Trinity University Response to Endowment Inquiry · Trinity University Response to Endowment...

Trinity University Response to Endowment Inquiry Page 1

Introduction Founded in 1869, Trinity University is a transformational liberal arts and sciences university located in San

Antonio, Texas. The University is committed to the highest levels of academic and professional excellence

in teaching, research, learning, service, leadership, and personal integrity. The University prepares its

graduates with a liberal arts and sciences education to pursue lives of meaning and purpose. From its

origins, Trinity University has sought to make a quality education accessible to students at an affordable

price, and it manages its resources with this essential goal in mind.

The University annually enrolls approximately 2,300 undergraduate students and 200 graduate students

from 44 states and 47 foreign countries. Trinity’s diverse and talented student body includes significant

representation (33 percent) from historically underrepresented groups.

Trinity University has been supported by incredible philanthropic generosity over many years to build its

endowment, which had a market value of $1.1 billion at May 31, 2015. The University’s endowment

consists of $781 million of internally managed endowments and funds that function as endowments plus

$368 million of funds held in trust by others. These combined funds support student financial aid, student

and faculty scholarship, and other operational costs of this leading liberal arts and sciences institution.

President Danny Anderson and his executive team share with the Board of Trustees the responsibility of

overseeing the endowment of Trinity University. This oversight includes monitoring and managing the

fund, as well as reviewing and establishing policies for the effective use of the funds to serve the

educational mission of Trinity University. One of the primary fiduciary responsibilities is to provide the

next generation of students, and the generation after that, the same opportunity enjoyed by the current

generation of students. This is an essential oversight responsibility requiring a thoughtful and committed

duty of care in order to meet generally accepted and promulgated prudence standards. For if the

University spends too aggressively out of the endowment to support current needs, it is effectively

choking future generations of students; and conversely, spending too little neglects the current

generation of students in favor of future generations. Together, Trinity University leadership and the

Board of Trustees balance the responsibility of intergenerational equity—meeting the needs of the

present generation and future generations—while also taking into account the withering effect of

inflation on purchasing power over time.

Endowment by its very definition is a perpetual fund. The Board of Trustees has interpreted the Texas

Uniform Prudent Management of Institutional Funds Act of 2006 (T-UPMIFA) as requiring the preservation

of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent

explicit donor stipulations to the contrary. This law provides the University with guidelines on prudent

management, including an obligation to consider the long-term effects of inflation on endowment gifts,

and with a clear sense that this Act expects endowments to grow over time to mitigate the erosive effects

of inflation.

The University is of the strong opinion that prudence, as required by T-UPMIFA and exemplified in best

practice, is best viewed over long periods of time (i.e., 10 year cycles or longer). Shorter periods of time,

such as the three-year period of focus in the current inquiry focused on FY 2013-2015, may present an

unrealistically optimistic view of endowment returns. Other short periods, such as FY 2008-2010, might

present a view that is overly pessimistic.


For example, Chart 1:

Endowment Volatility FY

2006-2015, displays the

University’s annual rate of

return as reported in the

NACUBO Commonfund

National Endowment Study

and the average

compounded annual rate of

return over this time period

(6.6%). Single-year

investment returns swung

from negative 13% in FY 2009

to positive 19.8% just two

years later, a swing of almost 33%, illustrating the inherent market volatility in shorter time periods, and

the risk of drawing incorrect conclusions by focusing exclusively on shorter periods of time. Therefore, the

University uses average returns over long periods of time to help smooth this volatility. The University

encourages the Committees to likewise take a long-term view of endowment performance in order to get

a clearer understanding of endowment performance.

On an annual basis, the University’s Board of Trustees reviews endowment 10-year investment return,

spending appropriation rate, and inflation metrics for the endowment as part of its fiduciary oversight.

With this information, the Board makes changes to asset allocation, spending distribution rates, and other

policies and practices as part of its duty of care for the endowment. These actions are designed to ensure

intergenerational equity.

Over the last decade, from FY 2006-2015, the University’s annual spending appropriation rate exceeded

the compounded annual net investment return adjusted for inflation, whether measured by the

University’s policy benchmark

Higher Education Price Index

(HEPI), or the more general

Consumer Price Index (CPI-U),

as reflected in Table 1: 10-

Year Real Net Investment

Return Less Spending. In

other words, in inflation

adjusted dollars, the real

value of the overall endowment slightly fell in order meet the needs of the current generation during a

period of unique economic challenges.

This fall in real dollar values occurred during this period because the University maintained a robust

commitment to endowment support of student financial aid, student and faculty scholarship, and other

essential operating expenses, while carefully monitoring intergenerational equity balance. While the

University’s goal is to maintain endowment value in real terms over long-term cycles, the pressing needs

of student financial aid during the recent financial crisis and slow recovery influenced the University’s

decision not to lower the spending distribution rate to mitigate the erosion of purchasing power for future

Table 1: 10-Year Real Net Investment Return Less Spending

HEPI CPI

Average Net Investment Return (compounded annual rate) 6.6% 6.6%

Less: Average Annaul Inflation Rate 3.0% 2.3%

Real Net Investment Return 3.6% 4.3%

Annual Spending Appropriation Rate 4.5% 4.5%

Real Net Investment Return Less Spending -0.9% -0.2%


generations. The Board of

Trustees continues to closely

monitor this situation. The

University is committed to

maintaining excellence in its

student body, offering access

to bright, highly motivated,

and talented students

regardless of their ability to

pay, which is reflected by the

fact that more than 93

percent of the students

receive some form of merit or

need-based financial aid. The

University’s growing number

of Pell-eligible students over the past decade illustrates its ongoing commitment to providing access to a

broad spectrum of students, as noted in Chart 2: Percent Pell Recipients in Incoming First Year Classi.

