This policy replaces the “Expendable Funds Investment, Payout and Buffer Policy” adopted by the Board of Trustees on June 14, 2012. The policy is to be effective beginning September 1, 2016 (FY17).
Expendable Funds include all University funds that are not endowment funds. They represent a significant component of University investment capital and include several different types of funds:
a. Endowment Income Funds
Endowment Income Funds holding unspent prior years' payout from pure endowments (but not from FFE) will have that payout invested in the "Endowment Income Funds Pool (EIFP)." One hundred percent of the assets in the EIFP are to be invested in cash vehicles.1
b. Expendable Funds Pool
All other Expendable Funds will be invested in a single, merged investment pool, the "Expendable Funds Pool" ("EFP"). A portion of the EFP is to be invested in cash vehicles. The appropriate cash balance is to be determined by the University’s Chief Financial Officer or his/her designee as necessary to support the University’s operating liquidity. The University may also draw on a bank line or other debt vehicle to fund operations, as deemed necessary by the University’s Chief Financial Officer or his/her designee. The remainder of the EFP is to be cross-invested in the Merged Pool ("MP").
a. Endowment Income Funds
Each endowment income fund holding unspent prior years' payout on pure endowments will receive an allocation equal to the return on cash vehicles, less any management expenses.
b. Money-Market Accounts
The following types of Expendable Funds will be treated as "Money-Market Accounts" and will receive an allocation equal to the return on cash vehicles, less any management expenses:
c. Zero-Interest Accounts
All other Expendable Funds will be treated as "Zero-Interest Accounts" and receive no allocation to the individual fund.
Each of the Provost’s General Fund, School of Medicine (“SoM”) Dean’s Unrestricted Fund and Graduate School of Business (“GSB”) Dean’s Unrestricted Fund will receive an allocation related to the zero-interest account balances.
The allocation shall vary between 0% and 5.5% of the zero-interest account average monthly balances during the prior fiscal year:
To the extent the allocation on zero-interest account balances is less than 5.5% in any year, the Provost and Deans may, at their individual discretion, elect to offset the shortfall by reducing an equivalent amount of the contribution to the Capital Facilities Fund ("CFF") in that year from general funds and deans' funds.
The total allocation to Money-Market Accounts, General Fund and Dean's Unrestricted Funds will differ from the investment returns of the EFP. These differences will be buffered by the "Tier I Buffer" and the "Tier II Buffer."
To the extent there is a shortfall in EFP investment returns relative to stipulated allocations, principal will be withdrawn from the Tier I and Tier II Buffers to make up such shortfall, as follows:
To the extent there is a surplus of EFP investment returns relative to stipulated allocations, excess returns will be added to the Tier I and Tier II Buffers as follows:
Once per annum, the Trustee Committee on Finance will review the status of the EFP, including fund balances, asset allocation, investment returns, payout and buffer balances.
1 Cash vehicles may include cash, money market funds rated Aaa by Moody's or AAA by Standard and Poors, primary US government and Aaa/AAA rated agency securities with maturities ranging from 1 to 30 years that can liquidate on a same-day cash basis, bank deposits, other investment vehicles that have strong liquidity characteristics, and security repurchase agreements.