 | Board of Visitors minutes November 7, 1997 |  |
INVESTMENT POLICIES REVIEW
- Investment Guidelines for the Use of Derivatives
- Regulations Governing the Faculty Home Mortgage Loan Program
- Internal Loans from Current Funds
- Asset Class Funds
- Asset Allocation Fund
- Internally-Managed Funds
- Trust Funds
- Pooled Income Fund
- Investment of Security Lending Collateral
- Investment Guidelines for University Endowment Loans to University of Virginia Foundation
- Investment Guidelines for the White Burkett Miller Fund
TITLE OF POLICY
INVESTMENT GUIDELINES FOR THE USE OF DERIVATIVES
Background
The use of derivatives in the University of. Virginia's investment program provides an effective and cost-efficient method of controlling the risk/reward profile of the various portfolios. The following guidelines are tailored to allow for the use of derivatives in their risk-controlling capacity. The use of derivatives solely for speculative purposes is prohibited.
For the purposes of these guidelines, derivative is defined as any security whose price is determined by the price movement of some other asset. Although derivatives encompass a very broad spectrum of investment vehicles, it is useful to classify them according to two generic categories:
I. Instruments that create an artificial exposure to an asset class (such as S&P 500 stock index futures); and
2. Complex variations of traditional securities (such as bonds that pay interest-only).
Certain non-exchange traded derivatives such as forward foreign currency contracts are characteristic of the first category as they typically are used to provide exposure to a particular asset, e.g. converting U.S. dollars into another currency or a foreign currency into U.S. dollars. The second category includes securities which are publicly traded as well as privately negotiated derivatives such as swaps.
It is not useful to attempt to classify the riskiness of any one derivative instrument in isolation. The riskiness of any derivative is based on whether or not its characteristics and intended use is consistent with the return objectives and risk constraints of the portfolio. In addition, the focus should not be on the risk of the individual derivative security but rather how the derivative alters the risk of the overall portfolio.
This policy sets forth the parameters for the use of derivatives with regard to separately managed accounts. The guidelines for the use of derivatives in limited partnerships would be delineated in the partnership documents and must be agreed upon before the investment is made.
Core Equity Fund
Derivatives may be used by managers in the Core Equity portfolio for the following purposes:
I. Hedging Benchmark Risk: Hedging is defined as the investment in an asset to reduce the overall risk of the portfolio. Hedging benchmark risk is accomplished by taking a short position in a derivative that replicates the portfolio benchmark (e.g. shorting the S&P 500 or other stock indices). Benchmark risk may be hedged up to 25% of the market value of a manager's portfolio. Exchange traded stock index futures and options on those futures are permissible. Use of futures or options on instruments that are not consistent with the portfolio benchmark are not permissible.
2. Hedging Currency Risk: Core Equity managers may invest in foreign stocks and are authorized to hedge currency risk either fully or partially. Managers may hedge either directly or employ cross hedging (using one currency as a proxy for another, such as hedging German marks with - European currency units). Exchange traded futures and options on futures, options, and forward contracts may be used for this purpose.
3. Establishing Asset Class Exposure: Core Equity managers may use derivatives to establish a position in a market subject to two restrictions:
A. The derivative position must serve as a substitute for establishing a direct position in a permissible market or security.
B. No leverage is used. A manager establishing a long position in a futures market must hold cash or cash equivalents in the portfolio equal to the market value of the futures position. Modest amounts of leverage may be created by market fluctuations and will be monitored by the Treasurer's Office.
4. Yield Enhancement: Core Equity managers may generate incremental income by writing covered calls on securities held in the portfolio. Naked, i.e. uncovered, call writing is prohibited.
