Board of Trustees Finance Committee. Thursday, November 2, :45 2:15pm Tampa Campus - Marshall Student Center Room# 3707 A G E N D A

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1 Board of Trustees Finance Committee - Meeting Agenda Board of Trustees Finance Committee Thursday, November 2, :45 2:15pm Tampa Campus - Marshall Student Center Room# 3707 Trustees: Brian Lamb, Chair, Mike Carrere, Stan Levy, John Ramil, Nancy Watkins Foundation Board Liaison: Alan Bomstein Vice Presidents: John Long and Nick Trivunovich Staff Liaison: Gina Lombardi A G E N D A I. Call to Order and Comments Chair Brian Lamb II. Public Comments Subject to USF Procedure Chair Lamb III. New Business Action Items a. Approval of August 17, 2017 Meeting Notes Chair Lamb b. Approval of October 12, 2017 Meeting Notes Chair Lamb IV. New Business Information Items a. Tampa Housing Report Asst. Vice President Ana Hernandez b. Morsani College of Medicine and Heart Sr. Vice President/COO John Long Institute Project Update c. Annual Foundation Investment Report Brian Keenan/Mark Brubaker V. Adjournment Chair Lamb 1

2 Board of Trustees Finance Committee - New Business - Action Items DRAFT USF Board of Trustees Finance Committee NOTES Thursday, August 17, 2017 Tampa Campus - Marshall Student Center Room# 3707 I. Call to Order and Comments The meeting of the Finance Committee was called to order by Chair Brian Lamb at 1:43pm. The following committee members and liaisons were present: Brian Lamb, John Ramil, Stan Levy (phone), Judy Genshaft, Dipayan Biswas, Ninon Sutton, and Alan Bomstein. A quorum was established. The following Trustees were also present: James Garey, Stephanie Goforth, Byron Shinn, and Nancy Watkins. II. Public Comments Subject to USF Procedure No requests for public comments were received. III. New Business Action Items a. Approval of May 18, 2017 Meeting Notes Upon request and receiving no changes to the draft meeting notes, Chair Lamb requested a motion for approval, it was seconded and the May 18 th meeting notes were unanimously approved as submitted by all committee members present. b Operating Budget Nick Trivunovich, Vice President for Business & Finance and CFO, presented the Operating Budget. The USF System Board of Trustees (the BOT) is required to adopt an annual budget for the operation of the University. The BOT must approve the budget prior to July 1, 2017 for the State Comptroller to process cash releases of state funds. On May 18, 2017, the BOT approved a continuation operating budget at last year s level with the understanding that the USF System would prepare a budget for submission to the Board of Governors (BOG) by August 21, 2017 and for presentation to the Board of Trustees at this meeting. This is a new process of submitting the full budget to the Board for approval prior to submission to BOG on August 21. We are requesting the board approve the Operating Budget and authorize the President (or the Designee) to implement budget amendments issued by the state during the fiscal year or other changes approved by the Board Chair. The USF System Operating Budget excluding Direct Support Organizations (DSOs) and carry forward totals $1.79B, an increase of $97.7M or 5.4% over the previous year s 2

