Finance and Administration - Board of Trustees - The University of ...

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Finance and Administration Committee - III. Minutes of Last Meeting1Lastly, he presented the Peer comparison based on June 30, 2010 data, whichis the most recent NACUBO study. It is a very good metric in a broaduniverse against which to compare the endowment. He then presentedannual rates of return for one-year, five-year and ten-year numbers for theUniversity of Tennessee. At the one-year mark, the University was wellahead of both the broad average and those that are comparable in size, the$500 million to $1 billion, as well as the greater than $1 billion. Theendowment did very well in relation to the Pool. The five and ten-yearnumbers are trailing. On a positive note, Fund Evaluation Group took overin 2004, so the ten-year performance reflects prior consultant counselinvestment advice, and the five-year number still reflects some of that priorconsultant’s advice as well. Not to lay it all at their (prior consultant’s) feetbut simply to say the changeover takes time, especially with privateinvestments, to see a full changing of the guard and a full implementation ofnew approach and research process. That is something that we are seeingfilter through the numbers here. Another point is that the larger theendowments, the better the performance, typically. A great deal of that isdue to the fact that the larger endowments have had a greater exposure to thealternative asset classes that have outperformed, especially in the last decadeand a half. There have been periods of outstanding performance, such as thelast couple of years, where that divergence is accentuated even more. Fourout of six fiscal years ending 6/30/2010, the University’s endowment hasoutperformed the NACUBO average decisively by approximately 120 basispoints on average, and that is not really picked up in the five and ten-yearnumber. That is quite a positive for the University’s long-term performanceaverages. For the last five out of seven fiscal year averages ending6/30/2010, the endowment was in the top third of the NACUBO universe.What is depicted in the one, five and ten-year periods are certainly notrepresentative of the finer data points of the last several years. Rollingforward, once we get past the last two of the three that had decisivelynegative performance, we should it (the pool) coming closer in-line with theother numbers shown with the blend of $500 million to $1 billion and greater.It is a good comparison for the University and is a typical mix of traditionaland alternative assets. The University should slide into a hybrid of the twocategories over time.V. Treasurer’s 2011 Financial Report—Information Item (Exhibit 3)—ChairTalbott asked Interim CFO Peccolo to present the Treasurer’s 2011 FinancialReport. Mr. Peccolo explained to the Committee that there are two reports inthe Board materials. One is a graphical representation of the University’sfinancial report for the fiscal year ended June 30, 2011 compared to similargraphical representation for June 30, 2010. Also, there is an early draft of theFinancial Statements for June 30, 2011. The preliminary Financial Statements79
Finance and Administration Committee - III. Minutes of Last Meeting1include only the University of Tennessee. When the final Statements arecompleted with the auditors opinion letter they are sent to the Board aroundDecember or the first of the year. At that time the Statements will include theUniversity of Tennessee as well as three Foundations (UT ResearchFoundation, UT Foundation, Inc. and UC Foundation) and will be presenteddiscreetly similar to the format presented last year. He noted that Footnote 22in the Financial Statements gives a description of what has happened sinceJune 30, 2011. It explains the creation of the agreements between theUniversity and the Foundation as far as the leased employees and thecontract payment when the Development and Alumni Affairs functionsmoved over to the Foundation.He then updated the Committee about the financial audit with the State’sComptroller’s Office. It is currently in the fourth month and those folks arestarting to wrap up. To date we know of three or four audit findingsdepending on how you count them for this year. They are all related tocompliance issues. Three of them specifically deal with the direct studentloan program which was new this year. The finding had to do with ourefforts to not only reconcile the payments but also ending cash balance at UTKnoxville and UT Health Science Center. There are also a couple ofcompliance issues with equipment purchases on federal grants. None ofthese are material but when you get over into those particular complianceissues the auditor is required to make note of them and make a finding. Wedon’t anticipate any major findings dealing with the financial position of theUniversity but did want to keep the Board apprised on the financial audit.He then presented a pie chart representing the total net assets of theUniversity for fiscal years 2010 and 2011. The total assets grew by $335million during the year. The breakdown is detailed on the composition of theassets. Cash increased by $120 million. The most significant part of that hasto do with the one-time non-recurring state appropriations that were receivedas manage the end of the stimulus money. The Board is familiar with thereference to us managing through the decline and to avoid the cliff effect.That has resulted in some excess cash balances. In addition there is one grantthat was received from the state having to do with the Solar Farm andInstitute. The other items impacting the growth in assets has to do withabout $95 million in investment increases reflecting the improved capitalmarkets that Mr. Mecherle referred to earlier. Finally, capital assets increasedby $118 million due primarily to new construction during the year as well asthe acquisition of property, library holdings. If you combine all those itrepresents where the $330 million arrived.810
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