5. Use of Derivatives as an Equity Substitute: From time to time, Core Equity managers may want to reduce their exposure to stocks. Rather than hedging the equity exposure, they may desire to invest in other assets. Certain derivative securities such as equity-linked notes, structured notes, or mortgage derivatives may at times, on a relative value basis, be an attractive alternative to stocks. The value in these securities could be due to inefficiencies in a market that may not exist in the domestic equity market. These inefficiencies may cause certain securities to trade below their intrinsic value. Core Equity managers may use fixed income derivatives, with a market value limit of 10% of the portfolio, provided they do not significantly alter the risk/reward profile of the portfolio with regard to the portfolio benchmark.
Separate account managers shall report all derivative positions to the Treasurer's Office monthly.
Bond Fund
Derivatives in the bond fund may be used for the following purposes:
1. Hedging Currency Risk: Any portfolio within the bond fund that is authorized to invest in fixed income securities denominated in a foreign currency is authorized to have the currency risk fully or partially hedged. Managers may hedge either directly or employ cross hedging. The hedge ratio shall be determined by the manager. Exchange traded futures and options on futures, options, and forward foreign currency contracts are permissible investment vehicles for hedging currency risk.
2. Establishing Asset Class Exposure: Bond fund managers may use derivatives to establish a position in a market subject to the following restrictions:
A. The derivative position serves as a substitute for establishing a direct position in a permissible market or security.
B. No leverage is employed. A manager establishing a long position in a futures market must hold cash or cash equivalents in the portfolio equal to the market value of the futures position. Modest amounts of leverage may be created by market fluctuations and will be monitored by the Treasurer's Office.
3. Yield Enhancement: Bond Fund managers may enhance yield by writing covered calls. Naked; i.e. uncovered, call writing is prohibited.
4. Duration Modification: Portfolio duration may be modified, subject to the duration constraints of each portfolio, by buying or selling exchange traded futures contracts on fixed income securities.
5. Use of Mortgage Derivatives and Other Derivative Fixed Income Securities: Subject to the investment guidelines set forth for each portfolio within the Bond Fund, mortgage derivatives such as CMO's, and structured notes are permissible, provided they do not alter the portfolio duration outside of the approved parameters. The use of these securities should not significantly alter the risk characteristics of the portfolio in a manner that is inconsistent with the portfolio return benchmark and investment objectives. Securities that are intentionally structured in a manner whereby a value other than par value could ultimately be redeemed upon final maturity are prohibited (e.g., range floaters).
Separate account managers shall report-all derivative positions to the Treasurer`s Office monthly.
Satellite Equity and Satellite Bond Funds
The Satellite Equity and Satellite Bond Funds may invest in certain limited partnerships that use derivatives. strategies to a significant extent. The policy with regard to the use of derivatives for each manager within the Satellite Equity and Satellite Bond Funds will be evaluated on a case-by-case basis to make certain that it is consistent with the managers' stated investment objectives.
Real Estate Fund
Real Estate limited partnership documents will be reviewed on a case-by-case basis to make certain that any use of derivatives is consistent with the stated objective of the fund. Use of derivatives is expected to be very limited.
Other
Any use of derivatives by an investment manager that is not explicitly addressed in this policy requires prior approval by the Treasurer's Office. All such uses shall be reported to the Investment Subcommittee at their next meeting.
REGULATIONS GOVERNING THE FACULTY HOME MORTGAGE LOAN PROGRAM
(As amended by the Finance Committee of the Board of Visitors effective March 25,1991, and further amended by the Finance Committee of the Board of Visitors effective April 2, 1996)
The University of Virginia Faculty Home Mortgage Loan Program was modified as of April 2, 1996, for eligible faculty members (i.e., tenured or tenure-track faculty, who are ranked assistant professor or above, with at least a three-year appointment who began work prior to April 2, 1996) and was eliminated for faculty members who began or will begin work after April 2, 1996. Eligible faculty members will continue to have four (4) years from the date on which they became eligible to apply for a loan.
The Program is designed to assist faculty in purchasing a house or condominium in Charlottesville/Albemarle County. Prior to purchasing a house/condominium, applicants should contact the Office of the Treasurer (804/982-2868) at the University of Virginia. If the intended purchase is a condominium, additional guidelines apply and are available from the Office of the Treasurer.