The University’s tuition rate

compares favorably with

similar institutions in other

parts of the country ($37,856ii

for the 2015-2016 academic

year). Yet, during that fiscal

year, the University

distributed more than $43

millioniii in institutional merit

and need-based financial

assistance, resulting in a

dramatic increase in the

tuition discount rate

(institutional financial aid as a

percentage of tuition and

fees) as demonstrated in

Chart 3: Tuition Discount

Rateiv.

Financial aid continues to be

one of the fastest growing

line items in the University’s

operating budget. Although

tuition continues to increase,

net student revenues have

grown at a significantly slower pace in recent years due to the increased number of students receiving


financial aid and the increase in the average aid package per student. As noted in Chart 4: Average Growth

in Net Tuition Revenue 2006 – 2015v, over the decade ending in FY 2015, the University’s net tuition

revenue grew on average 2.3% per year, equal to the average growth in the Consumer Price Index (CPI-

U) and 3.0% growth in the Higher Education Price Index (HEPI).

In conclusion, the University oversees its endowment based on investment returns and performance over

long periods of time in conjunction with its interpretation of prudence standards. The endowment is

effectively used to a support diverse and talented student body, funding costs that would otherwise be

borne by students and their families. This has allowed the University to modestly grow net tuition

revenue, over the past decade, at a rate comparable to general inflation rates in the industry and general

economy.

Trinity University welcomes an opportunity to join Congress in this important conversation. This is a

serious issue institutions of higher education like Trinity University work to address every day – access to

quality education at an affordable price.


Information Regarding Trinity’s Response Trinity has prepared its response from audited financial information where possible. Additionally,

terminology used in the response will conform to terminology used in audited financial statements

prepared in accordance with Generally Accepted Accounting Principles (GAAP), where practicable, in

order to facilitate comparability and usability of information. Where the definitions of terms used in the

inquiry differs from the GAAP-based audited financial statements, the University has attempted to identify

the possible difference in terminology.

In accordance with Financial Accounting Standards Board (FASB) in Accounting Standards Codifications

(ASC or Codification) 958, Not-for-Profit Entities (ASC 958), the University is required to report information

regarding its financial position and activities according to three classes of net assets: unrestricted net

assets, temporarily restricted net assets, and permanently restricted net assets. The net asset class

reflects the existence or absence of donor-imposed restrictions. Where the term “restriction” is used in

the University’s response, it consistently refers to external donor-imposed restrictions. These restrictions

may be time restrictions (e.g. perpetual time restriction on a true endowment’s corpus) or a usage

restriction (e.g. restriction placed on the income earned on an endowment requiring the income to be

used for a particular purpose).

Absent explicit donor restriction, funds are recorded as unrestricted net assets. The University’s Board of

Trustees may designate from time-to-time some unrestricted net assets for a particular use. Funds

functioning as endowment are for the University unrestricted net assets designated by the Board of

Trustees to function in a manner similar to true endowments.

Trinity’s endowment can be separated into two broad categories: funds held in trust by others and

internally managed endowments. Funds held in trust by others are a significant portion of Trinity’s

endowment. This is a distinguishing characteristic for Trinity’s endowment and is important when

considering oversight or governance of these funds. Most of Trinity’s funds held in trust by others are

within perpetual trusts where the trustee controls the investment asset allocation, manager selection,

custodial bank, distribution amount to the University and, for most of the trusts, the restriction on usage

of the distribution to the University. For all funds held in trust by others reported as part of the University’s

endowment in the audited financial statements, the fair value of the trust assets at the balance sheet date

is included in permanently restricted net assets. Changes in the fair value of the funds held in trust by

others is reported in the statement of activities as changes in value of split interest agreements in

accordance with GAAP. At May 31, 2015, the fair value of funds held in trust by others was $368.0 million.

Trinity subdivides internally-managed endowments into two groups: true endowments and funds

functioning as endowments (quasi-endowments). True endowments are donor-restricted funds.

Substantially all of Trinity’s true endowments have a permanent donor-imposed restriction on the corpus,

or initial gift amount. In accordance with GAAP and the Texas Uniform Prudent Management of

Institutional Funds Act (T-UPMIFA), the corpus of true endowments is reported as permanently restricted

net assets. Initially, all income earned on true endowments is recognized as temporarily restricted net

assets by the University, in accordance with GAAP and T-UPMIFA. This initial recording recognizes that

such endowments may have a usage restriction on the income imposed by the endowment agreement

with the donor (i.e. scholarships, library books, etc.) or a time restriction on usage (i.e. spending formula

as specified in the endowment agreement with the donor) or both. As the University meets these

restrictions, the funds are transferred from temporarily restricted net assets to unrestricted net assets in


the statement of activities. Trinity’s responses will separate the endowment between funds held in trust

by others and internally-managed endowments, and also by net asset class, where appropriate, in order

to report amounts consistent with the GAAP-based financial statements.

Funds functioning as endowments are funds created by the Board of Trustees to function in a manner

similar to an endowment fund. At Trinity, funds functioning as endowments are always unrestricted net

assets, as they are absent donor imposed restrictions, as defined by GAAP and T-UPMIFA.

In the Response to Questions section of this document, the original question text is listed in bold and blue

and the University’s responses are in black in the following section. Any supplemental materials

referenced in the University responses are included in the Appendix.

All amounts listed in responses to the questions are in thousands of dollars in order to be consistent

with the University’s financial statement presentation.


