Financial Management

140.010 Policy for Management and Oversight of Selected University Investment Pools

kuscheld — Mon, 24 May 2010 23:04:00 +0000

140.010 Policy for Management and Oversight of Selected University Investment Pools kuscheld Mon, 05/24/2010 - 23:04

Bd. Min. 5-3-91; Amended Bd. Min. 3-24-95; 1-21-98; Amended Bd. Min. 12-15-06; 7-22-11; Revised in entirety, Bd. Min. 6-26-12; (Note: Board approval on 6-26-12 replaced previous rules 140.010, 140.011, 140.012 and 140.013 with new language and reissued new rules 140.010 through 140.016.); Amended Bd. Min. 9-28-17; Amended Bd. Min. 9-7-22; Amended Bd. Min. 6-27-24.

Introduction -- This policy establishes guidelines for the management and oversight of certain University investment pools. This policy applies to the following investment pools:
1. CRR 140.012 General Pool
2. CRR 140.013 Endowment Pool
3. CRR 140.014 Fixed Income Pool
4. CRR 140.015 Retirement, Disability and Death Benefit Plan
5. CRR 140.016 Other Postemployment Benefits Plan Trust Fund
This policy does not apply to existing debt and commodities derivatives described in CRR Chapter 145, or to program-related funds and assets not held primarily for investment, including interests governed by CRR 70.070 “Entrepreneurial Activity.”
Authorities – The Board of Curators of the University of ��ӰԺ has the ultimate authority to determine the proper means for the management and oversight of invested assets. Through this policy, the Board delegates certain specific authorities and responsibilities with respect to the management and oversight of invested assets, which it has determined, with the advice of counsel, to be appropriate as described herein.
1. The following actions shall require Board of Curators approval after consideration of recommendations from University staff:
  1. Selection of master custodians for each investment pool. A master custodian provides a variety of services, including, but not limited to: safekeeping of securities, collection of income and other inflows, disbursement for investment management fees, and a monthly accounting of all transactions.
  2. Selection of external investment consultant (“Investment Consultant”) to assist the Board and University staff in management and oversight duties and to perform such duties as outlined in CRR 140.010 through CRR 140.016 (“Investment Pool Policies”).
  3. Selection of suitable asset classes with corresponding targets and allowable ranges for each investment pool, after consideration of recommendations in formal asset/liability studies conducted by the Investment Consultant not less than once every three years. Such asset/liability studies shall consider the balance between risk and return, taking into account the specific objectives of each investment pool and such other factors as appropriate in compliance with applicable law.
  4. Selection of suitable spending policies for endowed funds.
2. The following authorities and responsibilities are hereby delegated by the Board to the Executive Vice President for Finance and Operations, the Chief Investment Officer and the Investment Consultant, with any action hereunder requiring unanimous approval by all three persons. In the event that either of the two University staff positions is vacant, or the incumbent is otherwise unavailable, the President may, on a temporary basis, authorize actions upon the unanimous approval by the remaining two persons or appoint a replacement for the unavailable person until such time that the position is filled or the incumbent becomes available.
  1. Hiring of external investment managers for any of the investment pools covered by this policy, consistent with the respective asset classes and targets established by the Board and the guidelines outlined in CRR 140.011 “Policy for Investment Manager Selection, Monitoring and Retention.”
  2. Termination of external investment managers for any of the investment pools covered by this policy, consistent with the guidelines outlined in CRR 140.011 “Policy for Investment Manager Selection, Monitoring and Retention.”
  3. Establishment and/or modification of policy benchmarks, consistent with the respective asset classes and targets established by the Board, for any of the investment pools covered by this policy.
3. The following authorities are hereby delegated by the Board to the Executive Vice President for Finance and Operations or her/his designees:
  1. Specific to the General Pool, the authority to manage funds internally, consistent with the guidelines outlined in CRR 140.012 “Investment Policy for General Pool.”
  2. As appropriate, implementation of securities lending programs, provided that securities included in any program shall be fully collateralized and marked to market daily.
  3. Execution of instruments in accordance with CRR 70.020 “Execution of Financial Instruments.”
4. In making the foregoing delegations, the Board has considered the purposes and circumstances of the investment pools, the qualifications and expertise of the persons to whom it has delegated such authorities, and the scope and terms of the delegated authorities. The Board shall continue to evaluate these and other relevant factors, including the overall performance of the investment pools, in conjunction with its ongoing reviews and monitoring as described herein.
Responsibilities – Persons responsible for managing funds in the investment pools shall, in rendering advice for a fee, exercising discretionary authority or control over investments, or taking other actions under the Investment Pool Policies: (i) act in accordance with the “prudent investor rule” and invest assets as would a prudent investor similarly situated, considering the circumstances of the investment pool and exercising reasonable care, skill, and caution, and (ii) fulfill fiduciary duties as required by contract and in accordance with the Investment Pool Policies and applicable law but at a minimum consistent with Sections 105.688 and 402.132 of the Revised Statutes of ��ӰԺ as amended from time to time or successor statutes, as appropriate. Each such person shall, by accepting his or her appointment or taking any action pursuant to the Investment Pool Policies, be deemed to have agreed to undertake such duties and otherwise perform in accordance with this policy and applicable law.
1. The Executive Vice President for Finance and Operations or her/his designees are responsible for the following:
  1. Implement and monitor Investment Pool Policies.
  2. Review Investment Pool Policies on an annual basis, with policy amendments submitted to the Board of Curators as necessary.
  3. Evaluate and monitor master custodians and Investment Consultant; report to the Board as necessary.
  4. Periodic reporting to the Board as outlined in Section D of this policy.
  5. Monitor the effects of the spending policy with respect to endowment funds and recommend modifications to the Board as appropriate.
  6. Management of endowed funds in accordance with any restrictions that may apply at the time of receipt, provided such restrictions do not conflict with applicable state statutes and University policies.
  7. Maintain accurate records for the investment pools.
2. Generally, the University is and shall be deemed to be the corporate trustee for all funds held by the University in an express trust, such as funds in the Retirement, Disability and Death Benefit Plan and Other Postemployment Benefits Plan Trust Fund, as well as any other funds held by the University that are deemed to be trust funds under applicable law.
Reporting – At minimum, the following reporting to the Board shall be required:
1. Quarterly: Summary of performance for each investment pool as well as reporting of any actions taken to hire or terminate investment managers or modify investment pool benchmarks under the authority delegated within Section B(2) of this policy.
2. Annually: Performance review, including all underlying investment managers, for each respective investment pool, relative to established benchmarks and other relevant metrics, and including information relating to the authority delegated under Sections B(2) and B(3) of this policy, including recommendations for change, if any.
Proxy Voting -- Proxy voting power is an asset of the respective investment pool and is subject to the same management as all other investment pool assets. Accordingly, the investment manager has the responsibility and liability for voting proxies appurtenant to the securities under its management, owned by the respective investment pool. The voting of proxies must be done in a prudent manner and consistent with the investment objectives of the respective investment pool. Voting shares for the sole purpose of furthering noneconomic environmental, social, political, ideological, or other goals is prohibited.

140.011 Policy for Investment Manager Selection, Monitoring and Retention

kuscheld — Wed, 26 May 2010 20:52:00 +0000

140.011 Policy for Investment Manager Selection, Monitoring and Retention kuscheld Wed, 05/26/2010 - 20:52

Bd. Min. 12-6-91, Amended Bd. Min. 12-9-93; Amended Bd. Min. 11-14-94; Mended Bd. Min. 12-13-96; Amended Bd. Min. 9-26-97; 1-21-98; Revised 2-1-00; Amended Bd. Min. 7-13-00; Amended Bd. Min. 9-27-02; Amended Bd. Min. 11-22-02; Revised 1-5-04; Amended Bd. Min. 9-9-04; Amended Bd. Min. 1-26-07; Amended Bd. Min. 2-6-09; Amended Bd. Min. 12-11-09; Amended 6-17-11 ; Revised in entirety, Bd. Min. 6-26-12; (Note: Board approval on 6-26-12 replaced previous rules 140.010, 140.011, 140.012 and 140.013 with new language and reissued new rules 140.010 through 140.016.) Revised 6-25-15. Amended Bd. Min. 9-28-17; Amended Bd. Min. 6-29-23.