I. Three mortgage options are offered (see #2 for value determination guidelines]:
a. $65,000 to $100,000 on a First Deed of Trust with a maximum loan to value ratio of 90%;
b. $45,000 to $65,000 on a Second Deed of Trust with a maximum loan to value ratio of 90%; or
c. $35,000 on a Second Deed of Trust with a maximum loan to value ratio of 95%, given that the
purchase price of the home does not exceed $200,000.
2. Houses shall be appraised as follows:
a. For first mortgages, one appraisal is required by the University to be conducted by an appraiser selected by the University. The University reserves the right to require a second University appraisal should it be deemed necessary. The loan amount will be based on the
lower of the purchase price or the appraised value. The cost of the appraisal, to be paid by the
applicant at the time of loan application, is as follows:
•$250 each for existing residential
properties in Charlottesville/Albemarle County.
• For houses under construction, a final inspection will be required per appraisal at an
additional cost of $50.00 each for properties in Charlottesville/Albemarle County.
• Appraisals of condominiums and other unusual properties will be negotiated separately.
b. For second mortgages, the University will attempt to obtain the first lender's appraisal. In-
addition, a second appraisal is required by the University, to be made by an appraiser selected
by the University, pursuant to the guidelines for first mortgages. The loan amount will be based
on the lower of the purchase price or the average of the two appraisals. If, however, the
University is unable to obtain a copy of the first lender's appraisal, the University reserves the
right to require a second University appraisal should it be deemed necessary.
3. Housing payments, including principal, interest, taxes and insurance on the first mortgage, and second mortgage, if applicable, cannot exceed 28% of gross monthly income (note: the University does not escrow for taxes and insurance). Housing payments, plus other debts/monthly payments, cannot exceed 36% of gross monthly income.
4. Interest rates are changed daily and are comparable to local rates. For the current rate, please call the Office of the Treasurer. Applicants may lock into a rate for a maximum of 60 days. If for any reason the loan does not close within 60 days of the initial lock-in period, the initial guaranteed rate will expire and the applicant will receive the greater of (1) the original locked-in rate, or (2) the prevailing rate 5 days prior to the rescheduled closing.
5. The University cannot consummate a loan more than sixty (60) days prior to the effective date of the applicant-borrower's appointment to the faculty.
6. At the time of application a person must be eligible for a University home mortgage loan.
7. Maximum length of time for repayment of a loan is 20 years, although payments can be set up based on a 30year amortization schedule, with a balloon payment of the remaining balance falling due at the end of 20 years.
8. An origination fee is due and payable at the time of closing. The fee is calculated as follows: Option #1, 1% of the loan amount; Option #2, 1.5% of the loan amount; Option #3, 2% of the loan amount.
9. A document preparation and review fee in the amount of $250 is due and payable by the applicant- borrower at the time of closing. This fee is in addition to the origination fee (paragraph 6) and the appraisal fee (paragraph 2).
10. Faculty members, who are eligible for the program, are limited to one University home mortgage loan per family during the period of employment. Eligibility expires four years after the date of becoming eligible for the loan program.
11. Loans are limited to the purchase of homes to be occupied by the applicant-borrower (i.e., faculty member) as the primary residence. The University will not oarticinate in any refinancing. An applicant owning a residence in the University community not financed by a University mortgage may obtain a University mortgage on another residence provided the applicant-borrower agrees to sell and convey the present residence within six (6) months following the closing of the University mortgage; if the applicant-borrower fails to sell and convey the present residence within six (6) months, the holder may, at its option, call the University mortgage loan.
12. A second mortgage will be made only as part of the total original financing package. A second mortgage commitment is contingent upon the first lien amount and monthly payment of interest and principal not exceeding amounts agreed upon between the borrower and the University.