3 Board of Trustees Finance Committee - New Business - Action Items DRAFT budget (excluding Self-Insurance and Faculty Practice Plan). The increase resulted primarily from increased state support and tuition, contracts and grants as well as auxiliary enterprises. E&G funding increased by $38.5M for the USF System. This reflects incremental funds of $45.7M less vetoes resulting in cuts to specific programs of $7.2M. The incremental funds include $8.7M Emerging Preeminence; $10.5M World Class Scholars; $5.7M Professional and Graduate Excellence; $13.0M Performance Based Funding; $5.8M - Specific Appropriations ($.7M Midtown Early Care and Education Collaborative; $1.3M Programs of Strategic Importance; and $1.5M Operational Support); and $2.0M additional tuition from SCH/Out of State mix (no increase in student tuition/fee rates). Across the USF System, investments will be made in the following areas: o Retention of USF faculty by offering nationally competitive compensation packages; o All campuses continue making further investments in Faculty in Areas of Strategic Emphasis to support degree production and continued improvement in graduation rates; o All campuses are investing in infrastructure including Information Technology, Student Services, and Campus Safety to support Student Success; o All campuses are making investments in Student Services for advising, recruiting, and faculty development which will allow USF to continue to improve retention and graduation rates. Mr. Trivunovich reviewed priority infrastructure projects over $1M that are included in the Budget (replace cooling tower $2.4M and campus feeder replacement $1M) as well as contingency-funded projects ($6M budgeted). Like last year, the Budget was broken down by funding source, fungibility, and expenditure category for the System as well as for each campus. We have a very diverse revenue stream which is good for our bond rating. Two-thirds of our Budget is non-fungible (contracts & grants and financial aid); one-third is fungible (state dollars). The System s largest expenditure is salaries and benefits, indicating our greatest investment is in people, our greatest resource. A motion was made to approve Operating Budget and to authorize the President (or the Designee) to implement Budget amendments issued by the state during the fiscal year or other changes approved by the Board Chair. The motion was seconded and approved by all Committee members present. c. USF Regulation Employee Debt Collection Hilary Black, Sr. Associate General Counsel, presented the amended USF System Regulation Employee Debt Collection. The existing regulation has been amended/updated to track current practices. The amended Regulation includes guidance for USF System departments regarding the methods of overpayment recovery such as retraction of the original payment, automatic reduction of the immediate next payrolls, and set-off procedures. A motion was made to approve the amendment of USF System Regulation Employee Debt Collection. The motion was seconded and approved by all committee members present. 3

4 Board of Trustees Finance Committee - New Business - Action Items DRAFT d. Expenditure Authorization Requests Mr. Trivunovich presented various items related to the University s new Expenditure Authorization Policy. The Expenditure Authorization Policy has been in effect since April The policy states that all contracts for the procurement of goods and services over $1M be approved by the Finance Committee Chair and all contracts over $2M be approved by the Finance Committee. The Finance Committee is being asked to consider exceptions to the Expenditure Authorization Policy and to consider eight requests for approval each over $2M. An authorization document has been created to provide relevant information to approvers. 19 projects/initiatives have been approved to date at a total cost of $42.8M. 34 purchase orders over $1M were issued in 2016/17 (21 purchase orders between $1M and $2M and 13 purchase orders above $2M). Benefits realized from the new process include responsive turnaround (generally within 24 hours) from the Finance Committee Chair on approvals between $1M and $2M; transparency and visibility to Board on major University expenditures; and more consistent University documentation on expenditures over $1M. The process can be further improved by the University continuing to adjust to the lead times necessary for Board approval and by the elimination of expenditure approvals that are redundant or have no material financial impact. Mr. Trivunovich explained the proposed exceptions to the contract approval requirement: o Direct Owner Purchase Orders (no material financial impact) o Items subject to Real Property Policy (approvals are redundant) o Research Sub-awards (no financial impact) o Payments obligated under a multi-year contract o Resolutions for projects approved by the Board of Trustees Mr. Trivunovich presented the eight requests for approval by the Finance Committee: Non-Construction o Office Depot Contract $2,150,000 o Microsoft Contract (3 yrs.) $3,970,348 o Oracle Contract (3 yrs.) $5,077,920 Construction o USFSM College of Hospitality & Tourism Expansion $2,454,000 o USF Holly Renovations (C, D, G) $9,000,000 o USF Kosove Renovations $5,000,000 o USF New Entry/Laurel Drive Extension $4,855,000 o CPT- Replace Failing Cooling Tower #5 $2,482,338 All of these requests are in the operating budget just approved. Trustee Ramil asked if we are getting the best rates for the software. Sidney Fernandes, Vice President for Information Technology, noted that the Microsoft and Oracle contracts are renewals. Microsoft was negotiated as part of a consortium at 2011 pricing levels. Oracle guarantees the same price over the three years (no new increases). Trying to keep incremental costs low. Trustee Ramil asked if the Housing projects are consistent with the housing rate increases. Mr. Trivunovich responded yes. Also, it is the industry standard in housing to do a complete renovation of facilities after years. 4

