Selecting an Investment Pool Option
This procedure provides information and steps to understanding the objectives of each investment pool option, in order to help University colleges/departments make an informed decision regarding which investment pool is most appropriate to invest financial resources. Colleges/departments should take into consideration the nature of the associated risks versus rewards associated with each pool presents.
Each investment pool is comprised of a composition of assets designed to meet the investment objectives set forth by Board of Regents policies governing investments of reserves and the endowment. Each pool has a different income distribution policy, expected time horizon, and risk profile, which directs the mix of securities held in the pool. All pools are managed on a total return basis, however, each pool places varying weight on principal preservation versus return primacy.
- College/department identifies excess funds they wish to invest. (These funds cannot include the excluded funds specified in the policy.)
- College/department considers the factors specified below, when making a choice concerning how to match the risk/return profiles of each investment pool against the needs of the college/department and the intent of the funds invested.
- College/department selects the pool that best aligns with the responses to the factors considered.
|Safety/Risk||How important is preservation of principal? What is the tolerance for market volatility versus return expectations? What is the tolerance level for economic cycles, which may impact an investment pool across many years?|
|Liquidity||Do you have specific cash flow requirements that may be impacted by changes in valuation of the investment?|
|Earning Expectations||What are the earning expectations for the investment? The CEF has a fixed 4.5% annual income distribution that creates a smoothing effect for budgetary purposes. The GIP distributes all earnings minus the 1% administrative fee to Central Reserves annually.|
|Time Horizon||How long are the funds expected to be invested?|
Investment Pool Profiles
Temporary Investment Pool (TIP)
The Temporary Investment Pool is compromised of the University's daily working capital. The TIP is classified as short-term reserves and governed by Board of Regents Policy: Investment of Reserves. All University funds not invested in CEF, GIP, or SIF are invested in TIP. The basic investment objective of the pool is to provide adequate liquidity to meet the daily financial obligations of the institution. The pool also serves as a liquidity backstop for debt related covenants. The pool is comprised primarily of highly liquid fixed income securities. Maximization of total return, interest rate and credit risks are managed within the constraints of the investment policy, in order to maintain a high quality pool of assets, across a maturity distribution strategy that compensates for cyclical cash flows. University departments generally do not receive interest earnings from monies invested in TIP. Income and capital gains are distributed to Central Reserves, in order to fund initiates across the University. Departments do not incur risk of loss on their funds. The Board of Regents, through Central Reserves, bears all risk of loss and market volatility for the invested assets in the pool.
Group Income Pool (GIP)
The Group Income Pool is comprised of long-term reserves. The assets are comprised of resources that are not intended to be spent for a minimum of three years or longer. Assets are invested per Board of Regents Policy: Investment of Reserves. This means the funds are invested with the intention of achieving higher returns over those in the TIP. Funds invested in the pool are intended for capital improvements and program support for future operations. Assets are primarily invested in fixed income assets across a spectrum of maturities. GIP functions as a unitized pool. Each investor is a participant in the pool and owns a proportional share of the assets of the aggregate pool based on the number of shares purchased. The shares are subject to market volatility. One percent of the earnings are transferred to Central Reserves annually, all remaining earnings are distributed to participants in the pool on a quarterly basis.
All participation in GIP, including deposits, withdrawals, and income distribution allocation changes, require the approval of the University CFO/Treasurer and the CIO. Form UM 1638 is required for all GIP transactions. GIP will be limited to a maximum amount of reserve balances as determined from time to time by the University CFO/Treasurer and the CIO. For further information regarding GIP participation please see Form UM 1638 –Contribution and Withdrawal of funds from the Group Income Pool.
Consolidated Endowment Fund (CEF)
The Consolidated Endowment Fund is the primary investment pool for all public and selected private gifts to the University. The long-term objective of the CEF is to preserve the intergenerational equity of the endowment, while providing current cash flow in support of the University’s mission. The intent of intergenerational equity is to ensure the endowment provides future students and faculty with the same level of spending resources as current student and faculty. Endowment funds support scholarships, fellowships, research, and program initiatives most often in perpetuity.
CEF is a unitized pool consisting of endowment funds, with the primary investment objective of asset appreciation. Funds invested in CEF are exposed to higher market volatility and therefore have a longer time horizon. Board of Regents Policy: Endowment Fund governs the asset allocation parameters whereby the pool is invested. The pool is primarily invested in equity, and equity alternatives across a diversified universe of securities. The income distribution rate is set by the Board of Regents. The current distribution rate is 4.5% of the average balance, based on the trailing 60 month market value of the assets on an annual basis. Income is distributed quarterly.
Separately Invested Funds (SIF)
A SIF account is only established with a documented request from a donor for a separate investment. Each account is subject to individual restrictions relating to the ultimate disposition of the funds, and the use of principal and income. Departmental resources qualifying for one of the other investment pools cannot be separately invested. Requests for a Separately Invested Funds account must be authorized by the University CFO/Treasurer and the CIO. Accounting Services is responsible for setting up a SIF account. The Office of Investments and Banking is responsible for overseeing the invested assets.
Note: Permanent University Fund (PUF)
The PUF is a public endowment established with income from sources such as state iron ore taxes, royalties, and federal land grants. In 1985 the legislature mandated PUF to match private contributions to the University or the University Foundation with the goal of providing substantial financial support for endowed chairs and professorships throughout the University. The private contribution portions of each endowed chair and professorship is held by the University and the University Foundation. PUF allocates a portion of its fund balance to each endowed chair and professorship matched. All PUF funds are true endowments, and are therefore required to be invested in CEF.
Once the pool has been selected, the college/department initiates a request to establish an investment account by completing a request form for the appropriate investment pool. Route form for authorized signatures as directed on form.
- To establish a new investment account in GIP please see Form UM 1638 Contributing to or Withdrawal from a Group Income Pool Account
- To establish a new investment account in CEF please see Form UM 1831 Establishing an Investment Account in the Consolidated Endowment Fund.
- Once an account has been approved, follow the instructions to initiate a contribution in the financial system according to the procedure and appendix below:
- Depositing and Withdrawing Funds to or from an Investment Account
- UM Participant Transactions – Deposit Page