13. In the event the applicant-borrower (i.e., faculty member) moves out of the property, or upon sale or conveyance of the property, the unpaid balance shall become immediately due and payable at the option of the University.
14. In the event the applicant-borrower ceases to be a full-time employee of the University, or ceases to meet other qualifications originally required to obtain the loan, the debt shall become immediately due and payable at the option of the University, except that a retiring faculty member will be given an extension of time in which to pay off a loan, equal to the lesser of (1) the original loan maturity date, or (2) an additional five years.
15. To consummate a loan, the applicant-borrower will need the services of an attorney. Once the amount of the loan has been determined by the University, the applicant-borrower's attorney should communicate with the Special Counsel for the University, or his designee, in order to complete the transaction. All costs and expenses incurred by the University in connection with such mortgage loans shall be reimbursed to the University by the borrower upon request, but not later than at the time the loan is closed.
16. To process and complete a loan requires a period of approximately 60 days from the date the application is submitted.
17. Monthly payments are to be mailed as directed by the Mortgage Servicing Agent. Automatic drafting of mortgage payments can be arranged with the Mortgage Servicing Agent.
INTERNAL LOANS FROM CURRENT FUNDS
FUND OUTLINE
INTERNAL LOANS FROM CURRENT FUNDS
The Board of Visitors, at their January 26, 1990 meeting, amended current funds guidelines to include investments in internal loans to University departments and activities, subject to approval by the Executive Vice President and Chief Financial Officer.
These loans are typically used for temporary financing of construction.
• All internal loans made from Current Funds will be made in accordance with the following guidelines and restrictions.
• All loans are subject to the approval of the Executive Vice President and Chief Financial Officer.
• The total principal amount of internal loans outstanding shall not exceed $10 million.
• No loan shall be made for a period to exceed four years. The Executive Vice President and Chief Financial Officer will provide a report to the Board of Visitors at each Board meeting to include the following information:
• Identification of all departmental loans outstanding;
• The original and current loan amounts outstanding;
• The due date of each loan; and
• Current interest rate.
The interest rate applicable to internal loans shall be a floating rate adjusted quarterly based on the average Federal Funds rate for the month plus 60 basis points. Accrued interest will be payable monthly. Interest will accrue daily on the basis of a 360-day year.
Any note may be prepaid by the maker at any time without penalty.
Department heads should contact the Director of the Budget, University Budget Office. to apply for such a loan or to obtain further information in this matter.
| Core Equity Fund | Satellite Equity Fund | |
| Return Objective | To provide long-term capital appreciation. Specifically, to outperform the S&P 500 Index and the Wilshire 5000, net of all fees and expenses, over rolling 5 year periods. | To provide long-term capital appreciation and added diversification when combined with the Core Equity Fund. The Specific objective is to outperform the S&P 500 and the Wilshire 5000 by 200 basis points, net of all fees and expenses, over rolling 5-year periods |
| Benchmark | S&P 500, Wilshire 5000 | S&P 500, Wilshire 5000 +200 Basis Points |
| Distributions | Monthly | Monthly |
| Investment Vehicles | The managers within the fund will normally invest in domestic and/or foreign common stocks. Such managers may, at their discretion, hold investment reserves of either money market instruments or bonds without limitation in terms of asset size or period of time. Use of derivative and short positions require prior approval by the Investment Subcommittee. The use of derivative instruments is governed by the "Investment Guidelines for the USe of Derivatives." Grantham, Mayo, Van Otterloo has been granted approval to hold up to 25% of its portfolio in index futures and short stocks. | The fund will make strategic investments with managers of alternative asset classes such as venture capital and distressed securities and with alternative investment styles, such as risk arbitrage and hedge funds. |
