to Leverage Additional Support Educate/Incentivize the Schools/Foundations

24 II.C. Observations from Completion of Recent Admissions Cycle 24

25 Profile of Incoming First-Year Class of 2018 Application increase Early Action volume Selectivity Academic profile Class diversity Virginia residents Yield Impact of Blue Ridge Scholarship Partnerships 25

26 Highlights from the Class of 2018 Record applicant pool (+7%) 31,021 Early Action applications (+8%) 14,799 Largest enrolling class in history 3,709 First generation (even) 348 Low income (+10%) 263 African American (+17%) 238 Hispanic (+21%) 244 Asian (+16%) 481 Multi-race (+15%) 180 Minority 31% Financial aid recipients 34% Blue Ridge Scholars

27 Highlights from the Class of 2018 Offer Rate Yield SAT Mean Top Decile Virginians 29.0% 41.4% % 67% 27

28 Influential factors in student decisions Academic reputation or prestige Value/Return on Investment Need blind and meeting full-need Net cost of attendance-affordability and availability of financial aid Culture or fit Student/faculty interactions 28

29 AccessUVa Mission driven Components of AccessUVa Race neutral Contributes to diversity Impact on recruitment and yield Virginia vs. non-virginia Reputational impact Access Communications Task Force 29

30 THE UNIVERSITY of VIRGINIA UNIVERSITY COMMUNICATIONS 30

31 UNIVERSITY COMMUNICATIONS DEFINING OUR ROLE Articulate and promote the value of the University of Virginia, in order to: More effectively compete for faculty talent; Attract the best and brightest students; Grow the reputation and reach of the institution; Galvanize constituent support in advance of the bicentennial; Support critical business and strategic priorities; and Demonstrate the value the University delivers to the people of the Commonwealth, the nation and the world. 31

32 TELLING THE UVA STORY 32

33 UNIVERSITY COMMUNICATIONS First Steps, Early Wins Use of social to leverage earned media Increase in national rankings and best practice in social media for higher ed Leveraging social platforms for increased engagement Better use of photography to capture the essence of the student experience Strategic use of videography and multimedia to engage key audiences 33

34 UNIVERSITY COMMUNICATIONS Video Highlights Video Placeholder 34

35 UNIVERSITY COMMUNICATIONS Social Media Growth 35

36 THE UNIVERSITY of VIRGINIA Fall advertising: Uncommon Thinking 36

37 OWNED & PURCHASED MEDIA VISIBILITY Special edition of Forbes, showcasing the Commonwealth of Virginia as a hotbed of investment opportunity and innovation. UVA has a full-page ad. Football season provides important venues for brand visibility including: full page program ads, :30 television spot, :30 radio ads, online banner advertising, and more. Donation from Gannett of 1M digital impression ads will run on USAToday.com. Virginia Magazine provides a critical platform for brand visibility with the alumni audience. We have an ongoing display advertising contract at the CHO airport that is due for rotation. 37

38

39 3

40

41

42

43 FPO

44 Video Placeholder

45

46 II.D. Strategies to Leverage the University s AAA Balance Sheet 46

47 Background Since last Finance Subcommittee meeting: Reviewed Began Considered Reviewed the current and discussion on alternative composition historical appropriate forms of and liquidity operating levels of balance sheet needs of our requirements liquidity liquidity debt portfolio 47

48 Ongoing Subcommittee Discussion Required Operating Funds Allocable Operating Funds Endowment Spending Rate Short- vs. Long-Term Funding 48

49 Board of Visitors Policy on Required Reserves Capital: At least 1.5% of replacement value of buildings and equipment Intended to provide sufficient funds for ongoing capital renewal and replacement Operating: Three months of operating expenses Intended to provide sufficient liquidity for monthto-month operating needs 49

50 Monthly Days Cash on Hand An Important Liquidity Measure for AAA Rating 50

51 Ongoing Subcommittee Discussion Required Operating Funds Allocable Operating Funds Endowment Spending Rate Short- vs. Long-Term Funding 51

52 Strategic Use of Operating Funds What targets for liquidity should we establish to determine adequate levels of operating funds? In seeking to leverage our strong operating position and create sustainable funding for strategic needs: How much of our operating funds can be thoughtfully harvested for strategic needs? How often should we review operating funds balances and liquidity targets? Consider current and future operating risks such as state appropriation, research funding, health care reform. 52

53 Ongoing Engagement with UVIMCO Date UVIMCO Long-Term Pool Return 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/ % 06/30/2015 Estimated at 7.5% Thoughtful discussion on how best to deploy allocable operating funds 53

54 Ongoing Subcommittee Discussion Required Operating Funds Allocable Operating Funds Endowment Spending Rate Short- vs. Long-Term Funding 54