5 Board of Trustees Finance Committee - New Business - Action Items DRAFT A motion was made to approve the eight expenditure requests as presented. The motion was seconded and approved by all Committee members present. A motion was made to approve the proposed exceptions to the approval requirement. The motion was seconded and approved by all Committee members present. IV. New Business Information Items a. Annual Finance Policy Reports The Annual Policy Report is required by the three BOT Finance Policies (investment, debt management, derivatives). The policies were adopted in 2006, and apply to the University and the Direct Support Organizations (DSOs). Fell Stubbs, University Treasurer, presented highlights of the results of the management of USF s Investment, Debt, and Derivatives Portfolios. 1. Investments The USF System investment portfolio consists of 10 USF and DSO portfolios. The System investment portfolio has kept pace with the growth of the USF System and has grown to $1.29 billion. All investment portfolios are governed by the BOT Investment Policy and active investment committees. The University portfolio is an operating portfolio. The goals are to maintain liquidity; avoid losses; and support annual cash expenditures. Our portfolio liquidity measures are in line with our Aa2 peers. However, the size of the operating portfolio has slipped relative to annual expenditures. University investment returns have been stable and positive each year over the past 10 years, despite market volatility. The portfolio structure cushions exposure to market volatility, the key being conservative asset allocation. We missed our benchmark return in FY 2017 by 20 basis points due to underperformance in foreign equities and cash portfolios. This is the first report where we have underperformed our benchmarks. During the year, we terminated two managers and hired four new managers. 2. Debt Management Core debt management strategies have not changed. Recent year activities have focused on refunding outstanding bonds to capitalize on the lower yield curves, rather than new debt. Five transactions were completed in FY 2015 and FY 2016 for $188M ($18.2M net present value savings); two transactions were completed in FY 2017 for $41M ($4M NPV savings); and two transactions are planned in FY 2018 for $81M. The University is utilizing, as appropriate, Public-Private Partnerships to deliver certain capital projects. Mr. Stubbs reviewed the 10-year change in debt issues, long-term rate and mix. Over the past 10 years, we added $170M of new debt. Over this period, we converted/refunded $180M. Our credit ratings have improved over this period as well. There has been a reduction in variable rate bonds from $196M to $84M (from 59% to 22% of outstanding debt). Outstanding debt has been managed downward since FY2011, while funding strategic projects. 3. Derivatives The BOT Derivatives Policy governs all derivatives. We have no unhedged positions and no new swaps since Recent events include the conversion of $38M of USF 5

6 Board of Trustees Finance Committee - New Business - Action Items DRAFT Financing Corporation variable rate bonds to fixed rate (7/1/16) $38 M of interest rate swaps expired; and the conversion of $18M of USF Research Foundation variable rate bonds to fixed rate and paid off $9M in variable rate bonds (8/1/16) $27M of swaps expired. Over the next 12 months, we will convert $19M of USF Financing Corporation variable rate bonds to fixed rate (7/1/18). Note that expiring swaps create an opportunity to convert to fixed rates at lower levels. There is a downward trend in outstanding swaps from $278M in 2008 to $85M today. All swaps performed as expected. Trustee Ramil asked if we should have routine reporting on DSO investment portfolios (this is currently done just for the Foundation). Chair Lamb responded yes, just for the significant ones. This is consistent with our focus on transparency. At our next meeting, we need to explain how we are going to do this (frequency, etc.). Chair Lamb thanked Mr. Stubbs for the good report noting that this maintains the integrity of our balance sheet which is very important and a strategic priority. b. Construction Update Calvin Williams, Vice President for Administrative Services, gave a brief update on the following board-approved projects over $500K: USF Health Morsani College of Medicine and Heart Institute there will be a future meeting to discuss/approve the two floor buildout; USF Student Housing Village (P3) Phase I two buildings (885 beds) and The HUB are complete and the FIT will open in September; USF Grocery (P3) construction will now begin in January 2018; and USF Laurel Drive Roadway and Parking (P3) will provide access to the Village. Chair Lamb asked if the opening date of the Grocery store would change as construction has been delayed. Ms. Black responded that this has not yet been discussed. V. Adjournment Having no further business, Chair Lamb adjourned the Finance Committee meeting at 2:42pm. 6