Introduction - This policy establishes general guidelines for selecting external investment managers, monitoring investment manager effectiveness, identifying issues of concern, and for making decisions concerning investment manager retention. The external investment managers can be broadly grouped into public and private market investments. Public market investments are widely held, generally liquid in nature, most often traded on exchanges, and typically disclose certain financial information to the public on a regular basis. Private market investments are longer-term, often illiquid investment strategies that are privately held by a limited number of owners and investors. The University shall utilize an Investment Consultant for assistance with the application of this policy. This policy applies to the following investment pools:
140.012 General Pool
140.013 Endowment Pool
140.014 Fixed Income Pool
140.015 Retirement, Disability and Death Benefit Plan
140.016 Other Postemployment Benefits Plan Trust Fund
Responsibilities and Authorities - See CRR 140.010 “Policy for Management and Oversight of Selected University Investment Pools.”
Active vs. Passive Management – Active managers are used most often, with an expectation of value added in excess of passive implementation. In markets that are generally considered efficient, passive strategies may be used to promote a diversified portfolio, while controlling risk and minimizing costs.
Manager Selection – The manager selection process requires the evaluation of all aspects of a firm’s organization and investment process to assess the probability that the identified firm’s product will successfully meet the objectives of a given investment mandate going forward. A series of quantitative and qualitative factors should be analyzed when evaluating prospective firms. When possible, a suitable manager universe for a given mandate should be screened for potential manager candidates. The following, as applicable, should be considered in the manager selection process:
1. Organizational Factors
  1. Structure: Does the ownership structure align the employees’ interests with those of clients?
  2. Stability: Has the firm been able to retain investment professionals and senior management over time?
  3. Strategic direction: Is the firm’s growth rate in assets and personnel appropriate? Is there a clear focus on investment management?
  4. Business viability: Are the firm’s growth prospects, assets under management and capital base sufficient to maintain a healthy business?
  5. Assets under management: Are assets sufficient at the product level to accommodate the University’s portfolio and, at the other extreme, has excessive asset growth impeded the firm’s ability to add value in a given mandate? Generally, the University’s combined assets under management across all pools of funds should not exceed 25% of a particular product’s total assets under management.
2. Investment Philosophy
  1. Well Defined: Is the investment philosophy clearly defined and consistently applied?
  2. Competitive advantages: Are there any aspects to the investment philosophy that provide a competitive advantage such as information/data sources, unique modeling capabilities, unusual perspectives, depth/quality of analytical resources, and/or experience of investment professionals?
  3. Persistence: Is there something about the investment philosophy that provides conviction that successful performance can be achieved in future markets?
3. Investment Professionals
  1. Relevant experience: Are the investment professionals experienced in managing this type of mandate?
  2. Team experience: Is there significant experience among the professionals as a team?
  3. Skills: Do the investment and research professionals bring complementary skills to the portfolio management process?
  4. Resources: Has the firm given the team the proper resources to succeed? Are the investment professionals distracted by other responsibilities including other products, firm management, sales, client service, etc.?
4. Historical Performance (Public Markets)
  1. Performance vs. relevant benchmarks: Has the firm added value on a net basis to the benchmark over market cycles? How much value has been added relative to the risk taken?
  2. Performance vs. peers: Has the firm exhibited an ability to outperform peers over market cycles?
  3. Consistency: Has the level of performance been consistent and within expectations for the mandate?
  4. Risk metrics: Is the level of absolute and relative volatility appropriate given the mandate? Are the risk metrics of the portfolio over time consistent with expectations given the mandate?
  5. Performance attribution: What are the sources of over or under-performance (e.g. industry bets, stock selection, style biases) and do they match the manager’s investment process and philosophy?
5. Historical Performance (Private Markets)
  1. Performance vs. relevant benchmarks/peers: Has the firm or investment team’s prior funds performed at or above expectations?
  2. Consistency: Has the level of performance of the firm or investment team’s prior funds been consistent and within expectations for the investment strategy? Has the investment strategy evolved over time and are the reasons for the evolution logical?
  3. Risk: Has the firm or investment team’s prior funds effectively mitigated real and anticipated risk?
  4. Performance attribution: What are the sources of over- and under-performance across investment cycles?
6. Other
  1. ��ӰԺ location and/or minority status: The University has an active and ongoing interest in doing business with firms that are owned, controlled, and operated by citizens of the state of ��ӰԺ. In addition, the University is committed to supporting the participation of minority and women-owned and controlled asset management firms (as defined in Section 33.750 (3), (4), and (5), RSMo 2000) in the management of its funds. All potential qualified ��ӰԺ and/or minority and women-owned candidates under consideration for investment mandates shall meet the University’s threshold manager selection criteria.
  2. Fees: Are fees competitive and appropriate for the mandate?
  3. Fit: How does the manager fit within the overall portfolio and, when applicable, within the asset class or sector?
  4. Compliance/Back office: Are compliance and back office systems adequate?
Manager Concentration - Careful consideration should be given to concentrations of assets under management across all products with a single asset management firm within an individual investment pool as well as in aggregate across all investment pools. Each circumstance should generally be evaluated on an individual basis, taking into account the asset sectors, type of investment vehicles, custody of underlying assets and the overall size and strength of the investment management firm being considered. Additionally, it is recognized that larger concentrations of assets under management with a single investment management firm can often result in lower negotiated management fees, which benefit the investment pools. In all cases, any such fee savings shall be secondary to the consideration of the safety and soundness of invested assets.
Manager Monitoring / Termination - Each manager should be analyzed on an individual basis, taking into account any specific circumstances affecting the particular relationship. At minimum, the University and Investment Consultant shall review all managers on a quarterly basis. The review process should include, while not being limited to, the following factors:
1. Performance:
  1. Public Markets: An evaluation of performance should focus primarily on trailing three and five year periods, taking into account the manager’s expected tracking error versus the agreed-upon benchmark. Over these time horizons, active manager performance, net of fees, is generally expected to outperform the agreed upon benchmark and fall within the top two quartiles of an appropriate peer group.
  2. Private Markets: Performance is measured on an ongoing basis and is evaluated using several different performance calculation metrics. Funds are monitored for progress of acquisitions, asset management, and disposition of assets. The appropriate time horizon for evaluating private market investments is generally the full term of the fund. At the end of a fund’s term, it is expected that it will achieve or exceed its initial performance targets, and fall within the top two quartiles of an appropriate peer group. Investment in subsequent fund offerings will be based, in large part, on actual versus expected performance of existing fund investments at the time consideration is being given to subsequent fund offerings.
2. Adherence to Stated Philosophy, Process and Style: The default expectation would be continued adherence to the manager’s stated philosophy, process, and style in existence at the time of hiring.
3. Organizational Matters: Stability is the basic expectation. Any material change in the manager’s organizational structure, ownership or personnel should be carefully considered. Ongoing oversight by regulatory agencies should also be monitored, as well as any indications of illegal or unethical behavior.
4. Guidelines: Managers are expected to maintain compliance with guidelines established by the University; exceptions may be granted by the University and Investment Consultant on a case-by-case basis. As circumstances warrant, the manager may provide recommended revisions to the guidelines in writing to the University and Investment Consultant; however, the University and Investment Consultant shall be under no obligation to accept such recommendations.
5. Service and Responsiveness: Managers are expected to be reasonably responsive to the needs of the University and Investment Consultant, including requests for information and/or analysis, requests for periodic meetings to review performance, etc.
To the extent that any significant issues or concerns are identified as part of the review process or at any other time, considering factors including, but not limited to, those noted above, a public markets manager may be terminated based solely on the determination of the University and Investment Consultant. The legal structure of most private markets investments makes it impracticable to attempt an early termination.