| Risk | The risk of the fund will be highly correlated with general stock market risk | It is expected that the returns ob the fund will be more volatile than the returns in the domestic stock market but will be less highly correlated with the returns of that market as compared with the Core Equity Fund. |
| Minimum\Target\Maximum | Minimum\Target\Maximum | |
| Ranges for Asset Classes and Subclasses | 50%\65%\100% | |
| Domestic Equity | 0%\35%\50%\ | |
| International equity | 0%\None\20% | |
| Reserves (Bonds/Cash) | 0%\17%\NA | |
| Venture Capital | 0%\40%\NA | |
| Hedge Funds | 0%\13%\NA | |
| Risk Arbitrage | 0%\30%\NA | |
| Distressed Securities | 0%\None\NA | |
| Leveraged Buyouts | 0%\None\NA | |
| Other |
| Bond Fund | Cash Fund | |
| Return Objective | To provide a hihg level of current income and to act as a hedge against deflation. Specifically, to outperform the Lehman Borthers Government/ Corporate Bond Index, net of fees, over rollings 5-year periods | To provide the highest level of current income consistent with preservation of principal. Specifically, to outperform the benchmark, net of fees, over rolling one-year periods |
| Benchmark | Lehman Brothers Gov't/Corp (Lehman Brothers Aggregate | Six-Month U.S. Treasury Bill Index |
| Distributions | Monthly | Monthly (on the last business day of the month) |
| Investment Vehicles | The managers within the fund will invest in domestic and foreign government and corporate bonds and faculty mortgages. aN emphasis will be placed on investments in high-quality, non-callable, relatively longer term securities to ensure the deflation hedging characteristics of the fund. Up to twenty percent of the fund may be invested in alternative strategies that produce bond-like returns at similar levels of risk. The use of derivative instruments is governed by the "Investment Guidelines for the Use of Derivatives." | Same as Current Funds |
| Minimum\Target\Maximum | Minimum\Target\Maximum | |
| Portfolio Characteristics | ||
| Average Duration | 60%\100%\150% | 50%/100%/500% |
| Return Objectives | To provide a high level of current income in addition to equity appreciation. Specifically, to outperform the Russell Necreif Property Index over rolling 5 year periods |
| Benchmark | 10% return; 50% S&P 500/50% Lehman Brothers Government/Corp; Russell-NCREIF Property Index |
| Investment Philosophy | Attempt to find distressed areas in the real estate market. Consideration will be given to overall diversification, but there are no targets. |
| Distributions | Monthly |
| Investment Vehicles | The fund may invest in private REITS, real estate limited partnerships, and other types of pooled real estate vehicles. |
| Return Objectives | To provide current income and capital appreciation consistent with the preservation of the purchasing power of the underlying assets. Specifically, to meet or exceed the average annual rate of inflation plus spending over rolling five-year periods and to outperform the benchmark composed of 75% S&P 500 and 25% Lehman Brothers Government Corporate. |
| Benchmark | 75% S&P 500/25% LBGC (Lehman Brothers Aggregate) (Wilshire 5000) |
| Distributions | Class A Shares: (For general endowment assets) Distributions should average between 4% and 4.5% 44% of the previous June 30 market value, a percentage which both capital market history and theory suggest would be sustainable over the long-term. To provide a predictable stream of income, the dollar .distribution is targeted to grow at_an average annual rate of 4%. However, if in October of any given year, the projected distribution is greater than 5 1/2% or less than 3 1/2% of the previous June 30 market value of the 6fewt Ineeme-F-Rd Pooled Endowment Fund, the Finance Commjttee will review the situation and consider reducing or increasing the per share spending rate. Class B Shares: (For endowment assets which are eligible for supplements by the Commonwealth, as well as those assets which qualify for inclusion under the Faculty. Salary Initiative:) Distributions are targeted to be 6% of the previous June 30 market value and shall grow at an average annual growth rate of 4% per year. If in October of any given year projected distributable income is greater than 6 1/2% or less than 5 1/2% of the previous June 30 market value of the Balanced Asset Fund Pooled Endowment Fund, the Finance Committee will review the situation and consider reducing or increasing the per share spending rate. The Finance Committee of the Board of Visitors may, from time to time, impose fees associated with securing and administrating endowment funds. Note: The Executive Vice President and Chief Financial Officer has the authority to approve exceptions to the general spending rules within a range of 4% to 6% for endowment assets up to $2,000,000 $500,099. The Investment Subcommittee must approve exceptions to the general spending rules for endowments greater than $2,000,000 $500,000 or for rates outside the 4% to 6% range. |