55 UVa s Endowment Spending Percentage Inflation Growth Within a Band $250 $200 Endowment Spending (in millions) $150 $ %* 4.50%* 5.00%* 5.50%** 5.25% 4.63% 4.83% 4.95% 4.68% $50 $0 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 Potential Lower Limit of Band (4%) Potential Upper Limit of Band (6%) Actual Distribution * Rate set by Board because inflationary change would have caused rate to fall below the band. ** Rate set by Board because inflationary change would have caused rate to fall above the band. 55

56 Endowment Sensitivity Analyses The following four slides illustrate sensitivity analyses related to the potential impact on the endowment distribution given three drawdown scenarios: 1-year Drawdown Probability for the Long Term Pool Probability for the Policy Portfolio 30% 0.2% 1% 25% 1% 2% 15% 8% 10% The Long Term Pool currently has a slightly lower level of market risk versus the Policy Portfolio, resulting in a relatively lower probability of a given one-year drawdown compared to the Policy Portfolio 56

57 Impact of a 30% Decline in Market Value Scenario 1: 30% decline in 2015 The distribution percentage would rise to 6.5% in 2017, exceeding the top of the band. This would trigger BOV review and possible action to re-set the rate. Distribution in $ Millions R&V Endowment Payout (with -30% Drawdown in FY 2015 and no Adjustments to Spending $) Assumptions -30% investment return in % investment return in years % HEPI inflation each year 0.7% fees each year Fiscal Year 6% Ceiling $ 4% Floor $ Distribution $ The unadjusted distribution amount will increase at the five-year average HEPI rate. 57

58 Impact of a 25% Decline in Market Value Scenario 2: 25% decline in 2015 The distribution percentage would rise to 6.1% in 2017, just above the 6% ceiling. This would trigger BOV review and possible action to re-set the rate. Distribution in $ Millions R&V Endowment Payout (with -25% Drawdown in FY 2015 and no Adjustments to Spending $) Assumptions -25% investment return in % investment return in years % HEPI inflation each year 0.7% fees each year Fiscal Year 6% Ceiling $ 4% Floor $ Distribution $ The unadjusted distribution amount will increase at the five-year average HEPI rate. 58

59 Impact of a 15% Decline in Market Value Scenario 3: 15% decline in 2015 With a -15% decline in FY15, the distribution percentage would rise to 5.4% in 2017, and will continue to rise slowly in each year thereafter. However, the spending rate would continue to stay within the 4-6% band in the foreseeable future. Assumptions -15% investment return in FY % investment return in years % HEPI inflation each year 0.7% fees each year Distribution in $ Millions R&V Endowment Payout (with -15% Drawdown in FY 2015 and no Adjustments to Spending $) Fiscal Year 6% Ceiling $ 4% Floor $ Distribution $ The unadjusted distribution amount will increase at the five-year average HEPI rate. 59

60 Impact of a 15% Decline in Market Value with an Adjusted Spending Rate (+19 bps) Scenario 4: 15% decline in 2015 and adjusted spending rate With a 15% decline in FY15, the distribution percentage would rise to 5.4% in In order for the spending to reach the 6% ceiling in five years, the FY16 spending could be increased to $178M, or 4.47%, compared to current plan of $170M, or 4.28%. This is a 19 bps adjustment to FY16 spending. Assumptions -15% investment return in FY 2015 (8% likelihood) +7.5% investment return in years % HEPI inflation each year 0.7% fees each year Distribution in $ Millions R&V Endowment Payout (with -15% Drawdown in FY 2015 and 4.47% Spending Rate in FY 2016) Fiscal Year 6% Ceiling $ 4% Floor $ Distribution $ The unadjusted distribution amount will increase at the five-year average HEPI rate. 60

61 Observations The projected FY16 endowment distribution will be 4.3% of the endowment, providing headroom within the 4%-6% band. A drawdown of 24% or greater to the endowment in FY15 would cause the spending rate to exceed the 6% ceiling in FY17. The probability of a 24% drawdown for UVIMCO s Long Term Pool in any given year is approximately 1%. A 15% drawdown (approximately 8% probability) allows spending to continue to increase within the band. Adding 19 bps to FY16 distribution would cause the spending rate to reach 6% cap in FY21, assuming a 7.5% investment return in every year post-drawdown. A 25-basis point increase in the endowment spending rate generates approximately $4.5 million available for unrestricted purposes. 61

62 Ongoing Subcommittee Discussion Required Operating Funds Allocable Operating Funds Endowment Spending Rate Short- vs. Long-Term Funding 62

63 Strategic Use of Debt Portfolio What is an appropriate level of short-term and longterm funding in our debt portfolio? Operating Risks (state appropriations, research funding, health care reform) Interest expense vs. rollover or put risk Liquidity needs of debt portfolio and how to use alternate sources of liquidity (cash, credit lines) The impact of operating fund decisions - what is an appropriate risk tolerance for debt portfolio Working under parameters of Board-approved debt policy - 50% variable rate debt limit 63