Response to Questions

Question 1 What categories of assets are included in your college or university’s endowment? For each category, please indicate the amount of funds that are:

a. Unrestricted; b. Permanently restricted by donors; c. Temporarily restricted by donors; d. Permanently restricted by your college or university (quasi-endowments); and e. Temporarily restricted by your college or university;

As noted in the Information Regarding Trinity’s Response section of this document, Trinity University does not use the same terminology used in the questions in all cases. For example, Trinity does not report funds as permanently or temporarily restricted by the University (items d and e above). The University interprets GAAP and T-UPMIFA as defining funds functioning as endowment (quasi-endowments) as unrestricted net assets, not as temporarily or permanently restricted. Trinity’s categories of assets for the fiscal years 2015, 2014 and 2013, as requested in question 1(a)-(e), are as follows:

May 31, 2015 External

Unrestricted

Temporarily

Restricted

Permanently

Restricted

Total

Internally

Managed

Funds Held in

Trust by Others -

Permanently

Restricted Grand Total

Endowment Cash and Cash Equivalents 14,442$ $ 7,833 $ 10,473 32,748$ $ - 32,748$

Investments at Fair Value:

Equity and Equity Mutual Funds 179,403 97,299 130,092 406,794 - 406,794

Equity Emerging Markets 24,730 13,412 17,932 56,074 - 56,074

Fixed Income 36,444 19,766 26,427 82,637 - 82,637

Investments at Lower Cost or Market:

Alternative Investments:

Distressed Securities 1,981 1,075 1,437 4,493 - 4,493

Hedge Funds 61,418 33,310 44,537 139,264 - 139,264

Private Equity 9,306 5,047 6,748 21,101 - 21,101

Real Estate 7,651 4,150 5,548 17,349 - 17,349

Venture Capital 3,151 1,709 2,285 7,144 - 7,144

Marketable Alternative Investments 3,467 1,880 2,514 7,862 - 7,862

Mineral Interest and other 321 174 233 728 - 728

Other 2,355 1,277 1,708 5,340 - 5,340

Funds Held in Trust by Others - - - - 368,010 368,010

Total as of May 31, 2015 344,669$ 186,931$ 249,934$ 781,534$ 368,010$ 1,149,544$

Internal


Question 1 (f) For each restricted asset, please describe the uses for which the funds are restricted and the amount of the fair market value of the endowment apportioned to each use. How and why were the restrictions put into place? The University considers “restricted” net assets within the internally managed endowment to be those endowment funds with external donor-imposed restrictions. For these endowments, the corpus

May 31, 2014 External

Unrestricted

Temporarily

Restricted

Permanently

Restricted

Total

Internally

Managed

Funds Held in

Trust by Others -

Permanently


Endowment Cash and Cash Equivalents 23,650$ 12,015$ 17,304$ 52,970$ $ - 52,970$

Investment at Fair Value:



Fixed Income 51,766 26,298 37,876 115,940 - 115,940

Commodities 5,711 2,901 4,178 12,790 - 12,790


Alternative Investments


Hedge Funds - - - - - -

Private Equity 10,077 5,120 7,373 22,570 - 22,570

Real Estate 4,647 2,361 3,400 10,408 - 10,408

Venture Capital 3,096 1,573 2,266 6,935 - 6,935



Other 2,430 1,235 1,778 5,443 - 5,443


Total as of May 31, 2014 331,527$ 168,425$ 242,571$ 742,523$ 365,732$ 1,108,255$

Internal

May 31, 2013

External

Unrestricted

Temporarily

Restricted

Permanently

Restricted

Total

Internally

Managed

Funds Held in

Trust by Others -

Permanently


Endowment Cash and Cash Equivalents 13,605$ 7,767$ 12,712$ 34,084$ $ - 34,084$

Investment at Fair Value:



Fixed Income 46,277 26,419 43,238 115,934 - 115,934

Commodities 10,146 5,792 9,480 25,419 - 25,419


Alternative Investments


Hedge Funds - - - - - -

Private Equity 8,795 5,021 8,218 22,034 - 22,034

Real Estate 5,095 2,908 4,760 12,763 - 12,763

Venture Capital 2,607 1,488 2,435 6,530 - 6,530



Other 1,431 817 1,337 3,585 - 3,585


Total as of May 31, 2013 244,190$ 139,406$ 228,156$ 611,752$ 347,459$ 959,211$

Internal


amount is included in permanently restricted net assets and undistributed earnings are included in temporarily restricted net assets (reflecting a donor-imposed usage restriction on the income and/or an implied donor-imposed time restriction on the income in accordance with GAAP and T-UPMIFA). In addition to internally managed endowments, the University reports the fair value of its beneficial interest in funds held in trust by third parties in permanently restricted net assets. Endowment net assets with permanent or temporary donor-imposed restrictions, per the University’s interpretation of GAAP and T-UPMIFA, is presented in the following tables for fiscal years 2015, 2014 and 2013. All amounts are in thousands of dollars:

2015 Funds Held in

Trust by Others

Usage Restriction on Endowment Income

Permanently

Restricted

Temporarily

Restricted

Total

Restricted

(Permanently

Restricted)

Permanently

Restricted

Temporarily

Restricted

Total

Restricted

Distinguished/Endowed Professorships 21,871$ 27,514$ 49,385$ -$ 21,871$ 27,514$ 49,385$

