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FINANCE
COMMITTEE
Friday, March 27, 1998
11:00 a.m. - 12:30 p.m.
East Oval Room, The Rotunda
Committee Members:
William
H. Goodwin, Jr., Chair
Henry L. Valentine, II
Franklin K. Birckhead
Walter F. Walker
C. Wilson McNeely, III
James C. Wheat, III
Elizabeth A. Twohy
AGENDA
- I.
ENDOWMENT MATTERS (Ms. Handy)
- A.
Report on Market Value and Performance as
of January 31, 1998
- B.
Venture Capital Investment
- C.
Establishment of Criteria to Create the University
of Virginia Investment Management Company
- II.
CONSENT AGENDA (Mr. Sandridge)
- A.
Contract Rates for Dining Services, 1998-99
- Academic
Division
- Clinch
Valley College
- B.
Faculty and Staff Housing Rates, 1998-99
- Academic
Division
- Clinch
Valley College
- C.
Application Fees for Law, Graduate
Business Administration and Medicine
- III.
ACTION ITEMS (Mr. Sandridge)
- Tuition
and Required Fees, 1998-99 Academic Year and Summer Session
- Academic
Division
- Clinch
Valley College
- IV.
REPORTS BY THE EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
(Mr. Sandridge)
- A.
Vice President's Remarks (Mr. Sandridge to introduce Ms. Capone,
Ms. Colette Capone to report)
- 1998
General Assembly Session
- B.
Miscellaneous Financial Reports
- Academic
Division Accounts and Loans Receivable as of December 31,
1997
- Capital
Campaign Gift Report
- Disinvestment
of Unrestricted Quasi-Endowment to Fund Capital Campaign Expenses
- Internal
Loans to University Departments and Activities
- Medical
Center Write-Off of Bad Debts and Indigent Care
- I.
A. Market Value and Performance as of January 31, 1998
- ACTION
REQUIRED: None
- BACKGROUND:
The Rector and Visitors of the University, particularly the Investment
Subcommittee of the Finance Committee, oversee the major component
of the endowment that benefits the University. External managers
oversee a large portion of the University's endowment, and the
University Treasurer manages selected components. The Investment
Subcommittee meets quarterly to review performance and to make
asset allocation decisions. Reports on market value, asset allocation
and endowment performance are made to the Finance Committee at
each regular meeting of the Board.
- DISCUSSION:
As of January 31, 1998, the endowment under the control of the
Rector and Visitors totaled $1.033 billion, compared with $1.037
billion on September 30, 1997 and $962 million in June 1997. The
fund continues to be postured defensively, away from the seemingly
fully valued domestic stock market, with positions in bonds and
cash, held by our equity managers, and diversification into alternative
investments and real estate. As of January 31, 1998, the asset
allocation of the fund was 32 percent in domestic equities, 10
percent in international equities, 20 percent in alternative partnerships,
10 percent in real estate, 20 percent in bonds and 7 percent in
cash. The most significant deviations from target benchmark are
an underweighting in international stocks of 6 percent and overweighting
of cash of 7 percent.
-
The domestic equity managers have underperformed their S&P benchmark
because they have taken significant positions in cash and bonds
and have shown a bias toward smaller capitalization stocks, which
underperformed the larger capitalization stocks over the past
year by nearly 10 percent. The small capitalization bias has paid
dividends in the past, as the managers have exceeded their benchmark
over the long term. However, we are in a painful period because
any diversification away from domestic stocks hurts performance.
The additional defensiveness into cash has resulted in an underperformance
of the total fund relative to its long-term benchmark (75 percent
stocks and 25 percent bonds) and our National Association of College
and University Business Officers (NACUBO) peer group.
- The
Finance Committee will review our position at its next meeting
and will meet with the equity managers to discuss concerns about
the market and the appropriate position for the entire portfolio.
Details of the individual managers'
performance and the fund are included as an attachment. (270K)
- I.
B. Venture Capital Investments
- BACKGROUND:
The venture capital program began in earnest in 1988. At present
we have $60 million committed to eight different partnership groups.