| Investment Vehicles | The Fund will achieve its asset allocation objectives by investing in the unitized Core Equity, Satellite Equity, Real Estate, Bond, and Cash Funds. |
| Target Asset Allocation | Minimum\Target\Maximum |
| Core Equity Fund | 40%\45%\85% |
| Satellite Equity Fund | 0%\25%\30% |
| Real Estate Fund | 0%\10%\20% |
| Bond Fund | 15%\20%\60% |
| Cash Fund | 0%\0%\ 10% |
| Venture Capital | 0%\N/A3%\ 5% |
| Hedge Funds | 0%\N/A 10% \ 15% |
| Distressed Securities | 0%\N/A 4%\10% |
| Risk Arbitrage | 0%\N/A8%\10% |
INTERNALLY-MANAGED FUNDS
FUND OUTLINE
| CURRENT FUNDS | ||
| Return Objective | To provide the maximum current income consistent with the need for safety and liquidity. Specifically, to outperform a composite index consisting of 60% 91-Day T-Bills and 40% Merrill Lynch Governments, U.S. Treasury Short-term Index (1.2.99 years). | |
| Benchmark | 60% 91-Day T-Bills/40% Merrill Lynch Governments, U.S. Treasury Short-Term Index (1-2.99 years). | |
| Investment Philosophy | Active portfolio management and trading will be employed to acheive the return objectives. Strict quality standards havebeen established to minimize credit risk. In order to protect against or capitalize on sharp fluctuations in interest rates, trading may be substantial at times. Emphasis will be placed on short-term, highly marketable securities to insure adequate liquidity. | |
| Investment Vehicles | The fund may invest in the following instruments, in compliance with Code of Virginia Investment Guidelines • Savings accounts approved for Commonwealth of Virginia deposits. • Repurchase agreements, collateralized by U.S. Treasury or Agency securities • Certificates of Deposit and Bank Deposit Notes issued by any Virginia Bank rated A,A/B, or B by Keefe, Bruyette & Woods Bank and Watch Bank/Thrift Ratings. No more than 10% of the portfolio shall be invested in CD's issued by any single bank. • Commercial paper issued by domestic corporations having a credit rating of A1 by S&P and P1 by Moody's. Dollar denominated commercial paper issued by foreign issuers with a rating of A1 by S&P and P1 by Moody's. No more than 10% of the portfolio shall be invested in the commerical paper of any single issur. • Treasury Notes and Bonds. • Obligations of any agency or instrumentality of the United States. • Corporate notes and bonds rated A or better by S&P and Moody's and having a duration of no more than five years. • Asset-backed securities with a duration of no more than five years and a rating of no less than AAA by two rating agencies, one of which must be either Moody's or S&P. • Bankers' Acceptances issued by any domestic bank rated B/C or better by Keefe, Bruyette & Woods. Bankers' Acceptance issued by international banks with a bank rating of B/C or better and a country rating of I. Fully hedged obligations of sovereign governments with an Aaa rating by Moddy's and AAA by S&P. • Short-term money market funds which invest exclusively in securities approved for current fund investments. • Common Fund Bond Fund • Common Fund Intermediate Cash Fund • Municipal bonds, either general obligation or revenue, rated AA or better • Subject to the approval of the Executive Vice President and Chief Financial Officer internal loans to University Departments and Activities to be repaid from operating and capital funds budgeted for this purpose. No more than a total of 10 million shall be invested in internalloans at any time |
Internally Managed Bond Fund
| Return Objectives | To provide a high level of current income, relative to equities. Specifically, to outperform the Lehman Borthers Government Bond Index over rolling five-year periods |
| Benchmark | Lehman Brothers Government |
| Investment Philosophy | Funds will be managed within duration units with little turnover expected. Current coupon and call protection will be emphasized to assure a high and stable level of income. |
| Minimum\Target\Maximum | |
| Investment Vehicles U.S. Treasury & Agencies | 100%\None\100% |
