Temporary Investment Fund (TIP)

Mission

The University's working capital and the short-term reserves of numerous departments make up the TIP portfolio. Funds in this pool are comprised of state appropriations, tuition receipts, federal grants, student loan funds, plant funds, gifts for current use, unspent endowment distributions and other funds derived from University operations. The primary objective of the investment strategy for this portfolio is the preservation of capital. This objective is met while maintaining sufficient liquidity to meet daily cash requirements and simultaneously maximizing investment returns. As such, Regent policy directs that funds be invested in investment grade, highly liquid, publicly traded debt securities designed to maximize current levels of income. The accounting for TIP is on a book value basis. Investment income and capital gains/losses flow directly to the University's central reserve fund and at the discretion of the budgetary officer of the University, participants are credited with nominal rates of interest or in some budgetary cycles, zero. A portion of TIP funds also serves a a self liquidity reserve for several of the University's outstanding debt obligations.

Risk Tolerance

The policy guidelines for TIP simply that the investment strategy should assume a low level of risk tolerance, and very moderate level of exposure to longer-term capital market trends. Understanding that the underlying value of fixed income securities can rise or fall with changes in market interest rates, Regent guidelines limit the average portfolio duration to three years, thereby reducing volatility, and somewhat dampening interest rate risk. To preserve the value of the securities purchased in TIP, policy requires that they shall be investment grade (defined as having a Baa/BBB rating or better from Moody's or Standard & Poor's) at the time of purchase. Concentration risk is addressed by a maximum exposure limitation of 7% per issuer for any corporate obligation.

Portfolio Construction

Recognizing that TIP funds can fluctuate with large inflows of tuition or state payments, and outflows for the operational cash requirements, it has been the University's practice to have TIP managed internally by OAM in accordance with policy guidelines.

As a general philosophy, the investment policy endorses the buying and holding of securities until their stated maturity. Longer-term bonds will generally not be sold to capture gains or take losses in the short-term. Such sales of securities will be done only as a conscious effort to improve overall portfolio income. Selling bonds prior to maturity can result in the future income levels of the portfolio being impaired. A majority of the securities held in this portfolio are money market funs, high grade commercial paper, investment grade corporate bonds and government agencies such as mortgage backed bonds. The benchmark for TIP reflects the short-term, highly liquid characteristic of the portfolio. An example of the benchmark is the 13 week T-bill rate plus 50 basis points.