Faculty Development 2,846 4,041 6,887 - 2,846 4,041 6,887

Faculty Fellowships 1,569 4,536 6,105 - 1,569 4,536 6,105

Lectures 6,093 6,177 12,270 - 6,093 6,177 12,270

Library 3,771 4,989 8,760 - 3,771 4,989 8,760

Academic and Student Life Prizes 630 404 1,034 - 630 404 1,034

Student Scholarships 83,985 50,218 134,203 - 83,985 50,218 134,203

Student Loans 7,513 3,965 11,478 - 7,513 3,965 11,478

Facilities Maintenance 13,402 14,769 28,171 - 13,402 14,769 28,171

Other Restricted 43,230 20,897 64,127 - 43,230 20,897 64,127

General Operating Budget Support 65,024 43,986 109,010 - 65,024 43,986 109,010

Pooled Income Life Funds - 429 429 - - 429 429

Charitable remainder gift Annuities - 4,991 4,991 - - 4,991 4,991

Charitable Remainder Unitrusts - 15 15 - - 15 15

Fund Held in Trust by Others - - - 368,010 368,010 - 368,010

Total 249,934$ 186,931$ 436,865$ 368,010$ 617,944$ 186,931$ 804,875$

Internally Managed Endowments Total Endowments

2014 Funds Held in

Trust by Others


Permanently

Restricted

Temporarily

Restricted

Total

Restricted

(Permanently

Restricted)

Permanently

Restricted

Temporarily

Restricted

Total

Restricted


Faculty Development 2,846 3,800 6,646 - 2,846 3,800 6,646

Faculty Fellowships 1,569 4,224 5,793 - 1,569 4,224 5,793

Lectures 5,993 5,699 11,692 - 5,993 5,699 11,692

Library 3,769 4,674 8,443 - 3,769 4,674 8,443

Academic and Student Life Prizes 619 373 992 - 619 373 992

Student Scholarships 80,666 47,823 128,489 - 80,666 47,823 128,489

Student Loans 7,513 3,638 11,151 - 7,513 3,638 11,151

Facilities Maintenance 13,397 11,890 25,287 - 13,397 11,890 25,287

Other Restricted 42,202 19,400 61,602 - 42,202 19,400 61,602

General Operating Budget Support 62,192 36,452 98,644 - 62,192 36,452 98,644

Pooled Income Life Funds - 399 399 - - 399 399

Charitable remainder gift Annuities - 4,448 4,448 - - 4,448 4,448

Charitable Remainder Unitrusts - 189 189 - - 189 189

Funds Held in Trust by Others - - - 365,732 365,732 - 365,732

Total 242,571$ 168,425$ 410,996$ 365,732$ 608,303$ 168,425$ 776,728$



2013 Funds Held in

Trust by Others


Permanently

Restricted

Temporarily

Restricted

Total

Restricted

(Permanently

Restricted)

Permanently

Restricted

Temporarily

Restricted

Total

Restricted


Faculty Development 2,846 3,422 6,268 2,846 3,422 6,268

Faculty Fellowships 1,569 3,857 5,426 1,569 3,857 5,426

Lectures 5,794 4,980 10,774 5,794 4,980 10,774

Library 3,769 4,156 7,925 3,769 4,156 7,925

Academic and Student Life Prizes 617 307 924 617 307 924

Student Scholarships 77,207 41,291 118,498 77,207 41,291 118,498

Student Loans 7,513 2,890 10,403 7,513 2,890 10,403

Facilities Maintenance 8,770 10,426 19,196 8,770 10,426 19,196

Other Restricted 41,693 14,531 56,224 41,693 14,531 56,224

General Operating Budget Support 56,573 29,560 86,133 56,573 29,560 86,133

Pooled Income Life Funds - 613 613 - 613 613

Charitable remainder gift Annuities - 4,334 4,334 - 4,334 4,334

Charitable Remainder Unitrusts - 179 179 - 179 179

Funds Held in Trust by Others - - - 347,459 347,459 - 347,459

Total 228,156$ 139,406$ 367,562$ 347,459$ 575,615$ 139,406$ 715,021$



Question 2

Does your college or university hold any investments that are not included in the

endowment? If so, what are they, and what are their fair market values and basis? How are

they used to further the educational purpose for the college or university?

In addition to the endowment investments, the University has various working capital funds held in

various short-term and intermediate-term fixed income securities. These investments are comprised

mostly of U.S. Treasury and Agency securities, mortgage-backed securities and investment grade

corporate debt. The University has an Operating Pool Investment Policy Statement governing the

investments and usage of these funds.

Working capital funds include general operating budget funds, risk reserves, unrestricted construction

project funds, unspent research grant funds, student loan funds pending disbursement, restricted

scholarship gift funds pending disbursement, funds for bond principal and interest pending

disbursement and other funds.

How are they used to further the educational purpose for the college or university?

These working capital funds support the educational mission of the University by providing the

working capital necessary to meet payroll and other operating budget needs, providing reasonable

risk reserves for liquidity purposes, supporting construction and renovation of plant assets and

supporting academic and student life initiatives on campus.

The University accounts for these investments at fair value and does not recognize a different basis

amount. The fair value of working capital investments for FY 2015, 2014 and 2013 are as follows:

Working

Capital

Investments

Fair Value

2015 34,743$

2014 34,140

2013 12,785


Question 3

What is your endowment size, as measured by total fair market value of its assets? What

has been the net growth and net investment return your endowment each year?

For financial statements prepared in accordance with GAAP, the University has elected to report its

alternative assets, including hedge funds, private equities, mineral interests and real estate at the

lower of historic cost or fair value. The remainder of the endowment is reported at fair value. The

value of the University’s endowment as reported in its annual audited financial statements is

presented in the following table:

What has been the net growth and net investment return your endowment each year?