(This does not account for distributions.) Since the program began,
we have continued to invest with proven partnership groups and
occasionally added new managers when they offered an opportunity
not covered by our other funds or when they enhanced the overall
quality of the portfolio.
- DISCUSSION:
We committed $3 million to Polaris Venture Partners I in June
1996. Polaris, an early stage investor in information technology
and medical technology and life sciences, is an experienced team
that has invested through a range of technology and market conditions
since the early 1980s. (Jonathan Flint and Terry McGuire worked
at Burr Eagan, a leading Boston-based venture fund, before they
formed Polaris. The third partner, Steve Arnold, is located in
Seattle and is closely aligned with the Pacific Northwest information
technology network dominated by Microsoft.) The Polaris venture
capital fund is not yet fully invested, but we anticipate that
it will be (with some reserve for add-on investments) sometime
during the third quarter of this year.
-
Polaris is in the process of raising a second fund totaling $150
million. Although most of the Fund I portfolio companies are in
the early stage of maturity, there already has been one liquidity
event which had an internal rate of return of 308 percent. The
entire return so far for the fund is 16.6 percent, placing it
in the upper quartile for 1996 funds. In addition, a number of
portfolio companies have had significant events in the last month,
which should increase their market valuations. For example, one
company announced a corporate alliance in excess of $200 million
with a major pharmaceutical company, and a number of portfolio
companies have term sheets for follow-on financing or corporate
partnerships that are likely to close within the next 90 days.
While it is too early to make meaningful quantitative return projections
for Fund I, the General Partners believe that the Fund is off
to an excellent start. There are several companies that are potential
1998 initial public offerings. A commitment of up to $6 million
to Fund II would be consistent with our strategy of identifying
partnerships with which we can establish long-term relationships.
- Also
in the venture area, an opportunity exists to invest with Sequoia
Capital, one of the premier venture capital firms. Sequoia began
in 1972 and has backed more than 350 companies since that time,
including Cisco Systems, Apple Computer, Oracle and Yahoo. The
firm has disciplined itself to remain small (it is raising a $250
million fund), so it can operate effectively in the start up and
early stage area. The firm's willingness to consider an investment
from us is attributable to Henry Valentine and John Glynn (a venture
capitalist who also serves as a part-time instructor at Darden).
We have asked for $5 million but most likely will be offered $2
to $3 million.
- ACTION
REQUIRED: Approval by the Finance Committee
APPROVAL OF INVESTMENT IN VENTURE CAPITAL PARTNERSHIPS
-
RESOLVED by the Investment Subcommittee of the Finance Committee
of the University of Virginia's Board of Visitors that the Executive
Vice President and Chief Financial Officer is authorized to commit
up to $6 million of the Endowment for the following Venture Capital
Fund: POLARIS VENTURE PARTNERS II; and up to $5 million for the
following Venture Capital Fund: SEQUOIA CAPITAL VIII.
- I.
C. Establishment of Criteria to Create the University of Virginia
Investment Management Company
- BACKGROUND:
With the endowment crossing the $1 billion threshold and investment
options becoming more varied and complex, the Finance Committee
and Cambridge Associates reviewed the governance structure and
staff of the Treasurers Office to ensure the University has the
talent and resources necessary to meet the challenges of the future.
The Finance Committee heard a report detailing the recommendations
for reorganization at its January 1998 meeting and concurred with
the reports recommendation to create a subcommittee of the Finance
Committee to be known as the University of Virginia Investment
Management Company.
Section 3.21 of the Board Manual states:
The Board may delegate responsibility for management of the
University's endowment and non-state investments to a subcommittee
of the Finance Committee, to be known as the University of
Virginia Investment Management Company. The subcommittee shall
consist of the Rector, the chair of the Finance Committee
who shall also be chair of the subcommittee, three members
of the Finance Committee appointed by the Rector, the President
or his/her designee, and a minority representation of not
more than four members appointed by the Board from the general
public for their investment experience and expertise.