Managers may also be terminated from time to time based solely on strategic or operational changes with respect to the overall University portfolio including, but not limited to, changes in asset sectors or changes in portfolio allocations among asset sectors.

Nothing in this policy shall be construed to be for the benefit of any manager or other person or to derogate from or affect the University’s right to terminate an investment manager as permitted by the terms of their applicable investment management agreement.

140.012 Investment Policy for General Pool

kuscheld — Thu, 27 May 2010 20:14:00 +0000

140.012 Investment Policy for General Pool kuscheld Thu, 05/27/2010 - 20:14

Bd. Min. 12-6-91; Amended Bd. Min. 12-9-93; Amended Bd. Min. 11-14-94; Amended Bd. Min. 12-13-96; Amended Bd. Min. 9-26-97; 1-21-98; Revised 2-01-00; Amended Bd. Min. 9-27-02; Amended Bd. Min. 11-22-02; Revised 1-5-04; Amended Bd. Min. 9-9-04; Amended Bd. Min. 1-26-07; Amended Bd. Min.2-6-09; Amended Bd. Min. 6-5-09; Amended Bd. Min.6-17-11; Revised in entirety, Bd. Min. 6-26-12. (Note: Board approval on 6-26-12 replaced previous rules 140.010, 140.011, 140.012 and 140.013 with new language and reissued new rules 140.010 through 140.016.) Amended Bd. Min. 1-31-13; Amended Bd. Min. 6-25-15; Amended Bd. Min. 10-1-15; Amended Bd. Min. 10-7-16; Amended Bd. Min. 11-15-18; Amended Bd. Min. 9-24-20; Amended Bd. Min. 4-21-22; Amended Bd. Min. 11-17-22; Amended Bd. Min. 6-29-23; Amended Bd. Min. 6-27-24; Amended Bd. Min 9-12-24.

Introduction – The General Pool represents the University’s cash and reserves, both restricted and unrestricted, including, but not limited to, operating funds, auxiliary funds, service operations funds, self-insurance funds, debt service funds, and plant funds.
Responsibilities and Authorities – See CRR 140.010, “Policy for Management and Oversight of Selected University Investment Pools”
Investment Objectives – The General Pool shall be managed in a way that both recognizes and balances the underlying needs of the pool, including, but not limited to, accommodation of University cash flow cyclicality, satisfaction of various ongoing liquidity needs, maximization of risk-adjusted investment returns, diversification and preservation of capital.

Authorized Investments – The General Pool shall be invested as follows:

	Investment Portfolios
	Working Capital	Core	Strategic
Management	Internal/External	External	External
Minimum Allocation	20%	0%	0%
Maximum Allocation	100%	60%	45%
Liquidity Objective	High	Moderate	Moderate/Low
Volatility Tolerance	Low	Moderate	Moderate/High
Return Expectation	Low	Moderate	Moderate/High

Working Capital
The Working Capital portfolio is expected to have very low volatility and low (cash-like) returns. It is the primary source of liquidity for the University’s operating cash flow needs, constructed utilizing securities and investment vehicles that primarily have same day liquidity with minimal day-to-day price fluctuations. Exposures will be obtained by investing in the following:
1. Bank deposits covered by FDIC insurance or otherwise collateralized by U.S. Government and U.S. Government Agency securities.
2. Money market funds which are SEC 2a-7 compliant and have received the highest possible rating by at least two Nationally Recognized Statistical Rating Organizations.
3. Commercial Paper which has received a rating of at least A1 / P1 / F1 by two of the Nationally Recognized Statistical Rating Organizations
4. Repurchase Agreements collateralized by the U.S. Government and U.S. Government Agency securities.
5. Yield Enhancement Strategies that seek returns higher than, or comparable to, traditional cash investments, while diversifying the risk inherent in traditional cash investments. To implement these strategies, liquid non-cash-like securities are often purchased in conjunction with a hedge instrument that substantially hedges away the non-cash-like attributes of the securities. Instruments that may be part of such transactions include: U.S. Treasury securities, sovereign bonds issued by G10 countries, and other fixed income securities and precious metals. To hedge away the non-cash like attributes, the following instruments may be used: futures contracts, asset/interest rate swaps, currency forwards, securities lending agreements, and repurchase agreements.
6. Other short-term investment vehicles of similar quality, with an average duration of one year or less.
7. U.S. Treasury securities, U.S. Government Agency securities and U.S. Government guaranteed securities, including but not limited to: all direct obligations of the U.S. Government, Federal Farm Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation.
8. Internal short-term loans at market interest rates to the University’s Central Bank as a substitute for commercial paper which could otherwise be issued externally by the Central Bank under the University’s Commercial Paper Notes program. Such short-term loans must be approved by the Vice President for Finance.
Core Portfolio
The Core portfolio is expected to have moderate volatility with moderate returns, invested primarily in public debt securities and related investment vehicles. It will serve as a secondary source of liquidity, built utilizing excess operating funds not expected to be needed for purposes of funding the operational needs of the University under normal circumstances. This portfolio will be expected to generate higher returns than the Working Capital portfolio through the use of some combination of credit risk, interest rate risk, illiquidity risk and idiosyncratic (active) risk.

Approved asset class (as defined by CRR 140.017, "Policy for Allowable Investments"): Core Fixed Income - Section (C)(4).
Strategic Portfolio
The Strategic portfolio will be built utilizing excess operating funds that should not be needed for liquidity purposes. As compared to the Core portfolio, the Strategic portfolio will have higher return expectations and a higher level of expected volatility. These are truly long-term funds and should be thought of similarly to retirement and endowment funds.
1. Approved asset classes (as defined by CRR 140.017, “Policy for Allowable Investments”):
  
  Private Debt - Section (C)(6)
  Real Estate/Infrastructure - Section (C)(9)
  Risk Balanced - Section (C)(8)
  Alpha Portfolio - Section (D)(1)(d)
2. Venture Capital
  Investments shall be consistent with the University’s mission to foster innovation in support of economic development. Maximum allocation shall be limited to 0.5% of the combined Core and Strategic portfolios.
  
  Investments require unanimous approval by the Executive Vice President for Finance and Operations and the Chief Investment Officer in consultation with the President.
  
  Utilization of external managers shall be consistent with the guidelines established in CRR 140.011, “Policy for Investment Manager Selection, Monitoring and Retention.”
3. Endowment Pool
  As part of its Strategic Portfolio, the General Pool may invest in the University’s Endowment Pool, as established and governed by CRR 140.013, “Investment Policy for Endowment Pool.”

Risk Management
1. The Assistant Vice President for Treasury and Real Estate shall establish and implement procedures to:
  1. Regularly monitor the University’s cash flow forecasts.
  2. Determine and maintain minimum daily liquidity equal to 30 days operating cash outflows for the University.
  3. Determine minimum weekly liquidity equal to 60 days operating cash outflows for the University.
  4. As applicable, determine overall liquidity sufficient to satisfy credit rating agency guidelines for any self-liquidity needs of the University’s debt portfolio.
  5. Maintain a contingency funding plan to address unanticipated market / liquidity events, with the objective of having ready access to cash to meet the University’s operating cash flow needs at all times.
2. The Chief Investment Officer shall establish and implement procedures to:
  1. Invest General Pool funds, primarily within the Working Capital and Core portfolios, in a manner which satisfies minimum requirements for weekly liquidity and contingency funding needs.
  2. Maintain appropriate reserves within the General Pool to mitigate drawdown risk based on the level of projected risk within the General Pool, modeled in consultation with the University's Investment Consultant, allowing the University to better manage through periods of market volatility.
Excluded Instruments – The General Pool shall not be deemed to include, and the limitations contained herein shall not be deemed applicable to, any program-related funds, instruments, and assets not held primarily for investment such as interests governed by CRR 70.070, “Entrepreneurial Activity.”