| Portfolio Characteristics (Relative to Benchmark) Duration | 60%\100%\150% |
TRUST FUNDS
TRUST FUNDS
| investment Objective | The primary objective is to comply with the terns of the Trust Agreement in regard to specific income requirements. The secondary objective is to preserve and enhance the real (inflationadjusted) purchasing power of the principal and to provide for growth in income. |
| Investment Philosophy | Investments will be made from a
stable long-term perspective with moderate
turnover. Although investments for individual Trusts need not be
fully diversified by asset class, diversification should be sufficient
to meet fiduciary standards. Extreme positions or very opportunistic
styles should be avoided. Where the trust document allows, charitable remainder unitrust and annuity trust assets will be invested according to the long-term endowment asset allocation target of 75 percent stocks and 25 percent bonds. Net income trust assets will be allocated between equities and bonds according to trust income requirements. |
| Investment Vehicles | The following pooled funds may be used: Vanguard Group, Fidelity Investments, T. Powe-Price, Fiduciary Trust Company International, and University of Virginia Pooled Funds. Portfolios of individual common stocks may be created on rare occasions to meet specific requirements of the Agreement with the approval of the Executive Vice President and, at his discretion, the Investment SubCommittee of the Board of Visitors. |
POOLED INCOME FUND
POOLED INCOME FUND
| Investment Objective | The primary objective of the Fund is to provide a stable stream of income (interest and dividends). A secondary objective is to provide for growth in income and principal. The income target (in a percentage form) for the Fund will be set on an annual basis based on market conditions. |
| Investment Philosophy | Investments will be made from a stable long-
term perspective with moderate turnover. Extreme
position and very opportunistic styles should be avoided. The Pooled Income Fund will be divided into the -"equity portion" and the "fixed income portion". The "equity portion" is designed to provide long-term capital appreciation. It will normally represent 15-20% of total assets at market value. The "equity portion" should outperform the S&P 500 stock average net of fees as measured over running five-year periods. The purpose of the "fixed income portion" is to provide a high and stable level of current income and hedge against deflation. The "fixed income portion" will normally represent 80-85% of total assets. The investment objective of the "fixed income fund" is to outperform the Lehman Brothers Government/Corporate Index net of fees over running five-periods. Asset allocation of the Fund will be adjusted as necessary in order to achieve the yearly income targets. The "fixed income portion" should be invested in intermediate bonds with money market instruments being used rarely, if at all. The following pooled funds may be used: Vanguard Group, Fidelity Investments, T. Rowe Price, Fiduciary Trust Company International, and University of Virginia Pooled Funds. |
| Investment Vehicles | Private placements, equity real estate, direct mortgages and venture capital are not to be purchased or sold by the Fund. |
INVESTMENT OF SECURITY LENDING COLLATERAL
INVESTMENT OF SECURITY LENDING COLLATERAL
| Investment Objective | The primary objective shall be to provide a reasonable levelof investment income consistent with the need for liquidity and safety of the principal |
| Investment Philosophy | Investments will be made to provide incremental income over the broker rebate rate, which is typically the Federal Funds rate. Maintaining liquidity and saety of principal will be emphasized |
| Investment Vehicles | The Fund may invest in following authorized investments: • Repurchase agreements with those institutions listed as approved borrowers provided such agreemnts are memorialized in writing. All repurchase agreement transactions will be collateralized, either by delivery versus payment or tri-party arrangement. All repurchase agreement transactions will be collaterilized, either by delivery versus payment or tri-party arrangement. All repurchase agreement collateral must be consistent with securities approved for direct investment with the exception of any maturity restrictions • U.S. Treasury obligations or obligations of any agency or instrumentality of the United States. No final maturity may exceed one year expect floating rates notes which