The Senior Bursar's Report 2008/09

This report aims to set out my perspective on the current financing of the College and to give a brief review of areas where we expect to make changes in the future. This has been a challenging year for the College as we have had to weather the same financial storms as the rest of the world. Overall our results this shows a reasonably positive picture for the year, despite the financial chaos in the general economy. The main reasons for this are:

• The rule that we use to decide how much money to take out of the endowment smoothes the impact of changes in the level of the endowment. Therefore, we have a gentle reduction in expendable amount in the years following a reduction in our investment values. This means that the difficulties caused by the sharp reduction in our endowment will hit us over the coming years, rather than this year and any subsequent increase in the expendable amount as investment values recover will also be slow.
• Our donors have continued to be very generous through this difficult period.
• We took some immediate action during the year to reduce expenditure by deferring some capital projects; only admitting three Research Fellows; and many other actions across most departments.

Financial Objectives and Results

The financial objectives followed by the College remain as follows:

"To ensure that the College's primary educational, research and religious functions are managed cost-effectively and supported by robust and well managed financial resources, which will sustain the enterprise in perpetuity."

Review of Operations and Finances

The accounts produced under the Recommended Cambridge College Accounts are unusual as they have an Income and Expenditure account, a Statement of Recognised Gains and Losses and a Balance Sheet. Copies of the full accounts are available to any Caian, but in this report I have continued the tradition of trying to set out the figures in a way which is rather easier to understand.

Funding

Gonville & Caius College funds are raised from the following main sources:

• Academic fees
• Charges to residents for accommodation and catering
• External income from conferences and catering
• Investment income
• Donations

Academic Fees

The main activity of the College is providing education, and these activities are loss making for the College as set out below.

Academic fee income has risen by 5.8%, while the costs of education have risen by 7.7%. The net costs to the College of providing education have risen from £2,423,000 in 2007/08 to £2,765,000 in 2008/09, as shown in the table below:

Education	2008/09 £000	2007/08 £000
Income	2,181	2,152
Expenditure	(4,952)	(4,575)
Net Cost	2,765	2,423

During 2008/09 the College had 531 undergraduates and 243 graduate students, which is a small increase over the previous year (2007/08 492 undergraduates and 245 graduates). The amount of funding for each student that was provided by Gonville & Caius College in 2008/09 was £3,572 (2007/08:£3,288).

During the year the College employed two new College Teaching Officers in Law and History. One was an additional post following the appointment of one of the Law Fellows to a University Teaching Officer post, the other was a replacement. We appointed three new Research Fellows during the year.

Residences, catering and conferences

We also make a loss on the provision of accommodation and catering as set out below.

Residences, catering and conferences	2008/09 £000	2007/08 £000
Income	(3,640)	(3,304)
Expenditure	(5,313)	(5,051)
Total Net Expenditure	(1,673)	(1,747)

Our income from accommodation and catering rose by 10.2% this year; this is made up from a 7.9% rise in income from residents of the College, and a 20.3% rise in income from conferences and external events. We have continued to focus on the management of the costs of providing accommodation and catering during the year and the deficit in this area has reduced. However, this remains an area where, in total, the College makes a loss despite the improvement in the contribution made by conference activity.

Student dinner ticket prices were raised from £5.70 to £6.05 (6.1%). The increase reflected the sharply rising cost of some key inputs into meals, notably foodstuffs, gas and electricity. The number of tickets for the Michaelmas and Lent Terms was reduced by 2 to 43 per term, with the number for the Easter Term remaining at 40. This kept the overall increase in student dining costs to just 2.9%.

This is the second year of the full operation of the Stephen Hawking Building, and there has been a further substantial growth in income from external events and conferences.

This means that after our main operating activities of education, accommodation and catering, and administration the College makes a loss of £5.8m. We balance the books as a result of the endowment and the donations that are generously given to the College to support our activities.

Endowment

The College is dependent upon its investment income to fund many of its activities. The endowment is managed on a total return basis, looking at the increase in capital value of the investments and the actual income. We calculate the amount that it is prudent to spend each year, so that we preserve the purchasing power of the endowment. This is calculated by the ‘Yale rule’ which is 70% of the spend in the previous year, uplifted by inflation; plus 30% of the endowment at the beginning of the year, at the agreed spend rate of 4.5%.

The expendable amount is set at the beginning of the year so that the College may budget effectively. Therefore it is based upon the endowment value at 30 June 2008, and consequently the expendable amount increased from £5,000,000 in 2007/08 to £5,433,000 in 2008/09; an increase of 8.7%. The College monitors its expenditure against the expendable amount and aims to achieve a balanced budget.