- DISCUSSION:
The Manual allows the creation of the Investment Management Company
as a subcommittee of the Finance Committee. An action of the Finance
Committee and Board is needed to establish the structure and more
detailed scope of the Company. If this action is approved, the
Rector will name four members of the Finance Committee to the
subcommittee. The President intends to name the Executive Vice
President and Chief Financial Officer to serve as his designee
on the subcommittee. The Treasurer of the University is not proposed
to be a member of the subcommittee but would assume an additional
administrative title as president of the company. At a subsequent
meeting, the Board of Visitors will name up to four public, non-voting,
alumni members to the subcommittee.
- ACTION
REQUIRED: Approval by the Finance Committee and the Board
of Visitors
APPROVAL OF CRITERIA TO CREATE THE UNIVERSITY OF VIRGINIA
INVESTMENT MANAGEMENT COMPANY
- WHEREAS,
the Finance Committee has conducted a study of the University's
investment operations and governance in light of the growing responsibility
of managing the University's endowment; and
- WHEREAS,
the Manual of the Board of Visitors authorizes the establishment
of a subcommittee of the Finance Committee, to be known as the
University of Virginia Investment Management Company;
- RESOLVED,
upon the Rector's appointment of four members of the Finance Committee
to the aforesaid subcommittee, the Board hereby delegates responsibility
for investment and management of the University's endowment and
non-state investments, including the retention of investment managers
and services, to the subcommittee to be known as the University
of Virginia Investment Management Company; and
-
RESOLVED FURTHER, the Board may appoint no more than four public
members who shall be alumni of the University, to serve, without
compensation save reimbursement of expenses as permitted by University
policy, as non-voting members to initial terms not to exceed four
years, with eligibility of reappointment for one consecutive four-year
term, such that no member shall be eligible to serve more than
two successive terms; and
-
RESOLVED FURTHER that the Treasurer of the University of Virginia
shall serve as the President of said company; and
-
RESOLVED FURTHER, the said company shall invest and manage the
University's endowment and non-state investments in accordance
with applicable Board policy, as shall be in effect from time
to time, and shall report its actions to the Finance Committee
at its next meeting; and
- RESOLVED
FURTHER that appropriate officials of the University are authorized
to take all actions necessary to carry out this resolution; and
- RESOLVED
FURTHER that this authorization shall continue in effect until
repealed or otherwise modified by the Board of Visitors.
- II.
CONSENT AGENDA
- A.
CONTRACT RATES FOR DINING SERVICES, 1998-99: Approves rates for
contract dining services for 1998-99
- The
University provides a variety of contract student meal plans,
ranging from unlimited dining to 6 meals per semester. The University's
pricing policy calls for room and board rates to be lower than
the average of the rates charged by all public colleges and universities
in Virginia. The University charged $227 less than the statewide
average for room and board in 1997-98. During the same time period,
Clinch Valley College charged $99 less than the statewide average
for room and board. Revenues received from contract dining, retail
operations, vending, concessions and catering must cover all operating
costs, including food, labor, capital and indirect costs. Both
the University and Clinch Valley College contract with private
firms to deliver meal plans.
-
Proposed University meal plan rate increases for 1998-99 range
from 0.0 percent to 3.6 percent, with an average increase of 3.2
percent. One new plan for Lawn residents has been added to those
presented last year. In 1997-98, approximately 6,900 University
students purchased contract meal plans.
- Clinch
Valley College meal plans are proposed to increase by 4.0 percent
to cover cost increases passed along by the vendor and renovation
costs incurred in the dining hall. Clinch Valley College serves
approximately 400 students on contract meal plans.
- ACTION
REQUIRED: Approval by the Finance Committee and the Board
of Visitors
APPROVAL OF PROPOSED CONTRACT RATES FOR DINING SERVICES FOR
1998-99 FOR THE ACADEMIC DIVISION AND CLINCH VALLEY COLLEGE
- RESOLVED
that the student contract rates for dining services be approved,
effective beginning with the 1998-99 session.
- B.
FACULTY AND STAFF HOUSING RATES, 1998-99: Approves rates for faculty
and staff residences for 1998-99
- The
University operates 130 faculty and staff housing units, including
individual houses, cottages, Lawn Pavilions, townhouses and apartments.