140.013 Investment Policy for Endowment Pool

kuscheld — Tue, 28 Aug 2012 22:29:00 +0000

140.013 Investment Policy for Endowment Pool kuscheld Tue, 08/28/2012 - 22:29

Bd. Min 7-22-11. Revised in entirety, Bd. Min. 6-26-12. (Note: Board approval on 6-26-12 replaced previous rules 140.010, 140.011, 140.012 and 140.013 with new language and reissued new rules 140.010 through and including 140.016.) Revised Bd. Min 6-14-13; Revised 9-12-13; Revised 6-25-15; Revised 2-4-16; Revised 4-14-16; Revised 6-23-17; Revised Bd. Min. 9-28-17; Revised Bd. Min. 2-4-21; Amended 9-2-21; Amended 6-29-23; Amended 9-12-24.

Introduction -- The University's Endowment Pool (also known as the Endowment Fund) contains gifts, bequests and other funds directed to be used to support a University program in perpetuity. Some donors require such a commitment as a condition of their gift ("true endowments"). Also, funds may be assigned to function as endowments by the Board of Curators or by University administration ("quasi endowments").
Responsibilities and Authorities – See CRR 140.010 “Policy for Management and Oversight of Selected University Investment Pools.”
Investment Objectives -- The Endowment Pool must be managed to provide ongoing support of endowed programs in perpetuity, in conformance with donor stipulations. To accomplish this, investment returns, net of inflation, should be sufficient over time to cover annual spending distributions while maintaining or growing the underlying purchasing power of each endowed gift.

Endowment Pool investments should be managed in a manner that maximizes returns while attempting to minimize losses during adverse economic and market events, with an overall appetite for risk governed by the objectives noted above. This will be accomplished through a portfolio that seeks meaningful diversification of assets. These investment objectives seek to prioritize the long-term structural needs of the Endowment Pool over short-term performance comparisons of the investment portfolio relative to peers.

Authorized Investments – The Endowment Pool shall be invested in externally managed funds, consistent with the guidelines established in CRR 140.011, “Policy for Investment Manager Selection, Monitoring and Retention” and CRR 140.017, “Allowable Investments,” in the following asset classes:

Asset Class	Asset Class Target	Allowable Range
Absolute Return / Alpha	15%	5%-20%
Commodities	3%	0%-13%
Core Fixed Income	10%	3%-20%
Opportunistic	0%	0%-7%
Private Debt	8%	3%-12%
Private Equity	17%	10%-22%
Public Equity	38%	20%-48%
Real Estate / Infrastructure	9%	5%-14%
Risk Balanced	0%	0%-5%
Cash and Cash Equivalents	0%	0%-20%
Total Portfolio	100%

Portfolio Rebalancing
Asset allocations shall be monitored on an ongoing basis as changes in market behavior may cause variations from the target asset mix. Rebalancing of the portfolio shall be considered at least quarterly, and more often if necessary to maintain allocations within the allowable range. The need to rebalance shall take into account any logistical issues associated with fully funding a particular asset sector, as well as any tactical decisions to overweight or underweight a particular asset sector based on current market conditions. The University may utilize external managers to rebalance portfolio exposures consistent with targets and allowable ranges established by this policy. In those instances, conventional derivative instruments commonly accepted by other institutional investors, such as futures, swaps, options, forward contracts and reverse repurchase agreements may be utilized.

Actual asset class allocations shall not fall outside of the allowable ranges, with the exception of violations caused solely by periods of extreme market distress, when it may not be possible or advisable to immediately bring such allocations back to within the allowable ranges.
Currency Risk Management
In the context of a global investment portfolio, currency risk exists to the extent that investments contain exposures to foreign currencies. The desirability of this currency exposure is not necessarily aligned dollar for dollar with the desired exposure to assets denominated in foreign currencies. As such, external managers in any asset class may implement currency strategies to alter the currency exposure of the portfolio when deemed prudent to do so in the context of the particular investment mandate. In addition, the University may utilize external managers to implement currency strategies to alter exposures in an active or passive manner as part of a portfolio or asset class overlay when deemed prudent to do so.
Spending Policy – To provide ongoing support to endowed programs in perpetuity, the spending policy must be managed in conjunction with investment objectives and other factors in compliance with applicable law, such that the spending rate plus an inflationary assumption shall not exceed expected investment returns over time. At minimum, the spending policy should be reviewed in conjunction with asset/liability studies performed by the Investment Consultant not less than once every three years.
1. The formula used to determine the Endowment Pool spending distribution for each fiscal year shall apply a rate of 4.0% to a base equal to the 28-quarter trailing average of market values as of December 31^st of the prior fiscal year. Endowment spending distributions shall be paid on a monthly basis.
2. In addition to the spending distribution noted above, the President shall have the discretion to distribute from the Endowment Pool an administrative fee each fiscal year to be used for support of internal endowment administration and development functions. Such administrative fee shall be calculated by applying a rate of up to 1.25% to a base equal to the 28-quarter trailing average of market values as of December 31^st of the prior fiscal year. The administrative fee shall be paid on a monthly basis. In addition, internal investment management, accounting and legal expenses may be charged directly to the Endowment Pool.
3. The spending policy, spending distribution formula and administrative fee may be adjusted over time by the Board to respond to general economic conditions and other factors as appropriate and in compliance with applicable law.
4. Implementation of the spending policy is delegated to the Executive Vice President for Finance or her/his designees.

140.014 Investment Policy for Fixed Income Pool

kuscheld — Tue, 28 Aug 2012 22:32:00 +0000

140.014 Investment Policy for Fixed Income Pool kuscheld Tue, 08/28/2012 - 22:32

Bd. Min. 6-26-12. Revised 6-25-15.

Introduction -- The University's Fixed Income Pool endowment fund includes gifts, bequests and other funds directed to be used to support a University program in perpetuity. Donor restrictions limit the investment of these funds to fixed income securities.
Responsibilities and Authorities -- See CRR 140.010 “Policy for Management and Oversight of Selected University Investment Pools. ”
Investment Objectives -- The primary investment objectives of the Fixed Income Pool are capital preservation and the maximization of earned income.
Authorized Investments -- The Fixed Income Pool shall be invested in an externally managed fixed income fund. Specific guidelines for externally managed funds are contained in CRR 140.011, “Policy for Investment Manager Selection, Monitoring and Retention."
Spending Policy – All earned income shall be distributed monthly.

140.015 Investment Policy for Retirement, Disability and Death Benefit Plan

kuscheld — Tue, 28 Aug 2012 22:33:00 +0000

140.015 Investment Policy for Retirement, Disability and Death Benefit Plan kuscheld Tue, 08/28/2012 - 22:33

Bd. Min. 6-26-12, Revised Bd. Min. 6-14-13, Revised Bd. Min. 9-12-13, Revised 6-25-15, Revised 2-4-16; Revised 4-14-16; Amended Bd. Min. 9-28-17; Amended Bd. Min. 11-19-20; Bd. Min. 4-21-22; Amended 6-29-23; Amended 9-12-24.

Introduction -- The University's Retirement, Disability and Death Benefit Plan (“Plan”) was established to provide retirement income and other stipulated benefits to qualified employees in amounts and under the conditions described in the plan. A Trust was established in 1958 and is being funded to provide the financial security of those benefits.
Responsibilities and Authorities – See CRR 140.010 “Policy for Management and Oversight of Selected University Investment Pools.”
Investment objectives -- The primary objective to be achieved in the active management of Trust assets is to provide for the full and timely payment of retirement, disability and death benefits to qualified employees. In order to fulfill this objective the University must maintain a prudent actuarially sound funding of the Plan's liabilities. This funding requirement is derived from three principal sources; the total investment return on Trust assets and the amount of University and employee contributions.