7 Board of Trustees Finance Committee - New Business - Action Items DRAFT USF Board of Trustees Finance Committee NOTES Thursday, October 12, 2017 Tampa Campus - Marshall Student Center Room# 3707 I. Call to Order and Comments The meeting of the Finance Committee was called to order by Chair Brian Lamb at 1:21pm. The following committee members and liaisons were present: Brian Lamb, Mike Carrere, Judy Genshaft, and Alan Bomstein. No quorum. The following Trustees were also present: James Garey, Byron Shinn, and Nancy Watkins. II. Public Comments Subject to USF Procedure No requests for public comments were received. III. New Business Action Items a. Approval of August 17, 2017 Meeting Notes Since there was no quorum, this item was deferred to the November meeting. b. Expenditure Authorization Request Nick Trivunovich, Vice President for Business & Finance and CFO, presented the expenditure authorization request for the Tampa Sports Authority (TSA) License Agreement for approval by the Finance Committee. This agreement went into effect in May The Expenditure Authorization Policy has been in effect since April 2017, however this agreement was missed during the transition period and we are seeking approval now as a requisition has been generated against the agreement. This is a 6 year renewal for use of Raymond James Stadium for up to 8 collegiate football games per season. The estimated cost is $10.8M for six years (dependent on the number of games per year and the attendance at those games). Mr. Trivunovich explained the benefits and favorable terms of the agreement. Pricing has been locked in for the next 6 years which allows for financial planning. The agreement also includes expanded revenue sharing for the 7 th and 8 th games. USF has the right to terminate this agreement with 24 months prior notice. The term for the previous agreement was 5 years. Chair Lamb asked about revenues from the stadium. Mr. Trivunovich explained that the stadium agreement allows us to generate revenue from Barnes & Noble merchandise sales. Chair Lamb also asked what other revenue streams would colleges with campus stadiums have. Athletic Director Mark Harlan indicated concessions and parking. Mr. Harlan also stated that TSA s charges to the University are at cost (no up charges). Chair Lamb noted that USF pays about $1.5M to TSA each season and that borrowing $100M to build a stadium would cost 7

8 Board of Trustees Finance Committee - New Business - Action Items DRAFT about twice as much. Mr. Harlan stated that we have a good relationship with TSA and the Bucs and we are second in priority for scheduling. Chair Lamb, exercising his authority as Chair under the Board s established operating procedures, appointed Trustee Nancy Watkins to the Finance Committee. As Trustee Watkins is present at the meeting, there is now a quorum. Trustee Carrere made a motion to approve the Tampa Sports Authority License Agreement. Trustee Watkins seconded the motion. The motion was approved by all Committee members present. IV. New Business Information Items a. Draft 2017 USF Financial Statements Mr. Trivunovich provided highlights of the FY 2017 financial statements. Mr. Trivunovich presented a historical view of operating results. In FY 2013, the USF System had an operating deficit of $46.6M and employed cost containment measures, per the President, to correct this. In FY 2014, the System had an operating surplus of $5M (essentially breakeven). Our goal is to break even consistent with our mission and in being prudent. In FY 2017, the System had an operating surplus of $26.9M. This was due to increased state appropriations through performance-based funding and emerging pre-eminence; an increase in investment income; an increase in Contracts & Grants, mostly federal; and an increase in auxiliary sales and services, largely from athletics and housing. The operating surplus occurred despite an increase in compensation and employee benefits which included a 2% salary increase for employees, the hiring of 55 faculty members (which helps to improve our student/faculty ratio and increase our contracts and grants through research) and an increase in the unfunded pension liability (GASB 68). Mr. Trivunovich also explained variances between 2017 and 2016 in excess of $10M and 10% as well as variances in excess of $20M. There was discussion of accounts receivable and noncash items, specifically post-employment health care benefits payable and pension liability. Chair Lamb wants to discuss, going forward, our reserve balances what s required, what s our policy, and how they are used. He also wants to have a conversation on cash balances. For the next meeting, Chair Lamb wants to know how we are using our emerging preeminence dollars and how we are using budget dollars for vetoed items (use of proceeds vs. what was vetoed). Trustee Shinn noted that USFSM has already had discussions on reserves and cash flows. b. DSO Investment Reporting Process Mr. Trivunovich presented a proposal for additional reporting from certain DSOs on their investment results (this was requested by the Trustees at our last meeting). DSOs will present their investment portfolio performance to the BOT Finance Committee semi-annually, at the October and February meetings or when investment results first become available. Reporting periods will be as of June 30 and as of December 31. The goal is transparency. 8