Clinch Valley College operates eleven units, consisting of seven
individual houses and four apartments. State policy requires that
rents charged by the University for faculty and staff housing
reflect the market rate for similarly sized and equipped properties.
- University
faculty and staff housing rates are proposed to increase by an
average of 3.7 percent, and an average increase of 1.5 percent
is proposed for Clinch Valley College.
- At
the January 1998 Board of Visitors meeting, the Board approved
housing rates for the University and Clinch Valley College student
residences.
- ACTION
REQUIRED: Approval by the Finance Committee and the Board of Visitors
APPROVAL OF PROPOSED INCREASE IN FACULTY AND STAFF HOUSING
RATES FOR 1998-99 FOR THE ACADEMIC DIVISION AND CLINCH VALLEY
COLLEGE
- RESOLVED
that the faculty and staff housing rates be approved ,
effective July 1, 1998. The Executive Vice President and Chief
Financial Officer is authorized to increase the rates to market
level when a property is vacated.
- C.
APPLICATION FEES FOR LAW, GRADUATE BUSINESS ADMINISTRATION AND
MEDICINE: Approves application fee increases for Schools of Law,
Graduate Business Administration and Medicine
- At
this time, it is necessary to increase application fee rates to
the Schools of Law, Graduate Business Administration and Medicine
to bring them in line with the market rates reflected by the average
application fees of peer institutions. The School of Law proposes
to increase its application fee by 37.5 percent to $65. Laws peer
institutions charged application fees averaging $61 in 1996-97.
The Graduate School of Business Administration proposes to increase
its domestic application fee by 33 percent, to $100, to a level
equal to its international application fee. Both fees would remain
below Darden's current year peer averages of $115 (domestic) and
$122 (international). The School of Medicine proposes to increase
its application fee by 20 percent, to $60, which remains below
its current year peer average of $64.
- RESOLVED
that the following schedule of application fees be approved, effective
July 1, 1998:
|
Fees Collected
|
Percent
Increase
|
|
Present |
July
1, 1998 |
|
| Undergraduate |
$40 |
$40 |
0.0% |
Graduate
(except Law and Darden) |
$40 |
$40 |
0.0% |
Law
(including Graduate Law) |
$40 |
$65 |
37.5% |
| Darden
(including DBA) |
|
|
|
Domestic
Students
|
$75 |
$100 |
33.3% |
International Students
|
$100 |
$100 |
0.0% |
| Medicine |
$50 |
$60 |
20.0% |
- III.
Tuition and Required Fees, 1998-99 Academic Year and Summer Session
- BACKGROUND:
At its March meeting, the Board of Visitors sets regular and summer
session tuition and fee schedules for the following year for the
Academic Division and Clinch Valley College. The resolution covers
full- and part-time tuition rates for undergraduate, graduate
and first professional students; a required comprehensive fee;
continuing education tuition rates; and various school- and activity-specific
fees.
- The
1998 Appropriations Act continues the prohibition against increases
in tuition and required educational and general (E&G) fees for
undergraduate Virginians, with one exception. The 1998 General
Assembly has recommended a nongeneral fund appropriation increase
that will allow for the implementation of an E&G fee to support
student-related technology. This fee may be assessed to both Virginians
and non-Virginians. The House of Delegates also has introduced
language that would limit increases in mandatory non-E&G fees
to no more than the rate of inflation on non-personal services
and no more than the increase in salaries and wages on personal
services. Fees required for debt service on auxiliary capital
projects approved by the General Assembly are exempt from these
limitations. The Board of Visitors retains authority to set graduate,
professional and out-of-state undergraduate tuition and fees.
- DISCUSSION:
In accordance with the tuition policy approved by the 1998 General
Assembly, we recommend no increase in tuition and a $45 increase
in required E&G fees for in-state, undergraduate students. We
propose a five-percent increase in out-of-state tuition and a
$45 increase in E&G fees for out-of-state undergraduate and graduate
students. Funds generated by these increases will cover the institution's
share of faculty salary increases authorized in 1997 and 1998,
increases in fringe benefit costs, Year 2000 expenses, operating
costs for maintaining new and renovated facilities and student
related technology support.