Trust assets should be managed in a manner that maximizes returns while attempting to minimize losses during adverse economic and market events, with an overall appetite for risk governed by the Plan’s liability structure and the need to make promised benefit payments to members over time. This will be accomplished through a more ‘risk-balanced’ portfolio that seeks meaningful diversification of assets, which necessarily means less equity risk and more long-term bond exposure relative to peers. To offset potentially lower returns from a more risk-balanced portfolio, a key component of this strategy includes a less common, yet prudent, program of return enhancement commonly referred to in the investment industry as portable alpha. These investment objectives seek to prioritize the long-term structural needs of our Retirement Plan over short-term performance comparisons of the investment portfolio relative to peers.

Authorized Investments – The Plan shall be invested in externally managed funds, consistent with the guidelines established in CRR 140.011, “Policy for Investment Manager Selection, Monitoring and Retention” and CRR 140.017, “Allowable Investments,” in the following asset classes:

Asset Class	Asset Class Target	Allowable Range
Commodities	5%	0%-15%
Core Fixed Income	9%	3%-19%
Opportunistic	0%	0%-7%
Private Debt	8%	3%-12%
Private Equity	13%	9%-17%
Public Equity	34%	20%-45%
Real Estate / Infrastructure	11%	7%-15%
Risk Balanced	0%	0%-5%
Sovereign Bonds	20%	10%-30%
Cash and Cash Equivalents	0%	0%-20%
Total Portfolio	100%

Portfolio Rebalancing
Asset allocations shall be monitored on an ongoing basis as changes in market behavior may cause variations from the target asset mix. Rebalancing of the portfolio shall be considered at least quarterly, and more often if necessary to maintain allocations within the allowable ranges. The need to rebalance shall take into account any logistical issues associated with fully funding a particular asset sector, as well as any tactical decisions to overweight or underweight a particular asset sector based on current market conditions. The University may utilize external managers to rebalance portfolio exposures consistent with targets and allowable ranges established by this policy. In those instances, conventional derivative instruments commonly accepted by other institutional investors, such as futures, swaps, options, forward contracts and reverse repurchase agreements may be utilized.

Actual asset classes allocations shall not fall outside of the allowable ranges, with the exception of violations caused solely by periods of extreme market distress, when it may not be possible or advisable to immediately bring such allocations back to within the allowable ranges.
Currency Risk Management
In the context of a global investment portfolio, currency risk exists to the extent that investments contain exposures to foreign currencies. The desirability of this currency exposure is not necessarily aligned dollar for dollar with the desired exposure to assets denominated in foreign currencies. As such, external managers in any asset class may implement currency strategies to alter the currency exposure of the portfolio when deemed prudent to do so in the context of the particular investment mandate. In addition, the University may utilize external managers to implement currency strategies to alter exposures in an active or passive manner as part of a portfolio or asset class overlay when deemed prudent to do so.
Portable Alpha Program
When any combination of market beta exposures (Public Equity, Sovereign Bonds, Commodities, etc.) are obtained through the use of derivative instruments, a portion of the cash underlying the notional exposures may be used to fund an Alpha Portfolio. At a total portfolio level, the objective of a Portable Alpha Program is to generate excess returns through alpha exposures which, in aggregate, are diversifying to the Retirement Plan overall.

Overall management of the Portable Alpha Program is subject to the provisions of CRR 140.017 “Policy for Allowable Investments.”
1. Sizing of Alpha Portfolio – Allowable Range
  The allowable range of the portable alpha portfolio shall be 0-27% of the total Retirement Plan, which would represent total portfolio leverage of 100% to 127%. The current alpha portfolio target is 20%.
2. Minimum Cash Margin
  The Retirement Plan shall maintain a 10% margin of safety in addition to the level of Cash Margin determined necessary to cover drawdowns across an average of the three worst modeled economic and market stress scenarios as defined by the greatest depletion of Cash Margin.

140.016 Investment Policy for Other Postemployment Benefits Plan Trust Fund

kuscheld — Tue, 28 Aug 2012 22:34:32 +0000

140.016 Investment Policy for Other Postemployment Benefits Plan Trust Fund kuscheld Tue, 08/28/2012 - 22:34

Bd. Min. 6-26-12.

Introduction -- The University's Other Postemployment Benefits (OPEB) include the medical, dental, long term disability and various other insurance benefits available to its retirees, former employees and their dependents in amounts and under the conditions described in the University’s respective benefit plans excluding the University’s pension plan. The OPEB Plan Trust Fund (“the Trust”) was established in 2008 to provide for the full and timely payment of these benefits, with funding provided from contributions made by the University, contributions made by retirees and their dependents, if any, any sums due from insurance contracts entered into by the respective benefit plans, and income from any investments held by the Trust. The existence of the Trust is not a guarantee that benefits will be provided. This Investment Policy was established to provide direction to the investment and management of assets within the Trust.
Responsibilities and Authorities -- See CRR 140.010 “Policy for Management and Oversight of Selected University Investment Pools.”
Investment Objectives – The primary objective of the investment of Trust assets is to meet or exceed the investment return assumption used in the calculation of the actuarial accrued liability for postemployment benefits, utilizing a broadly diversified global investment structure.
Authorized Investments -- The Trust shall be invested in externally managed funds, consistent with the guidelines established in CRR 140.011 “Policy for Investment Manager Selection, Monitoring and Retention,” in the following asset sectors:

Sectors Target Asset Mix Allowable Range

Global fixed income

50%

45%-55%

Global equity

40%

35%-45%

Absolute return

10%

0%-15%

Total

100%

Sector allocations shall be monitored on an ongoing basis as changes in market behavior may result in variations from the target asset mix. Rebalancing of the portfolio shall be considered at least annually, and more often if necessary to maintain allocations within the allowable range. The need to rebalance shall take into account any logistical issues associated with fully funding a particular asset sector, as well as any tactical decisions to overweight or underweight a particular asset sector based on current market conditions.

Actual sector allocations shall not fall outside of the allowable ranges, with the exception of violations caused solely by periods of extreme market distress, when it may not be possible or advisable to immediately bring such allocations back to within the allowable ranges.

Sectors	Target Asset Mix	Allowable Range
Global fixed income	50%	45%-55%
Global equity	40%	35%-45%
Absolute return	10%	0%-15%
Total	100%

140.017 Policy for Allowable Investments

kuscheld — Tue, 28 Aug 2012 22:35:00 +0000

140.017 Policy for Allowable Investments kuscheld Tue, 08/28/2012 - 22:35

Bd. Min 9-28-17; Amended Bd. Min. 6-29-23; Amended Bd. Min. 9-12-24.

Introduction – This policy establishes general guidelines for asset classes and associated implementation matters for the following investment pools:

140.012 General Pool [Sections D(2) "Cored Portfolio" and D(3) “Strategic Portfolio”]
140.013 Endowment Pool
140.015 Retirement, Disability and Death Benefit Plan
Responsibilities and Authorities – See CRR 140.010 “Policy for Management and Oversight of Selected University Investment Pools.”
Asset Class Guidelines – The following asset class descriptions and guidelines may be applicable to investment pools noted above, as specified by targets and ranges within each individual policy. The intent of this section is to provide descriptions and general implementation guidelines for each of the following asset classes:
1. Public Equity
  The equity risk factor drives the returns of this class. Currency risk may also be present when investing in non-U.S. securities. Investments in this asset class may include U.S. and non-U.S. equity investments, including both long and long/short strategies with varying characteristics related to market capitalization, style and sector.
  
  Exposure will be obtained through physical securities and/or conventional derivative instruments commonly accepted by other institutional investors such as futures, swaps, options, forward contracts and reverse repurchase agreements. Public Equity exposures may be used to fund a Portable Alpha Program. Legal account structures may be in the form of separately managed accounts, institutional commingled funds, exchange-traded funds and limited partnership agreements.
2. Private Equity
  These investments are primarily driven by the equity and liquidity risk factors yet, because of their diverse nature, some of these investments may include currency risk and other idiosyncratic risks.
  
