The University deposits cash in commercial banking accounts collateralized in accordance with the Virginia Security for Public Deposits Act, Section 2.2-4400 et seq., Code of Virginia. The Virginia Security for Public Deposits Act eliminates any custodial risk on the University’s banking deposits. This Act includes a cross guarantee among approved financial institutions eligible to hold public funds. In the event of a default of one of the approved financial institutions, an assessment is levied against all participating institutions to cover the uncollateralized public deposits of the defaulting entity. This cross guarantee significantly diminishes custodial credit risk. Amounts on deposit covered by the Virginia Security of Public Deposits Act totaled $175.8 million on June 30, 2015.


The University maintains an investment policy approved by the Board that governs its investment of operating funds. As part of this policy, the University complies with the provisions set forth in the Investment of Public Funds Act (the Act), Sections 2.2-4500 through 2.2-4518 of the Code of Virginia. It is the policy of the University to comply with the Act when investing tuition and educational fees that are used or required for day-to-day operations, as permitted under the Code of Virginia Section 23-76.1. Authorized investments under the Act include U.S. Treasury and agency securities, corporate debt securities of domestic corporations, asset-backed securities, mortgage-backed securities, AAA-rated obligations of foreign governments, bankers’ acceptances and bank notes, negotiable certificates of deposit, repurchase agreements, and money market funds.

The University considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash equivalents include short-term money market investments in mutual funds, overnight collective funds, or other short-term, highly liquid investments registered as securities held by the University.

The short-term investments of the University are valued on a daily basis by the custodian banks. Deposits and withdrawals may be processed daily, except for the portion invested in UVIMCO’s STP, which may be processed weekly.

Restricted cash and cash equivalents totaled $10.1 million and $23.0 million on June 30, 2015 and 2014, respectively, which is restricted in accordance with applicable debt or other contractual requirements.


Risks disclosed below are direct risks to the University. The risk disclosure does not include indirect risks incurred by investing in the UVIMCO STP and UVIMCO LTP.

Custodial Credit Risk is the risk that, in the event of the failure of a depository financial institution or financial counterparty, the agency will not be able to recover the value of its deposits or investments or recover collateral securities that are in the possession of an outside third party. The University had an immaterial exposure to custodial credit risk as of June 30, 2015.

Interest Rate Risk results if changes in interest rates adversely affect the fair market value of an investment. The longer the duration of an investment, the greater the interest rate risks. Investments subject to interest rate risk at June 30, 2015, are outlined in the accompanying chart.

Credit Risk is the possibility that a loss may occur due to the failure of a counterparty to perform according to the terms of the contract. State law limits the investment of certain nonendowed assets to short-term commercial paper, certificates of deposit, asset-backed securities, and debt obligations to the top rating issued by nationally recognized statistical rating organizations (NRSROs) and requires the investment be rated by at least two NRSROs. For longer-term certificates of deposit and corporate notes, the rating must be one of the top two ratings issued by two NRSROs. Investments subject to credit risk at June 30, 2015, are outlined in the accompanying chart.

Concentration of Credit Risk is the risk of a large loss attributed to the magnitude of investment in a single issuer of fixed-income securities. The University minimizes this risk by diversifying its investments. As of June 30, 2015, the University does not have investments in any one issuer (excluding investments issued or explicitly guaranteed by the U.S. government and mutual fund or pool investments) representing five percent or more of its total investments.

Foreign Currency Risk is the risk that investments denominated in foreign currencies may lose value due to adverse fluctuations in the value of the U.S. dollar relative to foreign currencies. The University has no foreign investments or deposits as of June 30, 2015.

Details of the University’s investment risks are outlined below:

Cash on hand $291 Not Applicable $291 - - -
Cash deposits 470,502 Not Applicable 470,502 - - -
University of Virginia Aggregate Cash Pool 119,415 Not Applicable 119,415 - - -
State Non-Arbitrage Program 20 AAAm 20 - - -

$590,228   $590,228 - - -
Cash deposits $85

Not Applicable

$85 - - -
Money market mutual funds 1,560 AAAm 1,560 - - -
U.S. government and agency bonds 83,999 AA+/Aaa 45,288 38,711 - -
Commercial paper 15,492 A-1/P-1 11,492 4,000 - -
UVIMCO STP 80,077 Not Rated NA NA NA NA

