Note 3 – Investments

The University’s investments generally include direct obligations of the U.S. government and its agencies, money market funds, municipal and corporate bonds, asset-backed securities, mutual funds, collective investment trust funds, repurchase agreements, corporate equities and alternative non-equity securities. CU Foundation investments are similar to the University’s but also include alternative non-equity securities in hedge funds and commodities. Endowments are pooled to the extent possible under gift agreements. The CU Foundation manages certain of these endowments for the University in accordance with its investment policy.

To the extent permitted, and excluding the University’s blended entities, the University pools cash balances for investment purposes. An investment policy statement approved by the Regents directs the Treasurer of the University to meet the following investment objectives:

  • liquidity for daily operations,
  • protection of the nominal value of assets, and
  • generation of distributable earnings at a level commensurate with the time horizon of the investments.

For financial statement purposes, investment income (loss) is reported on a total return basis and is allocated among operational units based on average daily balances, using amortized costs. Average daily balances, based on amortized costs, approximated $1,769,447,000 and $1,718,163,000 for the years ended June 30, 2018 and 2017, respectively. The total return on this pool (excluding blended component units) was 7.32 percent and 9.99 percent for the years ended June 30, 2018 and 2017, respectively.


The University categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles (GAAP).  Under Statement No. 72 Fair Value Measurement and Application (Statement No. 72) fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction.  In determining this amount, three valuation techniques are available:

  • Market approach – This technique uses prices generated for identical or similar assets or liabilities. The most common example is an investment in public security traded in an active exchange such as the New York Stock Exchange.
  • Cost approach – The cost approach determines the amount required to replace the current asset and may be ideal for valuing donations of capital assets or historical treasures.
  • Income approach – This technique converts future amounts (such as cash flows) into a current discounted amount.

Each of these valuation techniques requires inputs to calculate a fair value.  Observable inputs should be maximized in fair value measures, and unobservable inputs should be minimized.

Statement No. 72 establishes a hierarchy of inputs to the valuation techniques above. This hierarchy has three levels:

  • Level 1 – Quoted prices in active markets for identical assets or liabilities. Example: ownership in shares of a mutual fund company that is publicly traded.
  • Level 2 – Quoted market prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other-than-quoted prices that are not observable. Example: ownership of a corporate bond that trades on an exchange that is not active.
  • Level 3 – Unobservable inputs. Example: ownership in a private hedge fund that does not trade on a public exchange.

The University owns an interest in two collective investment trust funds.  These trust funds own investment assets, but the University owns an interest in the private trust itself rather than an interest in each underlying asset.  Therefore, the unit of account is the University’s ownership interest in the trust, rather than a percentage in individual assets held by the trust.   The assets could be sold at an amount different than the Net Asset Value (NAV) per share (or its equivalent) due to the liquidation policies in each of the respective trusts’ agreements with the investors. Redemption frequencies for these funds range from one to 30 days and there were no unfunded commitments as of June 30, 2018 and 2017.

The fair value measurements as of June 30, 2018 and June 30, 2017 for the University are included in Table 3.1.

Table 3.1. Investments – University (in thousands)

Investment TypeLevel 1Level 2Level 32018 Total
U.S. government securities$262,537243,6532,115508,305
Corporate bonds74,977238,208202313,387
Corporate equities5,526--5,526
Municipal bonds10815,171-15,279
Mutual funds808,4411,269214809,924
Certificates of deposit240--240
CU Foundation--428,310428,310
Asset-backed securities1,35680,80481482,974
Alternative non-equity securities:
Real estate397469452
Measured at NAV:
Equity trusts244,379
Measured at amortized cost:
Money market funds223,111
Measured at cost:
Private equity securities650
Measured at contract value:
Guaranteed investment agreement5,165
Total Investments – University$2,779,799
Investment TypeLevel 1Level 2Level 32017 Total
U.S. government securities$218,02481,210-299,234
Corporate bonds59,508223,336-282,844
Corporate equities3,410--3,410
Municipal bonds-16,238-16,238
Mutual funds626,557164166626,887
CU Foundation--391,721391,721
Asset-backed securities1,675107,907906110,488
Alternative non-equity securities:
Absolute return fund10531-136
Real estate319-5324
Measured at NAV:
Fixed income trusts42,923
Equity trusts346,474
Measured at amortized cost:
Money market funds362,057
Measured at contract value:
Guaranteed investment agreement5,165
Investments not requiring fair value:
Repurchase agreements20,226
Total Investments – University$2,607,441

Details of investments by type for the CU Foundation are included in Table 3.2.

Table 3.2. Investments – CU Foundation (in thousands)

Investment Type20182017
Cash equivalents$12,28631,069
Equity securities:
Fixed-income securities199,581205,382
Alternative non-equity securities:
Real estate70,34370,818
Private equity348,137283,742
Hedge funds-23,789
Absolute return funds257,316176,029
Venture capital96,75367,477
Total Investments – CU Foundation$1,847,5501,689,100


Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the University will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. Therefore, exposure arises if the securities are uninsured, not registered in the University’s name, and are held by either the counterparty to the investment purchase or the counterparty’s trust department or agent but not in the University’s name. Open-ended mutual funds and certain other investments are not subject to custodial risk because ownership of the investment is not evidenced by a security. The private equity securities held by ULEHI $650,000 are exposed to custodial credit risk.  None of the University’s other investments are subject to custodial risk.


Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Credit risk only applies to debt investments. This risk is assessed by national rating agencies, which assign a credit quality rating for many investments. The University’s investment policies for the Treasury pool do not permit investments in debt securities that are below investment grade at the time the security is purchased. University policy allows no more than 20 percent of investments to be rated below Baa (Moody’s) or BBB (Standard & Poor’s (S&P) and Fitch) at the time of purchase. There are two other investment policies tailored to non-pooled investments. Those policies do not restrict investments to a particular credit quality standard. Credit quality ratings are not required for obligations of the U.S. government or obligations explicitly guaranteed by the U.S. Government. The CU Foundation does not have a policy concerning credit quality risk. A summary of the University’s debt investments and credit quality risk as of June 30, 2018, and 2017 is shown in Table 3.3. The University, which includes CU Medicine, obtains ratings from both Moody’s and S&P, and primarily reflects the Moody’s ratings in Table 3.3 unless S&P is lower. Table 3.3 is a subset of Table 3.1 and does not include $1,416,009,000 of non-debt securities and $413,801,000 of debt investments that are backed by the full faith and credit of the U.S. government as of June 30, 2018, and does not include $1,269,221,000 of non-debt securities and $211,857,000 of debt investments that are backed by the full faith and credit of the U.S. government as of June 30, 2017.

Table 3.3. Debt Investments and Credit Quality Risk – University (in thousands)

Investment Type20182017
Fair ValueFair Value% of Rated Value by Credit RatingFair ValueFair Value% of Rated Value by Credit Rating
U.S. government securities$129,820106,781100% Aaa/Aa$77,348109,333100% Aaa
Bond mutual funds50,221--133,189--
Certificates of deposit240-----
Corporate bonds44,048269,33962% Aaa/Aa/A51,732231,11257% Aaa/Aa/A
37% Baa/Ba/B42% Baa/Ba/B
1% C/D1% C/D
Money market mutual funds-246,122100% Aaa-371,532100% Aaa
Municipal bonds62714,65282% Aaa42915,80976% Aaa
18% Aa/A24% Aa/A
Repurchase agreements---20,226--
Guaranteed investment agreement-5,165100% Aa3-5,165100% Aa3
Asset-backed securities77982,19588% Aaa725109,76370% Aaa
6% Aa/A25% Aa/A
5% Baa/Ba/B4% Baa/Ba/B
1% Caa/Ca1% Caa/Ca
Total Debt Investments$225,735724,254$283,649842,714


Interest rate risk is the risk that changes in the market rate of interest will adversely affect the value of an investment. Interest rate risk only applies to debt investments. The University manages interest rate risk using weighted average maturity. Weighted average maturity is a measure of the time to maturity in years that has been weighted to reflect the dollar size of the individual investment within an investment type. The University’s investment policy mitigates interest rate risk through the use of maturity limits for each of the investment segment pools.

A summary of the fair value of the University’s debt investments and interest rate risk as of June 30, 2018 and 2017 is shown in Table 3.4. Table 3.4 is a subset of Table 3.1 and does not include $1,662,131,000 of non-debt securities as of June 30, 2018, and does not include $1,640,754,000 of non-debt securities as of June 30, 2017. The main difference in the amount of non-debt securities excluded in Table 3.3 and Table 3.4 is that money-market mutual funds are included in Table 3.3 as they have credit risk but they are excluded from Table 3.4 as they do not have interest rate risk. Also, U.S. government securities are not subject to credit risks but are subject to interest rate risks and are included here but not in the credit quality risk section.

Table 3.4. Debt Investments and Interest Rate Risk (in thousands and years)

Investment Type20182017
UniversityAmountWeighted Average MaturityAmountWeighted Average Maturity
U.S. government securities$508,3046.33$299,2339.71
Bond mutual funds50,2215.34133,1893.51
Certificates of deposit2402.34--
Corporate bonds313,3877.96282,8448.36
Municipal bonds15,2798.9216,2389.31
Repurchase agreements--20,2261.50
Guaranteed investment agreement5,1650.095,16520.93
Fixed rate asset-backed securities62,0375.2794,2785.20
Variable rate asset-backed securities20,93721.5316,21021.68
Collateralized mortgage obligations142,09810.5599,30513.67
Total Debt Investments – University$1,117,668$966,688

The University has investments in asset-backed securities, which consist mainly of mortgages, home equity loans, student loans, automobile loans, equipment trusts, and credit card receivables. These securities are based on cash flows from principal and interest payments on the underlying securities. An asset-backed security has repayments that are expected to significantly vary with interest rate changes. The variance may present itself in terms of variable repayment amounts and uncertain early or extended repayments.


Concentration of credit risk is the risk of loss attributed to magnitude of an entity’s investment in a single issuer other than the federal government. The University’s policy is that exposure of the portfolio to any one issuer, other than securities of the U.S. government or agencies, or government-sponsored corporations, shall not exceed 10 percent of the market value of the fixed income portfolio. The University had no investments exceeding 5 percent and is therefore not subject to concentration of credit risk.


Assets held by the CU Foundation under split-interest agreements are included in investments and consisted of the following as of June 30, 2018 and 2017, as shown in Table 3.5.

Table 3.5. CU Foundation Investments Held under Split-interest Agreements (in thousands)

Assets held in charitable remainder trusts$36,33936,198
Assets held in charitable lead trusts2,7383,054
Assets held in life interest in real estate3,3303,330
Assets held in pooled income funds166168
Total Investments Held under Split-interest Agreements$42,57342,750

© Office of University Controller 2018

This report must be considered in its entirety.