  Investments in this asset class may include U.S. and non-U.S. private equity strategies including, but not limited to, buyout, venture, and special situations. Legal account structures will primarily be in the form of limited partnership agreements or other similar forms with average tenure of 10-12 years.
3. Sovereign Bonds
  Interest rates and inflation are the primary risk factor driving the returns of this sub-class of securities. Currency risk may also be present when investing in non-U.S. Government Securities.
  
  Investments in this asset class may include U.S. and non-U.S. bonds that have been issued, collateralized or guaranteed: (i) by the U.S. Government, its agencies, or its instrumentalities (collectively known as U.S. Government Securities) or (ii) by investment grade non-U.S. sovereign governments, their agencies or their instrumentalities (collectively known as non-U.S. Government Securities).
  
  Exposure will be obtained through physical securities and/or conventional derivative instruments commonly accepted by other institutional investors such as futures, swaps, options, forward contracts and reverse repurchase agreements. Sovereign Bond exposures may be used to fund a Portable Alpha Program.
  
  Legal account structures may be in the form of separately managed accounts, institutional commingled funds, exchange-traded funds and limited partnership agreements.
4. Core Fixed Income
  Specific types of debt exposures include, but are not limited to, sovereign, corporate, inflation-linked, high yield, emerging market, commercial mortgage-backed securities, and residential mortgage-backed securities.
  
  Exposures will be obtained through physical securities as well as derivative instruments commonly accepted by other institutional investors such as futures, swaps, options, forward contracts, and reverse repurchase agreements may be utilized. Exposures may include long/short positions.
  
  Legal account structures may be in the form of separately managed accounts, institutional commingled funds, exchange-trade funds and limited partnership agreements.
5. Opportunistic
  It is expected that this category will be utilized when market dislocations present unique opportunities to invest at attractive valuations relative to underlying fundamentals across a variety of risk factors and implementations.
  
  No policy target shall be assigned to this category; any capital allocated to this category will be funded from underweight positions relative to policy targets in other asset classes, with the expectation that such opportunistic investments should outperform and/or strengthen the overall diversification of the total portfolio over a given timeframe. Investments in this category should be shorter-term in nature, with final maturities not to exceed seven years.
  
  Exposures may be obtained through public and private securities in various forms and implementations as well as derivative instruments commonly accepted by other institutional investors such as futures, swaps, options, forward contracts, and reverse repurchase agreements may be utilized. Implementations may hold a mix of long/short positions.
  
  Legal account structures will be in the form of separately managed accounts, institutional commingled funds, limited partnership agreements or other similar forms.
6. Private Debt
  Credit spreads and liquidity risk will be the primary drivers of returns, while interest rate and equity risk may also be present from time to time. Currency risk may also be present when investing in non-U.S. securities, as well as other idiosyncratic risks.
  
  Specific types of strategies include, but are not limited to, opportunistic debt, distressed debt, distressed for control, whole loans and pools, levered loans and pools, and mortgage servicing rights.
  
  Legal account structures will primarily be in the form of limited partnership or limited liability company agreements with average tenure of 5-12 years.
7. Commodities
  This asset class is driven by changes in expectations for inflation and the supply of and demand for raw materials.
  
  Investments in the asset class are likely to be made through derivative instruments commonly accepted by other institutional investors such as futures, swaps, options, and forward contracts. From time to time, physical securities of raw material companies and/or companies that produce raw materials may be held. Implementations may hold a mix of long/short positions. Commodity exposures may be used to fund a Portable Alpha Program.
  
  Legal account structures may be in the form of separately managed accounts, institutional commingled funds, exchange-traded funds and limited partnership agreements.
8. Risk Balanced
  This asset class is driven by multiple traditional risk factors including equities, interest rates, commodities, credit spreads and inflation. In most instances, some or all of these factors are balanced in a way that attempts to equalize risk exposures within a portfolio. Additionally, non-traditional risk factors including value, momentum, carry, defensive and trend may be included. It is also expected that idiosyncratic (active) risk will be taken in this portfolio from time to time.
  
  Exposure will be obtained through physical securities and/or conventional derivative instruments commonly accepted by other institutional investors such as, futures, swaps, options, forward contracts and reverse repurchase agreements.
  
  Legal account structures will primarily be in the form of separately managed accounts, institutional commingled funds and limited partnership agreements.
9. Real Estate/Infrastructure
  These investments may be driven by multiple risk factors depending on how they are positioned in the capital structure. Equity, credit, inflation and liquidity will generally be the primary risk factors. Non-U.S. investments may also possess currency risk.
  
  Specific types of fund investments may be structured as equity and/or debt and include categories broadly defined as core, value added, and opportunistic. In addition, investments may be made in real estate investment trusts and master limited partnerships from time to time.
  
  Legal account structures will primarily be in the form of limited partnership agreements with average tenure of 10-12 years. Separately managed accounts and institutional commingled funds may also be utilized from time to time.
Portable Alpha Program – when any combination of market beta exposures are obtained through the use of derivative instruments, a portion of the cash underlying the notional exposures may be used to fund an Alpha Portfolio. At a total portfolio level, the objective of a Portable Alpha Program is to generate excess returns through alpha exposures which, in aggregate, are diversifying to the total portfolio overall.
1. Definitions
  1. Market Beta Exposure – obtained through owning some broad representation of a given market, usually tracked by a benchmark or index. Within Retirement, Endowment and General Pool, examples of market beta exposures include public equities, sovereign bonds, commodities, and other public debt markets. Common ways to obtain market beta exposures include passive or actively managed mutual funds, ETFs or separate accounts holding individual investment securities.
  2. Derivative Instruments – market beta exposures may also be obtained with derivative instruments commonly used by other institutional investors, such as futures, swaps, options, forward contracts and reverse repurchase agreements.
  3. Notional Exposure – when derivative instruments are used to obtain market beta exposures, the market exposure obtained is not directly connected to the amount of cash required to obtain such market exposure. For example, obtaining a $100 million exposure to the S&P 500 using futures could be done with an initial cash outlay of less than $5 million. In the context of this Portable Alpha Program, $100 million of notional exposure would be initially funded with $100 million in cash. The key takeaway is that with a derivatives implementation of market beta exposures, part of the cash underlying the notional exposure is available to fund other types of investment exposures, such as alpha.
  4. Alpha Portfolio - Alpha represents investing skill that generates returns alongside, or independent of, a given market beta exposure. For purposes of the Portable Alpha Program, the Alpha Portfolio represents a collection of highly skilled alpha managers able to source alpha independent from a market beta exposure. Alpha managers utilized within the Alpha Portfolio should be well established and highly institutionalized, have satisfactory liquidity terms, maintain robust risk management systems, and have a demonstrated ability to deliver return streams with generally low volatility and very low correlations (no discernable relationship) to the market beta exposures used to fund the Portable Alpha Program. Common alpha strategies likely contain well-known, empirically tested sources of returns that can be actively or systematically harvested through both long and short implementations including, but not limited to:
    
    1) hedge fund risk premia such as arbitrage, macro, credit, and equity long/short;
    2) style risk premia such as value, momentum, carry, defensive and low volatility;
    3) other idiosyncratic sources of return.
    
    Legal account structures will be in the form of separate accounts, institutional commingled funds, limited partnerships or other similar forms. The overall mix of investment vehicles and fund structures should allow for at least 20% of the Alpha Portfolio to be redeemed for cash within 90 days, with a minimum of 50% available for cash redemption within six months.
2. Understanding Liquidity Needs / Cash Margin
  The primary need for liquidity within the Portable Alpha program is the settlement of gains and losses from the mix of market beta exposures implemented through derivatives, which are used to fund the program. To help illustrate this concept: Assume a $70 million Alpha Portfolio funded by $100 million in US Treasuries (a market beta exposure). Derivatives would be used to obtain $100 million notional in US Treasuries market beta exposure. Of the $100 million in underlying cash, $70 million is used to fund the Alpha Portfolio with the remaining $30 million held in cash (“Cash Margin”). The Cash Margin is needed to settle gains or losses on the derivatives used to obtain the $100 million notional US Treasuries market beta exposure.
  