- Entering
in-state Law and Darden students will pay a $4,500 surcharge.
This is a continuation of the surcharge approved by the Board
last year. These figures are consistent with the long-term plan
for the financial self-sufficiency of these schools, as reported
originally to the Board in November 1995. By 1999-2000, all three
classes of in-state Law students will pay the same tuition. We
propose tuition and fee increases that average 5.3 percent for
in-state Law students, 4.2 for out-of-state Law students, 5.5
percent for in-state Darden students, and 5.1 percent for out-of-state
Darden students. Incremental revenue generated by the tuition
increases will be used first to meet salary increase requirements
and operation and maintenance costs of new facilities, with any
residual amount used to strengthen academic programs.
- As
discussed with the Board in April 1997, the School of Medicine
proposes a new tuition structure for in-state students. The plan,
similar in nature to the plans at the Law and Darden Schools,
would start a five-year phase-in of a $2,000 surcharge for in-state
students that will raise in-state tuition to a level comparable
with the other state-supported medical schools. Currently, the
Medical College of Virginia charges resident students $10,833
in tuition and fees, compared with the Universitys $10,174. Tuition
and fees at the Medical College of Hampton Roads are substantially
higher at $15,275. The tuition and fee increase for in-state Medical
School students is recommended at 5.3 percent, with the addition
of a $1,000 surcharge for entering students. An increase of 5.1
percent is proposed for out-of-state medical students.
- The
University maintains one of the lowest required fee schedules
among Virginia colleges and universities. The following resolution
proposes two required fee changes for 1998-99. The first is the
implementation of a $45 technology fee for both in-state and out-of-state
students that will help support student-related technology needs.
The second is a $28 increase for both in-state and out-of-state
students to address commitments in Athletics, Student Health,
University Transit and University Union. These two required fee
proposals result in a total fee increase of $73, or 7.9 percent,
for all students. When the required fees are combined with tuition,
room and board increases, the cost of education for in-state students
will rise by 2.5 percent in 1998-99 and by 4.8 percent for out-of-state
students.
- One
new fee, a $100 annual fee for residents of Mosaic House, is proposed
for the 1998-99 regular session. Mosaic House is a student-initiated
program that reflects the University's commitment to cross-cultural
understanding and respect. Students currently living in Mosaic
House support this request for a student programming fee to fund
social and cultural events and activities.
- In
keeping with state policy, Clinch Valley College proposes no increase
in its in-state tuition and a $45 increase in E&G fees to fund
student-related technology support. Out-of-state tuition and E&G
fees are recommended to rise by 5.6 percent. This adjustment is
required to move the College toward the States expectation that
out-of-state students pay at least 100 percent of the state educational
and general costs and also includes the $45 technology fee. The
required auxiliary fees at the College will increase by $127,
or 13.0 percent. The incremental revenue will be reserved for
the construction of a new student center.
- For
the 1999 summer session, the University recommends no tuition
increase for in-state students and a 5.1 percent increase for
non-resident students. An increase of $22, or 20.0 percent, in
the summer session comprehensive fee is proposed. The comprehensive
fee includes increases for University Union ($2), Student Health
($5), University Transit ($2), Technology ($5), and Recreational
Facilities ($8). The first four of these increases are similar
to those recommended for regular session students. The fifth (Recreational
Facilities) is a new addition to the summer session comprehensive
fee. This is the first year of a proposed two-year implementation
of a Recreational Facilities fee. This fee will help offset the
costs associated with the summer operation of the recreational
facilities.
- ACTION
REQUIRED: Approval by the Finance Committee and the Board
of Visitors
APPROVAL OF INCREASE IN TUITION AND REQUIRED FEES AND OTHER
CHARGES FOR THE ACADEMIC DIVISION
- RESOLVED
that the tuition and required fees and other charges applicable
to the Academic Division be approved as shown below, effective
July 1, 1998:
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