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UNM Foundation becomes a lender to the University

Copyright © 2020 Albuquerque Journal

Stingy lawmakers? Naw.

The local bank? Nope!

Payday lenders? Forget about it.

Top University of New Mexico administrators in need of cash for key projects have a new place to turn.

UNM regents last week changed the UNM Foundation’s investment policy, creating a way for the university’s fundraising arm to loan as much as 10% of its endowment assets to the university.

Kenny Stansbury, the chief financial officer for the foundation, told regents that the policy change will benefit both entities. The university will have money up front for “strategic priorities,” and the foundation will benefit in the long run by charging the school a “fair market” interest rate on the loans.

“We see this as a win-win for the Consolidated Investment Fund and for the university,” he said during last week’s regents meeting. “Not only does it provide an additional financing option, but the interest paid under the program will benefit the CIF and lead to higher market values over time, and those higher market values will lead to higher distribution from the endowment to the university.”

Teresa Costantinidis, the senior vice president for Finance and Administration, said UNM isn’t the first to make such an arrangement with its foundation. The University of California system has something similar in place, she said.

“This kind of arrangement allows for us to invest in ourselves rather than going to a third party,” she said.

Cinnamon Blair, a spokeswoman for the university, said loan applications will need regent and foundation approval. Loans will only be awarded for projects expected to generate revenue, she said.

“All investments carry risk. During the investment review process, we consider risk factors such as loan term and resources available to repay the loan as well as risk mitigation factors such as collateral and debt service reserve funds,” Blair said in an email.

Regents approved the policy change during a meeting in which they also signed off on an adjusted university budget that carved more than $30 million from the main campus for the current fiscal year. Officials said such a cut will require departments across campus to come up with ideas on how to curb their expenses.

The new loan program won’t be used to shore up any budget deficits on campus, said Regent President Doug Brown.

“No. The endowment at the UNM Foundation is a permanent fund that is to grow and promote intergenerational equity,” he said. “The idea to use it as a reserve to patch over operating deficits, that’s not even being considered.”

The policy change does, however, free up quite a bit of money for the university.

The Consolidated Investment Fund – a pool of various UNM endowment accounts – had a market value of $459.9 million after the 2018-2019 fiscal year, according to the most recent annual report on the UNM Foundation’s website. The fund’s portfolio included a mix of U.S. equity, international equity, marketable alternatives and other assets. The fund’s investment return in 2018-2019 was 4.2% and its three-year performance was 8%, according to the foundation’s website.

With the recent change, the fund’s policy now states that up to 10.5% of its total assets can be “investments in university priorities.”

The university’s senior vice president for finance and administration must certify that the project funded with a loan from the foundation is a strategic priority for the university.

The foundation’s chief financial officer and the foundation’s Investment Committee will also have to approve the loans, according to the policy. The loans can’t have a term of more than 10 years and no one project can receive more than 5% of the Consolidated Investment Fund.

Costantinidis said that while there are no current loan applications, possible projects that could be funded with such a loan include such things as a housing project or a parking structure. Revenue from the completed projects could be used to pay off the loan.

If there were a situation where a university department defaults on a foundation loan, Costantinidis said UNM would have to repay the foundation.

UNM has previously tapped into the principal of its endowment funds to fund projects that President Garnett Stokes said were critical.

Last year, regents approved spending $1 million of the principal of one university endowment for two university initiatives.

UNM spent $650,000 on a “Grand Challenges” initiative and $350,000 on an enrollment push. The money was taken from an endowment account created in 1983 when the university sold land near Louisiana and Constitution. That particular account, which started with $600,000, reached a peak market value in 2006-2007 at around $36 million and had dropped to a value of $27 million last year.

Meanwhile, at least one UNM department is already on a payment plan.

The school’s athletics department in April 2018 entered into a 10-year, $4.7 million deficit reduction plan after repeatedly overspending its approved budget under the prior athletic director. The debt was about $4.4 million this spring.

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