  As a simplistic example, if US Treasuries gained 10% over a given period, Cash Margin would increase by $10 million ($100 million notional x 10% gain). But if US Treasuries lost 10% over a given period, Cash Margin would decrease by $10 million ($100 million notional x 10% loss). Overall, Cash Margin should be sufficient to cover potential losses in the market beta exposures implemented through derivatives and used to fund the Alpha Portfolio. More specifically, liquidity needs are driven by the market beta exposures funding the Portable Alpha Program, not the Alpha Portfolio itself.
3. Sources of Cash Margin
  The following are sources of Cash Margin for the Portable Alpha Program:
  1. Cash balances underlying the market beta exposures obtained through derivatives implementation (for example, the $30 million in the illustration noted in the section above).
  2. Any unencumbered cash balances held at the total portfolio level, which have been specifically dedicated to the Portable Alpha Program.
  3. Any balances of passive market beta exposures held in ETFs or mutual funds which could be settled (cash received) within three business days. For sake of clarity, assume that the Alpha Portfolio was funded by notional US Treasury exposure. Further, assume that the portfolio had additional US Treasury market beta exposure through an index mutual fund, which could be traded with cash settlement within three business days. Under this provision, using this example, the amount invested in the US Treasury index mutual fund could be counted fully or partially as available Cash Margin. From a practical perspective, these passive mutual fund or ETF holdings could be quickly converted to notional derivative exposures (without changing the portfolio’s overall market beta exposure), making the underlying cash available for the Portable Alpha Program. Having the flexibility to manage market beta exposures in this way can reduce the financing costs associated with derivative notional implementations while maintaining ready access to cash (liquidity).
  4. Cash redemptions from Alpha Portfolio managers.
4. Measuring / Testing Liquidity Needs
  With the Portable Alpha Program being funded by a derivatives implementation of some mix of market beta exposures, the measurement and testing of liquidity needs involves assessing how the given mix of these asset classes performs across a representative sample of historical economic and market stress scenarios. In managing liquidity needs, the objective is for the Cash Margin to “survive” these modeled scenarios with some minimum level of Cash Margin remaining after the stressed scenario has occurred. For purposes of this policy, Cash Margin sufficiency shall be determined by taking an average of the five worst modeled scenarios as defined as those scenarios having the greatest depletion of Cash Margin. To be clear, assuming the five worst modeled scenarios consumed 5%, 6%, 8%, 10% and 16% of Cash Margin, the average of these five would be Cash Margin depletion of 9%. The minimum Cash Margin requirement would be 9% plus some additional safety buffer, which would be defined individually in the investment policies for the Retirement, Endowment and General Pool portfolios.
5. Managing Liquidity Needs
  There are generally six primary ways to manage Cash Margin and liquidity needs during times of market stress. Any of these, or some combination, may be used depending upon the circumstance.
  1. Utilize existing cash balances underlying the market beta exposures obtained through derivatives implementation.
  2. Utilize unencumbered cash balances held at the total portfolio level, if any, which have been specifically dedicated to the Portable Alpha Program.
  3. Convert passive market beta exposures held in ETFs or mutual funds to market beta exposures obtained through derivatives implementation to generate additional cash. As an example, $50 million in US Treasury index exposure held in a mutual fund could be redeemed and replaced with a derivatives implementation providing the same market beta exposure while making the $50 million of underlying cash available to the Portable Alpha Program.
  4. If possible, rebalance the mix of market beta exposures funding the Portable Alpha Program from more volatile asset classes to less volatile asset classes. For example, in a period of equity market drawdown, shifting some mix of Alpha Portfolio funding from public equities to sovereign bonds would lower the volatility of the funding mix, reducing the drawdown exposure and resulting demands on the Cash Margin.
  5. Selective redemption requests to Alpha Portfolio managers will generate additional Cash Margin.
  6. Reducing or eliminating notional market beta exposures obtained through derivative instruments will immediately stop further draws on remaining Cash Margin. For example, if the Portable Alpha Program were funded primarily by public equity notional exposure during a period of equity market drawdown, consideration could be given to eliminating the derivatives equity position through cancellation of the swap, liquidating the futures, etc. Careful consideration should be given to this option as it also eliminates strategic market beta exposure for the portfolio overall; still, this de-risking option may be desirable in times of significant market stress.
6. Operational Requirements
  1. Minimum required Cash Margin balances for each portfolio shall be determined, maintained, and monitored on a daily basis by investment staff.
  2. Modeling of historical economic and market stress scenarios shall be updated by investment staff on a monthly basis utilizing the then current mix of market exposures funding the Portable Alpha Program (which should also include any passive market beta exposures implemented through mutual funds or ETFs which are being included in the Cash Margin calculation).
  3. Should Cash Margin fall below minimum required levels, investment staff shall enact a plan to restore Cash Margin above minimum required levels as quickly as reasonably possible, but within a period of time not to exceed six months. The plan to restore Cash Margin above minimum required levels should be communicated to the Executive Vice President for Finance and Operations and to the University’s Investment Consultant.
  4. The results of modeled economic and market stress scenarios and compliance with Cash Margin and Alpha Portfolio liquidity requirements shall be reported to the Board on a quarterly basis.

140.020 Financial Planning

kuscheld — Tue, 28 Aug 2012 22:36:00 +0000

140.020 Financial Planning kuscheld Tue, 08/28/2012 - 22:36

140.020 Financial Planning

Executive Guideline No. 17, April 26, 1982.

In any period of financial stringency, the University's educational services to the people of ��ӰԺ would be greatly diminished. Hence, those in the University community are obligated to do the sound planning that would enable the University to avoid such a situation or, in the event of financial crisis, to preserve its educational functions to the greatest extent possible.

Effective preventive planning can help to preserve the basic missions of the University, including the unique roles which it serves in the state's higher education system. At each level of operation, the administration and faculty must continue to establish priorities among these missions as a basis for sound resource allocation.

In planning to prevent or to cope with a financial crisis, the educational interests of students are of high importance. Planning must also take into account the essential contributions to the University's operation which are made by administrative and support staff. The University's Plan for Equal Opportunity and Affirmative Action is yet another factor which must be considered. Financial stringency must not become a cloak for abandoning the University's commitments in any of these areas.