$181,213   $58,425 42,711 - -
Cash and cash equivalents $2,166 Not Applicable $2,166 - - -
Demand notes due from related foundation, noninterest bearing 33,145 Not Rated 33,145 - - -
UVIMCO LTP 4,323,217 Not Rated NA NA NA NA
Other investments not subject to credit or interest rate risk 16,236 Not Applicable NA NA NA NA

$4,374,764   $35,311 - - -
UVIMCO LTP $1,547,596 Not Rated NA NA NA NA
Other investments not subject to credit or interest rate risk 32,760 Not Applicable NA NA NA NA


UVIMCO administers and manages the majority of the University’s investments in its unitized investment pools. The University also invests its operating funds with a number of other asset managers. At June 30, 2015, the University’s investment in the LTP and STP was $5.9 billion and $80.1 million, respectively, representing 88 percent of the University’s invested assets. These pools are not rated by NRSROs.

UVIMCO’s primary investment objective for the LTP is to maximize long-term real return commensurate with the risk tolerance of the University. To achieve this objective, UVIMCO actively manages the LTP in an attempt to achieve returns that consistently exceed the returns on a passively investable benchmark with similar asset allocation and risk. UVIMCO is governed by a board of directors, three of whom are appointed by the Board and one of whom is appointed by the University’s president. The University receives and monitors periodic reports on the long-term investment policy as executed by UVIMCO.

UVIMCO invests primarily in investment funds that allow the LTP to gain exposure to a broad array of financial instruments and markets. UVIMCO classifies LTP investments as public equity, long/short equity, buyout, growth equity, venture capital, real estate, resources, fixed income or marketable alternatives and credit according to the investment strategy of the underlying manager. These investments are subject to a variety of risks, including market risk, manager risk, and liquidity risk. UVIMCO closely manages and monitors the LTP’s exposure to these risks. The risks may be influenced by a number of factors, including the size, composition, and diversification of positions held, fund manager actions, and market volatility.

In the normal course of business, UVIMCO’s external investment fund managers trade various financial instruments and enter into investment activities subject to various market risks. Market risk is the risk that the value of assets such as common stocks may fall. Fixed-income investments are subject to other market risks, including interest rate and credit risk. Foreign investments are subject to currency exchange rates (foreign exchange risk), political and economic developments, limited legal recourse, and market risks. The prices of derivative positions such as futures, options, warrants, and swap contracts may move in unexpected ways due to the use of leverage or other factors, especially in unusual market conditions, and may result in increased volatility.

Manager risk includes tracking error or active positions away from the benchmark, operational or business risks, a lack of transparency, and leverage. UVIMCO mitigates manager risk through extensive due diligence, diversification, by declining certain partnership structures, and by avoiding certain investment strategies (e.g., highly leveraged hedge funds). UVIMCO’s investment fund managers often limit the liquidity of their funds, resulting in liquidity risk for the LTP. UVIMCO manages liquidity risk by maintaining a portfolio of Treasury bills and bonds, maintaining sufficient liquidity with public equity funds and hedge funds, and managing the pace of commitments to private investments.


The market value of the endowment on June 30, 2015, was $4.4 billion. Biannual distributions are made from the University’s endowment to departments holding endowment accounts. The University’s endowment spending policy ties annual increases to inflation as defined by the Higher Education Price Index. The current inflation factor in use by the University is 1.8 percent. If the increase causes the endowment distribution to fall outside a range defined as 4.0 percent to 6.0 percent of the market value of the endowment, then the Finance Committee of the Board may recommend increasing or decreasing the spending rate. For the fiscal year 2015, the spending distribution of $169.4 million, excluding agency, equaled 4.68 percent of the fiscal year 2013 ending market value. Since the result fell within the range, no further action by the Board was needed.

For the year ended June 30, 2015, the University had the following endowment-related activities:

Investment earnings $129,343 $145,470 $4,066 $1,242 $280,121
Contributions to permanent endowments 17,907 - - - 17,907
Other gifts - - 2,799 - 2,799
Spending distribution (79,485) (89,900) - (529) (169,914)
Transfers in (out) * 3,730 31,558 (7,916) (165) 27,207
TOTAL CHANGE IN ENDOWMENT FUNDS $71,495 $87,128 $(1,051) $548 $158,120
* Transfers into donor-restricted endowments include donor-directed income capitalizations, and transfers out of trusts include payments to income beneficiaries.