9 Board of Trustees Finance Committee - New Business - Action Items DRAFT The following DSOs would report investment results: o USF Foundation Endowment Portfolio (current reporting practice) Operation portfolio (new) - $85M; short-term, liquid o USF Research Foundation Operating Portfolio (new) - $34M; 70% invested with USF Foundation (Endowment Investment Policy) o University Medical Services Association Operating Portfolio (new) - $20M; same investment advisor as University; no investment dollars with USF Foundation Mr. Trivunovich also reviewed the proposed report format which includes an asset allocation table, performance report, and governance and investment management disclosures. After discussion, it was decided that the DSO Investment Reporting would be on an annual basis, based on the fiscal year end. V. Adjournment President Genshaft thanked Mr. Trivunovich for all his work a great job. Chair Lamb agreed. Having no further business, Chair Lamb adjourned the Finance Committee meeting at 2:15pm. 9

10 Agenda Item: IVa USF Board of Trustees Finance Committee November 2, 2017 Issue: USF Tampa Student Housing Report Proposed action: Informational Executive Summary: On May 3, 2016, the USF Board of Trustees approved a three-year housing rental rate increase plan that maintained a 1.4 debt coverage ratio. The increases and the plan applied to the Tampa campus only. The Board s approval of the rental rate increase was conditioned on the requirement that staff would annually return to the Finance Committee and report on the performance of the housing system relative to the assumptions underlying the rental rate increase. The agenda item is the annual report on the performance of the housing system. The report is presented as an information item, but the Board retains the authority to revisit the increase as an action item at its next regularly scheduled meeting. Financial Impact: Strategic Goal(s) Item Supports: Goal 1: Student Success Goal 4: Sound Financial Management Committee Review Date: November 2, 2017 Supporting Documentation Online (please circle): Yes No USF Tampa Student Housing Report USF System or Institution specific: USF Tampa Prepared by: Ana Hernandez, Asst. Vice President 10

11 USF Tampa Student Housing USF Board of Trustees Report November 2,

12 Overview In May 2016, USF Board of Trustees approved USF Tampa Student Housing Rental Request for three years (FYE 2017 FYE 2019). The purpose of the approved three year rate structure was primarily to address: Deferred maintenance Debt service coverage ratio As required by the approved resolution, staff will return annually to report on the performance of the housing system. 1 12

13 Update USF Tampa Housing & Residential Education opened in Fall 2017 with 98.6% occupancy and demand continues Reinvestment in housing facilities continues FYE17 - $14,407,936 projects completed. FYE18 - $12,338,390 projects completed, planned, and underway. FYE19 - $6,596,910 projects planned. Will meet targeted debt service coverage ratio of 1.35 in Year 2 of three year approved plan. 2 13

14 Facility Reinvestment FYE 2017 Projects SAMPLE PROJECTS NON-CAPITAL Elevator repairs/upgrades (multiple buildings) SPENDING $1,038,165 Exterior building repair (walkways, railings) $190,000 Exterior cleaning/repairs/caulking/sealing /painting (multiple buildings) Exterior stucco and minor roof repairs (multiple buildings) $1,332,110 $1,860,950 Flooring upgrade $215,000 Furniture $120,000 Upgrades to community space $456,120 Landscaping/storm water drainage $180,000 Renovation of stairs for code compliance $30,000 Roof repairs $395,417 Site lighting (replace and add) $201,254 Environmental controls (multiple buildings) $236,800 SAMPLE PROJECTS - CAPITAL Castor Hall - Elevator replacement, Kitchen Upgrades Holly Halls-Major infill/curtain wall renovation and related equipment replacement Major renovation of parcel facility Magnolia Halls-Replacement of stucco, cap flashings, and roof repairs (multiple buildings); Interior upgrades to kitchens, bathrooms & flooring SPENDING $350,000 $1,417,770 $274,488 $3,890,836 All Halls-Security cameras $1,136,