Warning Signs
1. Signals -- The University community must always be alert to signals which warn that a financial crisis may be near. The following items are examples of some indicators of possible financial problems that warrant immediate attention by campus budget committees, Chancellors, and the central administration staff. These example are neither mutually exclusive nor listed in order of importance.
  1. State appropriations insufficient to meet contractual commitments.
  2. A substantial loss of students on one or more campuses.
  3. Mandated increases in costs or functions which are not equaled by funding resources.
  4. Inflationary cost increases not matched by adjustments for inflation in revenue sources.
  5. An absolute decline in dollar income from one year to the next, without corresponding program or student reduction.
  6. A budget that is flexible because of firm commitments, with the concurrent inability to respond to emergencies; for instance, a very high ratio of S&W to E&E funds.
2. Evaluation -- Whenever these indicators are observed, an evaluation of the situation must be made and the preventive planning activities specified in this Executive Guideline at D must be intensified.
Resource Committees -- Faculty must be meaningfully involved through regular on-going mechanisms with the total University fiscal situation. Appropriate committees with faculty members at the system and campus levels shall be created or designated to advise in educational planning, to appraise resource needs and fiscal conditions, and to advise on allocation and reallocation of resources.
1. Primary responsibility for projections of fiscal resources and their allocation rests with the campuses, with necessary support and coordination functions being provided by central administration offices. Hence, it is especially important that each campus have such a resource/planning committee or committees, each including a substantial number of faculty members designated by a representatively elected faculty governance body, to be informed by and to be involved with the Chancellors and their staffs in dealing with campus fiscal planning and allocation.
2. Similarly structured advisory committees should also be considered within major campus administrative subdivisions. Except for required faculty membership, the composition of such committees is a prerogative of the campus or subunit.
3. It is essential that all relevant data be made available to these committees. Responsible persons should coordinate their efforts to insure the regular and timely provision of forecasting data to these committees related to programs and to anticipated fiscal resources.
Effective Use of University Resources -- A careful examination of resource use must be undertaken by these resource/planning committees on a regular basis. As a part of this review, the University will expand its efforts in the area of performance audits. For instance, productivity in administrative offices, faculty loads, physical plant activities, and research centers will be assessed. The University must look as carefully at its administration and support personnel picture, at the efficiency of certain seasonal offices, at bidding and purchasing operations, as it does at faculty staffing patterns. Each campus and the central administration shall set up a regular procedure by which resource committees can systematically examine each issues. Expert advice from outside the University may be employed if appropriate.
Possible Retrenchment Steps to be Taken if Financial Stringency is Threatening -- The University routinely takes steps to improve its financial situation as a part of sound management practices. However, if warning signals of financial stress are detected, the appropriate planning and fiscal resource allocation committees, working with University administration, should identify and recommend additional measures short of declaring exigency that could be adopted. Such possibilities include, but by no means are limited to, the following:
1. Reduction of faculty positions through attrition or nonrenewal.
2. Adjustment of faculty and staff work loads, so long as the faculty can remain professionally active and the staff effective.
3. Reduction or elimination of administrative and support services.
4. Modifications of the staff benefits and retirement program to provide incentives for voluntary early retirement and part-time appointments and to provide equitably for persons terminated because of the financial situation.
5. Reduction or elimination of academic programs.
6. Professional development programs to enable faculty and staff to accommodate to the changing needs of the University.
7. Limitations on enrollments.
8. Decreased numbers of courses and frequency of offerings, and increased class size.
9. Conversion to nine-month of twelve-month appointments.
10. Increased utilization of short-term non-tenurable positions.
11. The closing of facilities.
  These actions could have quite serious impact upon the quality of the University's educational mission and must be carefully weighted against the severity of the economic situation. The University, as a University, must not be sacrificed in order to avoid hard decisions about retrenchment or financial exigency.
External Relations -- The University always attempts to maintain full communication with state officers, alumni, and the public about its financial situation. During any period of retrenchment or financial stringency, however, it will be especially important that a coordinated effort be made to (a) seek full public understanding of the University's crisis, including an explanation of the impact of planned reductions; (b) solicit special alumni and other private gifts to minimize educational cutbacks.
Chancellors should take appropriate steps to provide for implementation of this Executive Guideline on the individual campuses.

140.025 Financial Performance and Accountability

kuscheld — Mon, 27 Jan 2020 14:44:38 +0000

140.025 Financial Performance and Accountability kuscheld Mon, 01/27/2020 - 14:44

Executive Order No. 47, 11-7-19; Amended Bd. Min. 11-19-20.

System and University/Health System (Unit) leadership will set and track progress against financial performance targets. Financial performance targets will be set by System Leadership in the context of the Unit’s mission and will work in concert with delivery on the enterprise (the four universities and health system) mission and budget constraints. Each Unit leadership team will implement policies and procedures to establish accountability frameworks that meet the defined financial performance targets.

Primary responsibility for determining financial performance targets for the enterprise rests with the UM System President and UM System Chief Financial Officer (CFO) [collectively, System Leadership) and will be approved by the Board of Curators. In setting financial performance targets, the President and CFO will consider both external context (i.e., market environment, investor expectations, capital market benchmarks, etc.) and internal context (i.e., short versus long-term considerations, strategic priorities, risk tolerance, etc.). The Board of Curators will approve the annual financial performance targets at the Unit and enterprise level.

Financial performance targets will encompass the entirety of the enterprise’s financial health, including: revenue growth, expense management, inter-university transfers, return on spending, return on capital employed, reserve adequacy, and appropriate use of debt/capital. Performance targets will be set during the five-year financial planning process and reviewed during the annual budget process. Performance target adjustments will be considered through an interactive planning process involving System and Unit leadership. Building towards a comprehensive five-year financial plan and annual operating budget, System and Unit leadership will consider each Unit’s strategic, staffing and capital plans.

Financial performance must fall within an acceptable, defined range of the individual targets on an annual basis. Average performance over the preceding five-year period should meet the defined financial performance targets. Adjustments to the range may be made at the discretion of System Leadership to reflect unexpected and extreme environmental shocks, such as an unexpected withhold of state appropriations late in a fiscal year. Any changes in performance expectations will incorporate an adjustment period and will be communicated to the accountable and responsible parties. Unit leadership is accountable for maintaining performance at or above target over time. Failure by a Unit to perform at targeted levels will require a corrective action plan to be presented to and approved by the President and Board of Curators.

Units that fail to perform at targeted levels may experience preventative or corrective measures, including but not limited to one or more of the following:

Forced Capitalization/Principal Paydown - strategic funding from investment earnings will be used to stabilize financial performance
Strategic Funding Restrictions – any spending of strategic funding from investment earnings by the Unit requires approval from outside of the Unit.
Capital Project Probation – no new projects may be presented to the Board while on probation.
Debt Prohibition - no new debt or internal loans until performance moves back into range.
Reserve Lockbox - any spending above plan requires approval from outside the Unit.
Hiring Freeze - any job postings/hiring requires approval from outside the Unit.
Employee Separations - Disciplinary action following relevant HR policies at the discretion of the leader’s supervisor.

Performance targets will reflect the entirety of the financial health of the enterprise and reference best practices for financial management. These metrics will be reviewed with the Board annually and change with best practices for financial management within the industry.

Role of Chancellors and Health System Chief Executive Officer:

Accountable for financial performance to target.
Ensure the Unit meets the mission while balancing financial performance.
Conduct an annual financial planning process that aligns the strategic plan, staffing plan, capital plan, and operations with the financial performance targets.
Submit financial plans and related performance against targets to the Board of Curators for approval.
Receive updates from CFO and monitor financial performance against targets throughout the year. Inform the President of performance below target and corrective action plans to improve performance.
Delegate financial and operational targets for leaders including the Provosts, Deans, Directors and other leaders. (The Chancellor / Chief Executive Officer remains ultimately accountable for their Unit’s performance)

Role of University and Health System Chief Financial Officers:

Responsible for financial performance to target.
Develop assumptions for campus financial plans and approve college/division plans for financial reasonableness and alignment.
Accountable for the validity and completeness of financial assumptions as a part of the annual financial planning process. Advise the leadership team on the impact of various strategic and operating initiatives on financial performance.
Submit financial plans and related performance against targets to the UM System CFO for approval.
Monitor financial performance against plan on a monthly basis. Report performance against plan to UM System CFO. Advise Chancellor/Hospital CEO when performance is off plan and work jointly to develop corrective action plans. Request target adjustment for material unforeseen, non-controllable factors (example: mid-year state appropriation withholds).

Role of President:

Accountable for the financial health of the University of ��ӰԺ at the enterprise level.
Ensure the institution meets the mission while balancing financial performance.
Approve and set the financial performance targets.
Oversee and approve the financial, strategic, and capital plans of each Unit.
Monitor financial performance against plan for the enterprise.
Hold leadership accountable for financial performance and manage lower than expected performance with appropriate measures above.

Role of UM System Chief Financial Officer:

Responsible for the financial health of the University of ��ӰԺ at the enterprise level.
Collaboratively propose the financial performance targets for each Unit.
Present capital and financial plans to the Board of Curators for approval.
Monitor financial performance for the enterprise. Provide a quarterly update on projected financial performance to the President and Board on financial performance starting in the second quarter.
Report to the Board when performance is materially off plan for the enterprise with appropriate corrective actions.
Determines key performance metrics with approval from the President. Approves adjustments to performance targets for unforeseen, non-controllable factors for each Unit. Consults President on target adjustments if there is a risk of missing enterprise-level performance targets.