The University’s net growth in endowment net assets was $41,289 in FY2015, $149,044 in 2014 and

$91,870 in 2013. The net growth in endowment net assets for FY 2015, 2014 and 2013 is reflected in

the following tables:

Internally

Managed

Funds Held

in Trust by

Others Total

2015 781,534$ 368,010$ 1,149,544$

2014 742,523 365,732 1,108,255

2013 611,752 347,459 959,211

2015

Internally

Managed

Funds

Held in

Trust by

Others Total

Beginning Net Assets 742,523$ 365,732$ 1,108,255$

Net Investment Income 57,770 19,801 77,571

Appropriated For Spending (35,143) (17,523) (52,666)

Contributions 5,962 - 5,962

Transfers and Other 10,422 - 10,422

Net Growth in Net Assets 39,011 2,278 41,289

Ending Net Assets 781,534$ 368,010$ 1,149,544$


Trinity’s net return on investments is calculated by dividing the net investment income by the

beginning net asset balance, as reported in the preceding tables. The net investment returns for FY

2015, 2014 and 2013 are reported in the following table:

2014

Internally

Managed

Funds

Held in

Trust by

Others Total

Beginning Net Assets 611,752$ 347,459$ 959,211$







2013

Internally

Managed

Funds

Held in

Trust by

Others Total





Transfers and Other 604 - 604


Ending Net Assets 611,752$ 347,459$ 959,211$

Internally

Managed

Funds

Held in

Trust by

Others Total

2015 7.78% 5.41% 7.00%

2014 12.89% 9.78% 11.77%

2013 16.16% 13.45% 15.16%


Question 4

How much has your college or university spent each year to manage the endowment, and

how many staff and contractors are employed to manage the endowment? For any fees

paid to nonemployees for investment advice, asset management, or otherwise, please

provide detail on the amounts paid, to whom, and the fee arrangement.

The following table lists the investment expenses netted against investment income per the financial

statement footnotes for each year:

The University employed approximately 2.5 full-time equivalent (FTE) employees as internal

investment staff for each of the three years reported. Approximately 1.5 (FTE) of these staff work full-

time on the University’s significant internally-managed mineral properties portfolio.

The University contracted with Cambridge Associates as general investment advisor for all years

reported. Additionally, beginning in FY 2014, the University contracted with a division of Cambridge

Associates to function in a semi-outsourced chief investment officer role for hedge fund and private

equity investment selection. A separate investment advisor is used for selection and assessment of

private real estate investment opportunities. All other oversight and management of the endowment

investment portfolio is performed by the University’s Investment Committee and internal staff.

For any fees paid to nonemployees for investment advice, asset management, or

otherwise, please provide detail on the amounts paid, to whom, and the fee arrangement.

Investments expenses netted against investment income, as reported in the audited financial

statements, is listed in the following tables:

Internally

Managed

Funds

Held in

Trust by

Others Total

2015 2,616$ Unknown 2,616$

2014 1,720 Unknown 1,720

2013 1,720 Unknown 1,720


2015

Fees to non-employees Amount Fee arrangement

Consultants:

Cambridge Associates 665$ Fixed Rate (Annual)

Holmes, Kelly and Seay (Private Real Estate) 143 Billable Hours

Golden Steven Cohen 13 Billable Hours

Total Consultants 821

Administration:

JP Morgan (Custodial Bank) 29 % of Market Value & fixed fees

Cox Smith Matthews Inc. (Legal) 28 Billable Hours

Deferred Comp. 11 % of Market Value

Fundriver (Software) 10 Fixed Rate (Annual)

Total Administration 78

Traditional Equity and Fixed Income Managers:

Silchester Internation Investors 405 % of Market Value

Capital Guardian Emerging Mkts 277 % of Market Value

Barrow Hanley (Equity) 195 % of Market Value

Dodge & Cox Fixed Income 183 % of Market Value

Somerset Global Emerging Mkts 179 % of Market Value

Bristol Equity Strategy 138 % of Market Value

Brandywine Global Fixed Income 116 % of Market Value

SSgA MSCI United States Index 88 % of Market Value

SSgA MSCI ACWI Global ex US 71 % of Market Value

Total Traditional Equity and Fixed Income Managers 1,653


Energy Spectrum VII (PE) 61 % of Market Value + performance bonus

Encap Energy Capital X (PE) 2 % of Market Value + performance bonus

Woodside Fund IV (VC) 1 % of Market Value + performance bonus

Dover Street VIII (PE) 1 % of Market Value + performance bonus

Park Street Capital VI (PE) 0 % of Market Value + performance bonus

Total Alternative Investments 65

Investment fees paid FY15 2,617$


2014


Consultants:

Cambridge Associates (Consultant) 353$ Fixed Rate (Annual)

Holmes, Kelly and Seay (Private Real Estate) 43



Administration:


Fundriver (Software) 2 Fixed Rate (Annual)






Marshfield 148 % of Market Value



Capital Guardian Emerging Mkts 72 % of Market Value



Marsico Capital Management 9 % of Market Value

Student Managed Fund (Equity) 1 % of Market Value




Dover Street VIII (PE) 3 % of Market Value + performance bonus

CCIP#5 2 % of Market Value + performance bonus

CCIP#6 1 % of Market Value + performance bonus




2013


Consultants:

Cambridge Associates (Consultant) 242$ Fixed Rate (Annual)


Holmes, Kelly and Seay (Private Real Estate) 63

Golden Steves Cohen 13 Billable Hours


Administration:

Other 85 Varies

O&G Legal Fees 24 Varies

Current Fund 21 % of Market Value & fixed fees








Marshfield 127 % of Market Value

Marsico Capital Management 92 % of Market Value







Park Street Capital VI (PE) 1 % of Market Value + performance bonus




Question 5

If your endowment is required to file a Form 990 separately from your college or

university’s Form 990, please provide the endowment entity name(s) and Employment

Identification Number.

The University does not file a separate IRS Form 990 for its endowment.