15 Facility Reinvestment - Magnolia Before After 4 15

16 Facility Reinvestment - Magnolia Before After 5 16

17 Facility Reinvestment Package/Mail Center Before After 6 17

18 Facility Reinvestment Future Sample Projects FYE18 and beyond SAMPLE PROJECTS NON-CAPITAL BUDGET Appliances 200,000 Bathroom upgrades 650,000 Exterior painting and sealing 450,000 Fixture/valve/fitting upgrades 200,000 Flooring 240,000 Furniture 240,000 Interior Door replacement 220,000 Inventory/storage facility 200,000 Interior painting 170,000 Interior renovations 2,360,000 Landscaping improvements/sight lighting 1,500,000 Lighting/electrical 370,000 SAMPLE PROJECTS - CAPITAL Centralized golf cart storage/charging BUDGET $450,000 Elevator replacement $1,750,000 Environmental controls (multiple buildings) Holly Halls Major Renovations including infill/curtain wall renovation and related equipment replacement $1,100,000 $9,000,000 HVAC System replacement $750,000 Kosove Hall Major Renovations $5,000,000 Plumbing upgrades $1,000,

19 Financial Projections (based upon proposed rates) Tampa Budget FYE 2017 (Actual) FYE 2018 (Budget) FYE 2019 (Budget) Total Operating Revenues 37,408,016 38,093,667 36,073,797 Total Operating Expenses 22,045,240 23,404,656 20,890,369 Net Income 15,362,776 14,689,011 15,183,428 Debt Service Payment 10,929,321 10,880,749 10,845,306 Debt Service Coverage Ratio 1.41x 1.35x 1.40x Occupancy Projection 106% 95% 95% System Budget FYE 2017 (Actual) FYE 2018 (Budget) FYE 2019 (Budget) Debt Service Coverage Ratio 1.42x 1.35x 1.40x Facility Reinvestment FYE 2017 (Actual) FYE 2018 (Budget) FYE 2019 (Budget) Facilities Projects Non-capital 5,321,785 4,338,390 1,596,910 Facilities Projects - Capital 9,086,151 8,000,000 5,000,000 Total Reinvestment 14,407,936 12,338,390 6,596,910 * Additional investment in FYE 2017 and FYE 2018 prompted by stability of income and strategic investment in facilities to position USF existing beds to be competitive with new Village. 8 19

20 USF Tampa Housing Rate Proposal (6.5%) Room Type # of Beds Approved Annual Rate (8%) Proposed Annual Rate (6.5%) Annual Student Savings Apartment Double 16 $7,680 $7,440 $240 Apartment Single 2br 48 $9,600 $9,600 0 Apartment Single 4br 1398 $8,864 $8,790 $74 Suite Double 1524 $7,680 $7,500 $180 Traditional Double 624 $5,920 $5,908 $12 Traditional Single 10 $8,400 $7,960 $

21 Recommendation Implement 6.5% average rate increase for FY 2018/19 (Previously approved at 8.0% average) 10 21

22 Agenda Item: IVb USF Board of Trustees Finance Committee November 2, 2017 Issue: USF Morsani College of Medicine and Heart Institute Project Update Proposed action: Informational Executive Summary: Provide the USF Board of Trustees with an update on the Morsani College of Medicine and Heart Institute Project. Financial Impact: Informational Strategic Goal(s) Item Supports: Goal 1; Goal 2; Goal 3; Goal 4 Workgroup Review Date: November 2, 2017 Supporting Documentation Online (please circle): Yes No USF System or Institution specific: USF Tampa Prepared by: Calvin Williams 22

23 October 2017 Board-Approved Project USF Health: Morsani College of Medicine and Heart Institute $20.3M $112.2M* $ $40.5 = $152.7M October 23, 2017 Deep foundations (caissons) complete. Pile Caps, Grade Beams & Underground Utilities ongoing. Crane installation in November. Schedule: $40.5M Funding Source: STATE FOUNDATION OTHER FUNDING *We are not asking the State for anything more than $112.2M for the construction of the MCOM+HI project Owner s Rep $2.5 FF&E $5.8 Two (2) Shell Floors $12 $20.3M $152.7M + $20.3M = $173M Legend: GMP #1 (July 2017) GMP #2 (Oct 2017) GMP #3 (Jan 2018) 23