may not exceed three years. • Commercial paper issued by domestic corporations having a credit rating of A1 by S&P and P1 by Moody's. No more than 10% of the portfolio shall be invested in the commercial paper of any single issuer • Corporate notes and bonds rated A or better by S&P and Moody's and having a final maturity not exceeding one year except floatingrate notes which may not exceed three • Banker's Acceptances issued by any domestic bank rated B/C or better by Thompson BankWatch, Inc. Banker's Acceptances issued by international banks with a bank rating of B/C or better and a country rating of I. • Municipal bonds, rated AA or better by S&P and Moody's, either general obligation or revenue. No final maturity can exceed one year except floating rate notes which may not exceed three years. • Short-term money market funds which invest exclusively in securities approved for the investment of security lending collateral • Any securities consistent in character to range floaters or dual index notes are not considered acceptable investments for cash collateral regardless of maturity, issuer, or government guarantee, real or implied. |
INVESTMENT GUIDELINES FOR UNIVERSITY ENDOWMENT LOANS TO UNIVERSITY OF VIRGINIA FOUNDATION
Background
The University of Virginia has advanced funds (Endowment Loans) to the University of Virginia Foundation (currently totalling $32.1 million) to acquire strategic real estate assets that have served the financial and programmatic needs of the University of Virginia. In June 1992, the University Real Estate Foundation adopted a policy regarding repayment to the University Endowment which stated that the Endowment Loans would be non-interest bearing. Repayment would be based on the activities of specific assets (in essence, without recourse to the Foundation's other assets or activities), and, after the principal on the loans was repaid, gifts would be made to the endowment.
To achieve a level of independent financial strength for the Foundation to pursue its objectives in serving the University of Virginia, we have adopted the following principles that will serve as guidelines.
Acquisition of Properties for the University:
1. Purchase must be approved by the Foundation's Board and the University of Virginia's Executive Vice President and Chief Financial Officer.
2. Department must provide comfort to the Chief Financial Officer that it has the funds to purchase the property.
3. The Foundation will assess a 1 % acquisition fee, 1% disposition fee, direct expenses associated with acquisition and sale, plus management fees, if necessary.
4. An interest rate similar to that which the Foundation receives from outside creditors will be assessed. Rental income, if any, will be credited against this expense.
Gifts of Real Estate:
1. The Foundation will charge a 1 % acquisition fee, a 1% disposition fee (capped at $25,000 for both), direct expenses associated with acquisition and sale, plus management fees, if necessary, against the proceeds of the gift.
2. The University will provide a $50,000 imprest fund to cover expenses incurred prior to the sale of property.
Ongoing Operations:
1. Income will be used first to amortize indebtedness, with parties other than the University, related to improvements and carrying costs for the project.
2. When feasible, excess income will be used to secure third-party debt to repay the principal on the Endowment Loans. The balance, if any, shall remain with the Foundation.'
Sale of Properties:
1. Other than properties purchase for a specific department, which will be sold on a fully-cost basis, all properties will be sold at market value based on an MAI appraisal secured by the Foundation. The proceeds will be used as follows:
a. First to repay indebtedness with third parties. b. Additional proceeds will be used to repay Endowment Loans.
c. Any excess proceeds after "a" and "b" are met, will be allocated 50% to the University of Virginia as a gift and 50% to the Foundation to establish its own capital base.
d. If proceeds are insufficient to accomplish "a" and "b", the unpaid Endowment Loan will be written off on the University's books.
Other:
The University recognized that the Foundation does not yet have sufficient income to cover its operating costs. As such, the University understands that the Foundation will not begin repaying the Endowment Loans on the Colonnades and Booker House. This exception to the policy will be reviewed in five years.
| Board of Visitors minutes November 7, 1997 | |