Question 6

How does your college or university determine what percentage of the endowment will be

paid out each year? If any, what has been the target endowment payout as a percentage of

the endowment’s beginning balance each year? If that answer differs from the percentage

paid out, please explain why. Please attach any payout policies or guidance.

The University’s Board of Trustees has interpreted T-UPMIFA as requiring the preservation of the fair

value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit

donor stipulations to the contrary. As a result of this interpretation, the University classifies as

permanently restricted net assets (a) the original value of gifts donated to the permanent

endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c)

accumulations to the permanent endowment made in accordance with the direction of the applicable

donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the

donor-restricted endowment fund that is not classified in permanently restricted net assets is

classified as temporarily restricted net assets until those amounts are appropriated for expenditure

by the University in a manner consistent with the standard of prudence prescribed by T-UPMIFA.

In accordance with T-UPMIFA, the University considers the following factors in determining to appropriate or accumulate donor-restricted endowment funds:

1. The duration and preservation of the endowment funds 2. The purposes of the University and the endowment funds 3. General economic conditions 4. The possible effect of inflation or deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the University 7. The University’s investment policy

Accordingly, the Board of Trustees has adopted a spending formula for determining the part of the

total return on endowment funds that can be expended annually. The spending formula determines

spendable endowment return as a percentage of the average of the 12 most recent quarter-end

endowment market values.

In establishing this spending policy, the University considered the long-term expected return on its

endowment. Accordingly, over the long term, the University expects the current spending policy to

allow the endowment to grow at an average of 0.5% (after inflation) annually over long time periods.

This is consistent with the University’s objective to maintain the purchasing power of the endowment

assets held in perpetuity and is, in the University’s opinion, in accordance with the prudent manager

requirements specified in T-UPMIFA.

Annually, the Board of Trustees reviews the long-term net investment returns compared to the

spending appropriation rate plus inflation in accordance with the above prudence guidelines. The

spending appropriation formula for the coming fiscal year is determined annually as an outcome of

this review process.


If any, what has been the target endowment payout as a percentage of the endowment’s

beginning balance each year? If that answer differs from the percentage paid out, please

explain why. Please attach any payout policies or guidance.

For FY 2015, 2014 and 2013, the University’s spending formula was 4.5% of the 12-quarter average

market value as noted above. The following table reports the effective spending rate for each of these

fiscal years. The “effective spending rate” is generally understood in the industry to be that rate

derived by dividing the actual spending appropriation amount for the fiscal year by the beginning net

asset balance for that year. The effective spending rate often differs from the spending formula rate—

either higher or lower—due to numerous factors. For example, the effective rate is based on the net

asset value at a point in time (beginning of the fiscal year), whereas the spending formula is based on

a 12-quarter average market value in order to help dampen the effects of market volatility on the

spending appropriate for support of operations. Additionally, if the University is unable to fulfill the

donor-imposed use restriction on a particular endowment during a given year, the actual

appropriated spending amount, and therefore the effective spending rate, may be less than the

amount determined under the spending formula. Finally, the University has drawn additional, specific

amounts from certain funds functioning as endowments in recent years to supplement student

financial aid and recruiting operations during the recent recession and slow recovery, which tends to

increase the effective spending rate compared to the spending policy rate. The effective spending rate

for FY 2015, 2014 and 2013 is as follows:

Internally

Managed

Funds Held

in Trust by

Others Total

2015 4.7% 4.8% 4.8%

2014 4.9% 4.5% 4.7%

2013 4.7% 4.5% 4.7%


Question 7

Does your college or university have policies regarding spending the endowment principal?

Has your college or university ever spent endowment principal? If so, under what

circumstances?

The University’s Board of Trustees has interpreted the TUPMIFA as requiring the preservation of the

fair value of the original gift as of the gift date of the donor-restricted endowment funds, absent

explicit donor stipulations to the contrary. As a result of this interpretation, the University classifies

as permanently restricted net assets (a) the original value of gifts donated to the permanent

endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c)

accumulations to the permanent endowment made in accordance with the direction of the applicable

donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the

donor-restricted endowment fund that is not classified in permanently restricted net assets is

classified as temporarily restricted net assets until those amounts are appropriated for expenditure

by the organization in a manner consistent with the standard of prudence prescribed by T-UPMIFA.

From time to time, the fair value of assets associated with individual donor-restricted endowment

funds may fall below the level that the donor, under T-UPMIFA, requires the University to retain as a

fund of perpetual duration. These deficiencies result from both unfavorable market fluctuations

occurring shortly after the investment of new permanently restricted contributions and continued

appropriation for certain programs deemed prudent by the University. There were such no

deficiencies as of May 31, 2015, 2014 or 2013.

Has your college or university ever spent endowment principal? If so, under what

circumstances?

During the financial market crisis of 2008 and 2009, the University did have certain endowment funds

for which the fair value of the fund declined to a value less than the corpus value of the original gift

amount recorded in permanently restricted net assets (i.e., underwater endowments). While the

University’s interpretation of T-UPMIFA provided that the University could determine to spend a

prudent amount of underwater endowment corpus, the University opted to suspend spending

appropriation withdrawals from these underwater endowments during that time period. Additionally,

the University transferred $120K ($120 thousand) in FY 2009 and $98.7K ($98.7 thousand) in FY 2010

from unrestricted net assets (unrestricted reserves) to restore the underwater endowments’ fair

value to equal the original gift corpus amount. Therefore, while the University is of the opinion that

T-UPMIFA provides a framework allowing the possibility of spending a prudent portion of the

endowment corpus, Trinity has not done so since the adoption of T-UPMIFA, being of the opinion

during these years, that the idea of “prudence” in managing the long-term endowment argued in

favor of maintaining and, in fact, restoring, the underwater portion of the endowment corpus.