24 Agenda Item: IVc USF Board of Trustees Finance Committee November 2, 2017 Issue: USF Foundation Annual Portfolio Review Proposed action: Informational Executive Summary: The USF Foundation recently closed fiscal year 2017 with about $557 million in total assets under management, of which $442 million are restricted endowment assets. The Foundation s investment objective is to preserve the intergenerational equity of endowed funds while providing a consistent source of funding to University programs, faculty, and students. This presentation contains information on the Foundation s portfolio returns, asset allocation strategy, and spending policy, which are the key factors in achieving long-term objectives. Financial Impact: The USF Foundation, with its $1 billion USF: UNSTOPPABLE campaign has a profound financial impact on the University community. More specifically, the Endowment Pool has provided over $150 million in support for University programs for the last ten years. Strategic Goal(s) Item Supports: Goal 4: Sound Financial Management Workgroup Review Date: Finance, 11/2/2017 Supporting Documentation Online (please circle): YES USF Foundation Annual Portfolio Review USF System or Institution specific: System Wide Prepared by: Ken Souza, Director of Foundation Investments,

25 USF Foundation Annual Portfolio Review for University of South Florida Board of Trustees Finance Committee November 2,

26 Foundation Asset Pools Endowment Pool USF Foundation Endowment contains $442 million in donor-restricted assets, managed in over 1,200 endowed funds Agency investments include a long-term investment by USF Research Foundation Endowment Pool $472 Million Foundation operating pool invests in the endowment as part of its long-term strategic asset allocation USF Foundation Endowment (NACUBO) USF Agency Investments Operating Pool Long- Term Investment All endowed funds participate in the pool s investment gains/losses Operating Pool Investment Governance Operating funds include of over 2,000 donorrestricted funds, specified for university programs, scholarships, facilities, etc. Each endowed fund has a corresponding operating fund to administer endowment distributions and spending Operating funds are all spendable funds, and therefore do not participate in the pool s investment gains/losses Investment committee is responsible for financial oversight and administration of the operating and endowment investment pools Assets are managed based on investment policy guidelines approved by the Foundation Board Foundation investment policies are in compliance with University investment policy and with applicable laws Foundation has retained Wilshire Associates as its investment advisor since

27 Endowment Portfolio Performance June 30, 2017 QTR 1-YR 3-YR 5-YR 10-YR Inception Endowment Fund 4.5 % 16.4 % 6.2 % 10.2 % 5.9 % 9.5 % Policy Benchmark 3.3 % 14.9 % 5.5 % 9.9 % 5.6 % 9.1 % +/- Benchmark 1.2 % 1.5 % 0.7 % 0.3 % 0.3 % 0.4 % Ranking* (Percentile) 3 % 3 % 9 % 7 % 13 % -- * Source: TUCS Total Return of Master Trusts Foundation & Endowment Portfolios Universe Returns are net of fees Total Endowment Assets $472 Million NACUBO Endowment Assets $442 Million Asset Class Alloc % 1-Yr 3-Yr 5-Yr 10-Yr Domestic Equity 37 % 20.3 % 8.6 % 14.3 % 7.5 % Wilshire 5000 Index 35 % International Equity 27 % MSCI ACWI ex US 25 % Fixed Income 19 % Barclays Agg/ML HY 20 % Public Real Assets 4 % Custom Benchmark 2.5 % Non-Marketable Alloc % Return Private Real Assets (Real Estate, Natural Rs) NCREIF Property Index Consumer Price Index Alternatives (Private Eq, Venture Cp) 4 % IRR: 3.5 % 5-Yr Rtn 7.7 % 7.5 % 5-Yr Rtn 10.8 % 5-Yr Rtn 1.3 % 8 % IRR: 11.2 % 10-Yr Rtn 9.8 % Wilshire 5000 IRR 10 % IRR: 10.3 % - IRR for Private Real Assets as of 3/31/2017, since program inception in IRR for Alternatives as of 3/31/2017, since program s inception in

