Student loan-backed securities, however, are not on the list of explicitly approved investments.
The university administration can invest up to
But the board would have advance review of investments of greater sums or the use of more exotic financial tools such as investment hedging instruments or other derivatives, according to the proposal.
The bank's top jobs are to keep enough UO funds available for use, maximize return on investment and minimize the cost of capital -- all within the university's "risk tolerance," the proposal said.
The UO needs its own bank because under the new independent board system, UO cash management activities will no longer be handled by the state university system.
"The thought process can be really
Levear was a banker at
At OUS, Levear performed a "cash concentration" technique that closed as many as 70 public university bank accounts and placed the operating cash and reserves in a single, big account held at the state treasury.
The OUS internal bank set up protocols to invest the lump sum strategically, and it produced
"The universities benefited and the students benefited from this internal bank concept," said
The OUS bank, for instance, gave all the universities some security during times of low cash flow, such as in August and early September before the new school year's tuition began trickling in.
"You could say there was some overdraft protection for one university to the other because it was all pooled together," Burgess said.
Another difference: The OUS internal bank operated under the excellent AA+ rating of the state treasury. The UO, meanwhile, will have to obtain its own financial rating before it can issue its own bonds.
"It would be hard to achieve the same rating as the state. The state's rating is very, very good," said Levear, adding that it's not unprecedented for a public university to earn a better credit rating than its state. She pointed to the
The UO's ratio of debt-to-operating revenue is higher than usual for schools its size, but that might not hurt the university in the ratings, Levear said.
"That's a single measure of 20 to 50 different measures that a rating agency would look at. There could be compensating factors that are good," she said. "Somebody might say 'Your mortgage payment is high, but you don't have a car payment, so we're perfectly comfortable that your mortgage payment is high.' It's a case-by-case basis."
The proposed UO policy gives the board leeway.
"The board should be able to do what the board wants to do. We did craft this policy with the help of some professional advice and it is designed to put what I would call guardrails around things," Levear said.
In policy and practice, the OUS internal bank steered clear of exotic investments. "None of that was allowed by policy," Burgess said.
The OUS internal bank relied on investment managers at the state treasury to pick investments, including individual stocks and other securities. It's unclear what the UO bank will do.
"We haven't decided yet how we might do that -- whether or not we would engage a manager to do it for us. We do intend to engage a an investment consultant to help advise us," Levear said.
The bank doesn't have immediate plans to dabble in derivatives or hedging, except for a specific currency hedging program to benefit the university's study-abroad program, Levear said.
"In today's environment, I don't see that happening. The economy could change, and that could change things. But we don't have a pressing need for that," she said.
The university says it plans to protect itself financially by keeping a keen eye on risks, including interest rate risk, credit risk and liquidity risk.
The proposal calls for analyzing and "stress testing" cash flow, assets and liabilities to "ensure solvency and provide early warning" of the need for additional cash.
UO TRUSTEES MEET
Long meetings are slated for Thursday and Friday in
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