Question 8

How much and what percentage of the endowment’s beginning balance has your college

or university spent each year? How much and what percentage of the endowment’s return

on investments has your college or university spent each year?

The information being requested in this question is not clear to the University. Therefore, in an effort

to provide information related to the spending appropriation from the endowment, the University

will provide the effective spending rate for each year as well as a roll-forward of the endowment net

asset balance that includes investment income, beginning balances and spending appropriations,

which should provide sufficient information to support the substance of the question.

The “effective spending rate” is generally understood in the industry to be that rate derived by

dividing the actual spending appropriation amount for the fiscal year by the beginning net asset

balance for that year. The effective spending rate for FY 2015, 2014 and 2013 is as follows:

How much and what percentage of the endowment’s return on investments has your

college or university spent each year?

The University has included a roll-forward of net asset balances for FY 2015, 2014 and 2013 in the

following tables which should provide the base information needed to assess the spending

appropriation amount for the years in question:


2015

Internally

Managed

Funds

Held in

Trust by

Others Total

Beginning Net Assets 742,523$ 365,732$ 1,108,255$







2014

Internally

Managed

Funds

Held in

Trust by

Others Total









2013

Internally

Managed

Funds

Held in

Trust by

Others Total





Transfers and Other 604 - 604


Ending Net Assets 611,752$ 347,459$ 959,211$


Question 9

What percentage of your endowment does your college or university devote to financial

aid for student tuition? How much for other forms of student financial aid? Please specify

the types of non-tuition financial aid provided.

The University devotes a significant amount of resources to student financial aid support. Endowment

support for student scholarships comes from two sources: true endowments with donor-imposed

restriction for student financial aid and unrestricted funds functioning as endowment which provide

general budget support (the fastest growing expense item within the operating budget is student

financial aid provided by the Institution).

The percentage of internally-managed true endowments restricted by the donor for support of

student financial aid was 24.9% ($9.1 million distributed to support financial aid), 25.1% ($8.8 million

distributed to support financial aid) and 28.4% ($8.2 million distributed to support financial aid) in FY

2015, 2014 and 2013, respectively.

How much for other forms of student financial aid?

Additionally, the University supports student financial aid with a robust commitment of unrestricted

resources, such as funds functioning as endowments. Institutional financial aid expenditures grew

from $38.3 million in FY 2013 to $43.2 million in FY 2015, a growth of $4.9 million, or 12.9%. This

continues the trend over the past decade of Trinity’s significant investment in student financial aid

from both restricted and unrestricted institutional sources. For example, per the University’s audited

financial statements, financial aid expenditures were $16.6 million in FY 2005 (representing 32.5% of

gross tuition and fees), but increased to $43.2 million (representing 50.1% of gross tuition and fees)

in FY 2015. This increase in support from the University, much of which came from the University’s

true endowments for scholarships or funds functioning as endowments used to support financial aid

and other operating expenses, reflects the University’s strong commitment to supporting student

financial aid.

The following table reports total institutional financial aid expenditures and the funded and unfunded

portion of the aid expenditures. Funded institutional aid is defined as institutional aid with specific

external restrictions on the use of the funds to support financial aid, such as true endowments,

exchange transactions such as the Texas Equalization Grant, restricted gifts, etc. The remaining

institutional aid amount is unfunded, meaning the institution is paying for the expenditure from

unrestricted resources, such as funds functioning as endowment and unrestricted operating

revenues. The summary of institutional financial aid and its funding sources for FY 2015, 2014 and

2013 follows:


Please specify the types of non-tuition financial aid provided.

The University typically does not offer any type of non-tuition related financial aid. However, in the

case of a small percentage of students with high demonstrated financial need, the University may

provide total financial aid assistance in excess of tuition and fees, to include coverage of a portion of

room and food service costs and textbooks.

2015 2014 2013

Financial Aid Expense 43,176$ 38,634$ 38,303$

Less: Funded by True Endowments 9,061 8,765 8,154

Less: Funded by Contracts and Exchange Transactions 2,415 2,626 2,498

Less: Funded by Restricted Gifts 294 351 227

Total Funded by Restricted Sources 11,770 11,742 10,879

Financial Aid Not Funded by Restricted Funds 31,406 26,892 27,424

Funds that Function as Endowments 15,325 10,342 9,584

Unfunded Financial Aid 16,081$ 16,550$ 17,840$


Question 10

Does your college or university have policies regarding whether it is allowed to accept funds

restricted to a specific purpose? Has your college or university ever declined a donation

because it was restricted to a certain purpose? If so, please describe those specific scenarios

in which your school rejected a donation.

The University has gift acceptance policies. These policies require the gift to be supportive of the

mission (tax-exempt purpose), strategic plan and needs of the University, as well as to comply with

applicable legal or regulatory requirements, and to not be harmful to the reputation of the institution.

An example of a restricted gift offer which was turned down by the University involved a recent gift

offer of real estate. The donor wished for the University to retain the property and to use it as a retail

operation. However, owning the property would not be consistent with the current strategic goals of

the University and would possibly violate the requirement of an agreement between the University

and the City of San Antonio pertaining to ownership of properties within a nearby historic district.

Accordingly, the University turned down the gift offer.


Question 11

How much and what percentage of your college or university’s endowment is invested real

property (not including REITs or other publicly-traded securities)? Please list and describe

your college or university’s real estate holdings, including real estate held by the college or

university, the endowment, and all related entities. If the college or university has made

any Payments in Lieu of Taxes, please provide the date and amount of the payment.

