Innovations

FM 101 – Treasury Office
by Chris Malins

The best way to understand how the Treasury Office works is to think of three very large piles of money. Each one of these piles of money has a specific purpose and reason for being. In addition, each pile has a group of people who are responsible for making sure that the pile behaves as that particular pile is expected to behave. It may sound strange, but all piles of money are not alike.

The first and largest pile contains the endowment funds. As of June 2004, the total of all of the individual endowments, what we call the Consolidated Endowment Fund (CEF), had nearly $1.4 billion dollars in it. These are the moneys that are used to fund scholarships for students, pay for a faculty member to teach or do research at the UW, or just generally support a program or department. The goal of the CEF is to pay for the supporting programs this year and for years in the future. In other words, have a healthy payout and still maintain purchasing power over time.

Other than the income and gains on the CEF, all of the inflows come from individual donors. None of the assets in the CEF come from the State. The fact that CEF funds are not public funds allows more flexibility in how the money is invested. The CEF invests in public stocks, bonds, private equity partnerships, and real estate.

The second pile of money contains the operating or Invested Funds (IF) of the University. These are all of the fund balances that the various units have in their budgets. For the most part, these funds come from public sources (i.e. tuition, hospital revenues, State appropriations) and as such may only be invested in certain ways as outlined in the State Constitution. The IF is invested very conservatively in government bonds, cash, and various asset-backed securities (for example, securitized home mortgages). As of June, 2004 there was $752 million in the IF. The goal of the IF is to fund the day-to-day operations of the University and maintain an adequate level of reserves.

The IF and the CEF are managed in the Treasury Office by the Portfolio Management and Treasury Operations groups. The Portfolio Management group selects investment managers for a variety of different strategies, performs due diligence on existing managers, and reports on investment performance to the Board of Regents and the UW Investment Committee (UWINCO). It is also responsible for identifying new strategies and new opportunities for investment of UW funds.

The Treasury Operations group is responsible for moving money to and from managers, determining the payout amounts to campus, liquidating gifts of stock, accounting for the University's investments, and creating various reports during the year. The Portfolio Managements and Treasury Operations groups work very closely together to assure that the two largest piles of money that the University has are cared for properly.

The third and smallest pile of money that the Treasury Office manages is bond proceeds. The University has the authority to borrow money in the form of municipal bonds to fund buildings. In the last decade, as State support for capital improvements on campus has declined, the University has relied more and more on its borrowing ability to pay for capital projects. The Debt Financing Group works with campus departments to identify their building needs and issue the bonds. In the last five years, the University has borrowed over $300 million to pay for such buildings as the UWMC Surgery Pavilion, the Law School , Husky Den at the HUB, and the IMA.

The bond proceeds that fund campus buildings are typically invested in short-term securities to assure that the funds are available when needed for project expenses. The Debt Financing Group tracks these ever-decreasing funds as the money is spent. Then, another project comes on line and the process begins again!