F.2. Investment Pools for Gift Funds
Spring 1992
Development Policy and Administration Manual
Chapter III. Gift Administration Policy
Section F. Fund Types and Their Investment
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INVESTMENT POOLS FOR GIFT FUNDS
The Office of the Treasurer of The Regents is responsible for the
management of investment assets, external financing, and acqui-
sition and sale of real property for the University of California
system. These functions are carried out under the policies set
forth by the Investment Committee of The Regents.
The principal activity of the Treasurer's Office is managing the
system's pension and endowment assets. Included in the assets
managed by the Treasurer is all or part of the investment assets
of various independent, University fund-raising organizations.
As of March 31, 1992 the Treasurer's Office managed total assets
of approximately $20.1 billion. The Treasurer's investment staff
comprises twelve senior investment professionals with an average
of 21 years investment experience.
The Regents maintain three pools for the investment of gift
funds: the General Endowment Pool, the High Income Pool, and the
Short Term Investment Pool. In addition, endowments and trust
funds are separately invested when it is legally required. The
coinvesting, or pooling, of endowments allows an individual
endowment fund to benefit from diversification and economies of
scale in the investment process. Funds enter and leave the pool
on a monthly basis through the purchase or sale of shares at the
unitized, or prorated, market value at the end of the month.
Income is also unitized and allocated to participants based on
the number of shares owned. Income is distributed monthly.
Realized capital gains are reinvested in the pool. The separate
identity of each fund participating in a pool is fully preserved,
and each fund's share in the income and gains of the pools is
assured. The overriding investment objective for all funds under
The Regents' management is to achieve the maximum total rate of
return possible, with a level of risk consistent with the nature
of the funds under management.
The General Endowment Pool
The General Endowment Pool (GEP) is The Regents' primary and
largest endowment pool, totaling approximately $1.4 billion at
March 31, 1992. Unless otherwise specified by a donor or an
independent University fund-raising organization, all endowment
funds are placed in the GEP. Regents' endowments currently
invested in the GEP may not be transferred to the High Income
Pool.
The General Endowment Pool is a balanced portfolio in which the
asset allocation of the fund is varied between equities and fixed
income to accommodate fundamental changes in the long-term
economic outlook. As a growing income stream is crucial to
achieving the objective of maintaining the purchasing power of
income for endowments, the advantages of the potential for income
growth provided by common stock cash dividends is weighed heavily
against the fixed rate of income provided by bonds when
considering the mix of assets within the endowment portfolio.
The G E P is invested with an emphasis on income growth rather
than on current income.
As shown in the table, the income yield on market value has
ranged from 3.3% to 7.6%. Because funds are invested in
securities that provide a growing income stream, the yield on the
original investment (book value) has grown over time from 5.1% to
17.4%. Thus, with no additions to the principal of the endow-
ment, the income available has increased from $5,100 to $17,400.
Market Income Available Yield Yield
Fiscal Year Value Paid for on Mkt. on book
Ending 6/30 Per/Share Per/Share Expenditure Value Value
Enter Pool
07/01/70 $1.816 -- -- -- --
1971 2.261 $.0931 $5,127 4.1% 5.1%
1972 2.440 .0984 5,418 4.0 5.3
1973 2.378 .1009 5,556 4.2 5.6
1974 2.058 .1092 6,013 5.3 6.0
1975 2.220 .1124 6,189 5.1 6.2
1976 2.399 .1137 6,261 4.7 6.3
1977 2.376 .1203 6,624 5.1 6.6
1978 2.255 .1261 6,944 5.6 6.9
1979 2.351 .1385 7,627 5.9 7.6
1980 2.405 .1501 8,265 6.3 8.3
1981 2.595 .1604 8,833 6.2 8.8
1982 2.277 .1730 9,526 7.6 9.5
1983 3.263 .1813 9,983 5.6 10.0
1984 2.942 .1769 9,741 6.0 9.7
1985 3.801 .1925 10,600 5.1 10.6
1986 4.986 .1941 10,688 3.9 10.7
1987 5.937 .1965 10,820 3.3 10.8
1988 5.346 .2259 12,439 4.2 12.4
1989 5.968 .2552 14,053 4.2 14.0
1990 6.521 .2933 16,151 4.5 16.1
1991 6.824 .3157 17,384 4.6 17.4
The High Income Endowment Pool
The High Income Endowment Pool (HIP) was established to
accommodate the pooling of endowments that have high initial
payout requirements. These include deferred gifts for which
donors have required a high income return and the funds of
independent University fund-raising organizations, which must
produce an income greater than that provided by the General
Endowment Pool.
The primary investment objective of the High Income Endowment
Pool is to produce a relatively high and stable level of income
while funds are invested in such a way that income will grow
moderately over time and principal will be preserved. To achieve
this objective, the High Income Pool is a balanced portfolio,
comprising high-yielding common stocks and bonds. The asset mix
of the fund will be primarily 50% bonds and 50% common stocks,
but may be varied between these asset types to accommodate
fundamental changes in the long-term economic outlook.
Short Term Investment Pool
The basic objective of the Short Term Investment Pool (STIP) is
to maximize returns consistent with safety of principal,
liquidity, and cash flow requirements. Investment maturities are
structured primarily to ensure an adequate flow of funds to meet
the University's cash needs. Select swapping and maturity
distribution techniques are employed to maximize returns.
Swapping allows the portfolio to take advantage of disparities in
the market place, to improve yield while maintaining quality.
Altering maturity distribution allows the portfolio to maximize
return in different yield curve environments.
STIP investments encompass a broad spectrum of money market and
fixed income instruments with a maximum maturity of five years.
These include prime bank certificates of deposit (domestic and
London Eurodollar), prime grade commercial paper, bankers'
acceptances (domestic and Japanese banks), and government,
federal agency, short-term corporate notes, and mortgage-backed
securities. For funds that may be needed to meet very near-term
obligations, investments are made in overnight or term repurchase
agreements.
In Fiscal Year 1984-85 The Regents authorized the University of
California Mortgage Origination Program, which provides mortgage
loans secured by first deeds of trust to eligible members of the
University faculty. This program, which as of March 31, 1992
approximates $149 million, is funded by the legally available
cash balances from the unrestricted portion of STIP. The
mortgage interest rate is equal to the average STIP rate of
return for the preceding four quarters, adjusted annually.
Due to the excellent liquidity of STIP, those funds not requiring
very short maturities are invested in longer-term vehicles, not
exceeding five years, to maximize yields. Currently 59% of the
STIP investments are beyond one year in maturity. The average
maturity of the portfolio is approximately 24 months.
The investment income for retirement and endowment funds
participating in STIP is calculated and distributed by the
University's Corporate Accounting Department at the STIP
distribution rate. The rate is calculated based on earned income
plus actual gains and losses minus operating costs divided by the
average daily balances of all funds. The STIP distribution rates
as compared to the average yields on Treasury bills and money
market mutual funds for the past five years were:
Avg. 3-mo.
Fiscal Year STIP T-Bill Yield
1986-1987 7.0% 5.6%
1987-1988 7.9 6.1
1988-1989 8.1 8.2
1989-1990 8.3 8.0
1990-1991 7.8 6.6