The percentage of the University’s endowment portfolio invested in private real estate was $17.3

million (2.2%), $10.4 million (1.4%) and $12.8 million (2.1%) in FY 2015, 2014 and 2013, respectively.

In addition to the investments in private real estate listed above, the University has the campus land

and buildings. The following table displays the net book value of campus land and buildings for FY

2015, 2014 and 2013:

The University has no private real estate holdings in related entities.

The University has not paid Payments in Lieu of Taxes in the past.

2015 2014 2013

Land and Land Improvements 34,413$ 33,212$ 33,099$

Buildings 286,722 275,379 207,642

321,135$ 308,591$ 240,741$


Question 12

Does your college or university grant naming rights to donors based on certain donations

levels? If so, please describe the naming rights program, including how much and what

percentage of any naming rights donations your college or university has used for tuition

assistance.

The University does not have a formal policy establishing general naming rights associated with

specific giving levels. Lead gifts for large projects, such as buildings, often involve naming of the

building in honor of the lead donor. However, the University manages these situations on a case-by-

case basis, rather than automatically assigning naming rights based on a dollar amount structure.

The University has numerous true endowments with income usage restrictions established by the

donor to be used specifically for student scholarship support. Some of these are named scholarships,

reflecting the name of the endowment and in honor of the donor or donor’s identified honoree, while

some are restricted for general student scholarship report and are not named scholarships. The true

endowments restricted for scholarship support, both named and general, have been included in the

earlier information for Question 9 and is not repeated here.


Question 13

What conflict of interest policies does your college or university have in place to address

financial interest in endowment investments (including potential conflicts of interest

among and between governing boards, trustees, executives, internal employees tasked

with overseeing the endowment, and external asset managers of endowment assets)? How

do you vet board members’ potential conflicts of interest? What are your policies if a

conflict arises with a member of the board of trustees?

A conflicts of interest and independence questionnaire is distributed to all Board of Trustee members,

Executive Staff of the Administration, and certain other members of the Administration, on an annual

basis. This information is reported to the Audit Committee of the Board of Trustees, the Chairman on

the Board and the Internal and External Auditors. If a conflict arises for a Board of Trustees member,

the Chair of the Board is notified and determines appropriate action (abstaining from discussion

and/or voting, etc.).

In addition, Investments Committee members identify any potential conflicts of interest relating to

investments and investment-related relationships at the Committee meetings. The Committee Chair

determines if a potential conflict exists and if the member should abstain from discussion and voting

on a matter. If the potential conflict relates to the Chair, the full Committee makes the determination

and any required abstinence.

The University’s primary advisor is governed by Securities and Exchange Commission standards for

conflicts of interest.


Appendix-Documents Included

Trinity University Consolidated Audited Financial Statements with Independent Auditors, May 31,

2015 and 2014

Trinity University Audited Financial Statements with Independent Auditor, May 31, 2014 and 2013

Trinity University Audited Financial Statements with Independent Auditor, May 31, 2013 and 2012


End Notes for Introduction

i Trinity University Fact Book 2005 - 2006 through Trinity University Fact Book 2006 - 2015;

https://inside.trinity.edu/institutional-research/university-data/factbooks.

ii Trinity University Tuition and Fees; https://new.trinity.edu/admissions-aid/tuition-fees iii Trinity University Consolidated Financial Statements May 31, 2015 and 2014: https://inside.trinity.edu/sites/inside.trinity.edu/files/file_attachments/5841/audited-financial-statement-fy15.pdf iv Growth in Tuition Discount Rate, FY 2005-2015

v Trinity University Growth in Net Tuition Revenue, FY 2006 – 2015 Source: Trinity University Consolidated Financial Statements FY 2005 through 2015 (in thousands)

Source: Trinity University Consolidated Financial Statements FY 2005 through 2015 (in thousands)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tuition and Fees 50,999$ 55,433$ 58,360$ 62,745$ 67,122$ 71,306$ 73,209$ 76,833$ 78,944$ 79,693$ 86,234$

Insitutional Financial Aid 16,559 17,456 21,112 23,560 25,206 28,173 31,273 34,554 38,303 38,634 43,176

Net Tuition and Fees 34,440 37,977 37,248 39,185 41,916 43,133 41,936 42,279 40,641 41,059 43,058

Tuition Discount Rate 32.5% 31.5% 36.2% 37.5% 37.6% 39.5% 42.7% 45.0% 48.5% 48.5% 50.1%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Tuition and Fees 50,999$ 55,433$ 58,360$ 62,745$ 67,122$ 71,306$ 73,209$ 76,833$ 78,944$ 79,693$ 86,234$

Insitutional Financial Aid 16,559 17,456 21,112 23,560 25,206 28,173 31,273 34,554 38,303 38,634 43,176

Net Tuition and Fees 34,440 37,977 37,248 39,185 41,916 43,133 41,936 42,279 40,641 41,059 43,058

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average

Growth

Per Year

2006-2015

Consumer Price Index 3.8% 2.6% 3.7% 1.4% 1.0% 2.0% 2.9% 1.7% 1.6% 0.7% 2.3%

Trinity-Net Tuition Revenue 10.3% -1.9% 5.2% 7.0% 2.9% -2.8% 0.8% -3.9% 1.0% 4.9% 2.3%

Higher Education Price Index 5.1% 2.8% 5.0% 2.3% 0.9% 2.3% 1.7% 1.6% 3.0% 2.1% 3.0%

https://inside.trinity.edu/institutional-research/university-data/factbooks

https://new.trinity.edu/admissions-aid/tuition-fees

https://inside.trinity.edu/sites/inside.trinity.edu/files/file_attachments/5841/audited-financial-statement-fy15.pdf

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