28 Benchmarking Endowment Performance Is a Leader Among Peers (Based on FY 2016 NACUBO Survey) USF endowment continues to outperform peers in all time periods, primarily due to its strategic asset allocation; relative overweight to long-only equites and high yield bonds, no allocation to hedge funds NACUBO - FY 2016 Return 1 Yr 3 Yr 5 Yr 10 Yr USF Foundation -1.3 % 7.2 % 7.2 % 6.2 % NACUBO Universe Percentile Rank 35 th 10 th 9 th 15 th NACUBO Universe Average $ Million Peers Average Florida Peer Institutions Average USF Endowment Long-Term Asset Growth Third largest endowment among selected institutions established since 1950 Over the last 10 years, about $87 million in outright cash gifts to the endowment Strong investment returns have allowed for continued asset growth while maintaining consistent spending 4 28

29 Attribution and Spending Attribution: FY 2017 Returns Exceeded Policy Contributor: strong performance in US and Non-US equity as well as high yield bonds; augmented by endowment s overweight position relative to peers Contributor: positive results from private capital, especially private equity and natural resources Detractor: core fixed income underperformed in an equity bull market, public real assets lagged as inflation remained muted Active Management Provided a Significant Boost To Portfolio Returns In FY 2017 US equity composite was 180 bps above benchmark International equity composite exceeded by 410 bps Wilshire believes that active management can consistently add value in certain inefficient asset classes Endowment Distributions Provide Support For Endowed University Programs, Scholarships, etc. Distributions exceeded $17 million in FY 2017; about $157 million in support over last ten years Goal is to provide a steady and reliable source of income for endowed University programs, scholarships, etc. Core Fixed Income 10% Alternative Assets 10% Real Assets 10% High Yield/Direct Lending 10% Emerging Markets 6% Large Cap Core 19% International Developed 19% Large Value 7% Large Growth 5% Small Value 2% Small Growth 2% 5 29

30 Meeting Long-Term Investment Goals Asset Allocation Is Set For Long-Term Growth Through Multiple Market Cycles Long-term expectations for most asset classes remain conservative, despite 2017 rally Alpha from active management a key component of forecasted returns Wilshire does not advise making asset allocation changes based on short-term market activity Wilshire forecasts indicate that the USF Endowment should be able to maintain long-term intergenerational equity while maintaining its current spending rate (4% dividend, 2% administrative fee) Recent Investment Committee Initiatives Increased allocation targets in private credit and private real assets Implemented manager changes in small cap growth and public real assets Target Allocation FY Yr Expected Return Expected Alpha from Active Management Total 10-Yr Expected Return Growth Assets US Equity 35% 6.50% 0.75% 7.25% Non-US Equity 25% 6.70% 1.50% 8.20% Private Markets 10% 9.40% 1.00% 10.40% Risk Minimizing Assets Core Fixed Income 10% 3.65% 0.75% 4.40% Credit Assets High Yield 3% 5.35% 1.00% 6.35% Opportunistic Credit 3% 5.25% 0.90% 6.15% Private Credit 4% 8.55% 2.00% 10.55% Inflation Hedging Assets Public Real Assets 2.5% 4.80% 1.00% 5.80% Private Real Assets 7.5% 7.70% 1.75% 9.45% Inflation % 1.95% FY Yr Expected Return 8.15 % 6 30

31 Operating Pool Investment Program Investment Objective Long-Term Preservation of Capital Foundation management conducts an actuarial review of the operating funds cash flow activity in order to forecast the pool s liquidity needs; this becomes the basis of the asset allocation strategy Asset allocation is set based on risk/return forecasts for each asset class, under guidance from Wilshire Tier I Liquidity Vehicle 25% Money Market Funds Bond Ladder Tier II Capital Preservation 60% Short-Term Investment Grade Bond Index Active Investment Grade Bonds Short-Term High Yield Internal Loans Tier III Capital Enhancement 15% Long-Term Investment In Endowment Pool FY 2017 Investment Performance Assets: $100 Million 1-YR 3-YR 5-YR 10-YR Inception Operating Fund 3.2 % 2.6 % 3.2 % 3.6 % 4.9 % Policy Benchmark 2.1 % 2.4 % 2.9 % 3.6 % 4.9 % +/- Benchmark 1.1 % % Returns are net of fees 7 31