Reports and Financial statements 2009 - the University Offices ...

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Financial Review Capital expenditure programme The University group continued to invest in its physical facilities over 2008–09, although expenditure in the year was slightly lower than in recent years.Total capital expenditure was £85m, of which £63m was in respect of the University’s academic activities. During the year the Alan Reece Building for the Institute for Manufacturing was completed, and there was major expenditure on the Hauser Forum at West Cambridge, the Kavli Institute of Cosmology, the new Sainsbury Laboratory for plant sciences, and on the University Library. Cambridge Assessment continued to invest in its information technology systems. New works in progress include a new building for Materials Science and Metallurgy at West Cambridge, and at 7 West Road on the Sidgwick Avenue Site which will bring together seven different institutions of the School of the Humanities and Social Sciences. Both these projects will be funded by the HEFCE Capital Investment Framework funding stream. The majority of capital expenditure for academic activities is funded by external sources: Funding Council capital grants, donations for buildings, and equipment costs funded by research grants. The University continues to review options for the renewal of the central sites, notably the Old Press Site and the New Museums Site. Endowment and investment performance The University group’s investment assets are significant. Although investment income provides only a small percentage of the operating budget of the University’s academic activities, it supports posts and activities and gives important financial assistance to students. The investment assets, analysed and disclosed in the financial statements according to the various purposes for which they are held, are managed in three principal pools. (i) Cambridge University Endowment Fund (CUEF) The majority of fixed asset investments and endowment assets are invested in the CUEF. As at 31 July 2009 the CUEF had a market value of £956m (2008: £907m), which includes net new funds invested during the period of £136m, including further investment of £100m of the University’s general reserves. Since 2004 the CUEF has been managed on a total return basis, such that the amount distributed for budgetary expenditure is determined by a formula based on underlying capital values combined with factors which smooth the rate of spending changes from year to year, allowing a degree of certainty for planning purposes. The performance of the CUEF is measured to a 30 June year-end in order to utilize more accurate valuation and benchmark information and to allow comparisons with similar endowment investment funds.The investment performance of the CUEF was –11.1% over the twelve months to 30 June 2009.The difficult investment environment experienced over the previous year persisted as illustrated by the equity benchmark indices FTSE All-Share (–20.5%) and MSCI All Country World (–14.5%).The CUEF performance was satisfactory in such circumstances and ahead of its historical WM Charities benchmark. Performance has recovered since the year-end in line with improvements in investment markets. The University’s Investment Office, overseen and advised by the Investment Board, manages the CUEF. In response to the exceptional conditions and volatility in investment markets Reports and Financial Statements 61
Financial Review during the year the Investment Office, with the support of the Investment Board, took a tactical approach to asset allocation and introduced a corporate credit class into the portfolio.The asset allocation as at 30 June 2009 was: global equities 54%, private investments 2%, absolute return including hedge funds 11%, credit 11%, real assets including property 14%, and fixed income including cash 9%. (ii) The Gates Cambridge Trust The Gates Cambridge Trust investments pool is managed separately through its own investment committee and external investment adviser. As at 31 July 2009 the Gates Cambridge Trust had assets of £148m (2008: £166m).The Trust’s assets were similarly adversely affected by market conditions over 2008–09. (iii) Money market investments The majority of the University and Group current asset investments are invested in the deposit pool.This pool is managed by the Finance Division according to guidelines on diversification, exposure, and credit quality agreed by the Finance Committee and subject to external advice.The investments are principally short-term deposits with banks and similar institutions. A provision of £1.9m has been made in respect of deposits outstanding of £9.6m with Iceland-related banks. Staff costs and pensions Staff costs constitute the greater part of the University’s expenditure, and future pension costs and liabilities remain of great materiality and uncertainty. Staff costs by segment were: 2008–09 2007–08 Increase £m £m % Education and research activities 389 352 +10.5% Cambridge Assessment 61 54 +13.0% Cambridge University Press 62 60 +3.3% The University’s education and research activities took actions to accommodate the abovebudget nationally agreed general increase in salaries of 5% as at 31 October 2008 by exercising control over filling vacant posts, aided by the additional income from fees and transfer from Cambridge Assessment.The staff costs for Cambridge Assessment and Press increased in line with their business growth. The pension schemes to which the University is exposed are facing growing pressure from factors such as uncertainty over future investment returns, improving life expectancy, and salary levels.The University’s principal scheme is the Universities Superannuation Scheme (USS). As at the last triennial valuation at 31 March 2008 the USS was sufficiently funded on the technical provisions basis, but an informal update as at 31 March 2009 reduced the funding level to 75%.The employer’s contribution rate to the USS increased from 14% to 16% of salary from 1 October 2009.The USS is a very large multi-employer scheme. Participating employers and the members represented by the University and College Union are currently discussing ways in which the scheme can remain attractive but also affordable and sustainable. The other main scheme, the Cambridge University Assistants’ Contributory Pension Scheme (CPS), is similarly affected by investment performance, actuarial assumptions, and salary increases.The employer’s contribution was increased by 4% to a total of 23.7% from August 2009.The results of a full triennial valuation as at 31 July 2009 will shortly be available and 62 University of Cambridge Annual Report 2009
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