The value of the investments of the College fell from £120,387,000 at the end of last financial year, to £102,053,000 at 30 June 2009. The total return on the investment assets was -13.7% for the year. This is a disappointing result when compared to previous years, but required careful management to minimise losses in the very difficult market conditions.

We have an excellent investment committee with a mix of Fellows and external members. The external members are all Caians and expert in their field:

• Mark Archer - Trilogy Global Advisors - equities - English 1979
• James Arnold - Tune Invest SA - hedge funds - Economics 1993
• Stephen Barter - Qatari Diar - property - Economics and Land Economy 1975
• Richard Wilson - Apax Partners Worldwide LLP - private equity - Engineering 1985

The investments comprise:

	June 09 £000	June 08 £000	June 07 £000	June 06 £000	June 05 £m
Cash	6,524	3,135	9,070	6,924	3.9
Fixed income	9,155	7,062	5,212	5,107	2.7
Hedge funds	19,800	24,113	15,758	15,535	10.1
Private equity	12,316	12,527	8,836	4,081	2.1
Property	37,235	42,805	44,820	45,363	49.2
Public equity	12,019	23,250	37,768	31,763	32.8
Real assets	5,004	7,495	5,389	5,617	5.1
Total	102,053	120,387	126,853	144,390	105.9
Total Return	-13.72%	1.3%	15.4%	15.9%	19.9%

The College recognises the importance of the active management of its investments to fund its charitable activities. The current market conditions have concerned the Investments Committee a great deal over the last year. We have made some tactical changes to the asset allocation to try to make our investments more ‘defensive’ in the current markets.

	June 09 £000	Current allocation of assets	Policy target allocation of assets
Cash	6,524	6.3%	3.0%
Fixed income	9,155	9.0%	8.6%
Hedge funds	19,800	19.4%	22.7%
Private equity	12,316	12.1%	11.1%
Property	37,235	36.5%	32.0%
Public equity	12,019	11.8%	17.0%
Real assets	5,004	4.9%	5.6%
Total	102,053	100.0%	100.0%

The current market conditions have eased, and our endowment has risen in value, but it is very difficult to establish where we are in the real economic cycle and what actions we should take. The Investments Committee has debated the situation at length, and continues to do its best to manage the situation.

Donations

The College is dependent on donations and benefactions to build its endowment and to fund some of its annual activities. This is a crucial source of revenue for us and we are grateful to our historic and current benefactors. During the year we received £2.9m which was added to the endowment, plus amounts for immediate use of £1.1m.

The majority of the donations and benefactions which are given to the College allow the Master and Fellows to determine the best use for the funds. The majority of these are given to support the College in perpetuity and so are managed accordingly. In addition, we receive some donations that are for immediate use, these are often for specific activities in the year – the choir, the Chapel or the boat club but also some of the regular donations we receive for general purposes are available to be used in the year.

Other funds are given for specific purposes – for example, recent donations have been given for the establishment of the 1956 Lectureship, Richard C S Evans Bursary Fund, John Barabino Bursary Fund and the John Chumrow Choral Scholarship. In addition we have received a substantial legacy from Roger Barclay-Smith to further endow the Phyllis Barclay-Smith Bursary Fund. The College also has very significant historic funds, for example the Tapp Trust which chiefly supports provision for law students and Fellows. Each of these is accounted for as a separate ‘restricted fund’. They share in the same approach to the management of the investment assets which I discussed above, but we keep track of each fund and the associated income so that we ensure that donors’ wishes are adhered to.

Capital and Reserves

The College’s unrestricted funds amount to £102,039,000 and are represented in the balance sheet by the College’s operational buildings, which are used for teaching and residential purposes, and by part of the investment portfolio. The restricted funds amount to £37,730,000, represented by part of the investment portfolio. The total capital and reserves stood at £136,791,000 at 30 June 2009, compared to £155,770,000, which is a reduction of 12.1%. The main contributory factors are the reduction in the value of the investment assets compensated for by the permanent donations and benefactions referred to above.

Expenditure on buildings

TThe majority of the capital expenditure during the year relates to refurbishment costs of our buildings. This totalled £2.7m and represents some 1.2% of the insured value of the land and buildings. The Royal Society of Chartered Surveyors recommends that 1.8% of the insured value is required to maintain historic buildings to meet contemporary demands. The College recognises that it needs to accelerate some of the refurbishment of the existing buildings. Some critical elements are reaching the end of their economic life, for example the roofs of the Old Courts and, very critically, many elements of the fabric of Harvey Court. In addition, the stonework of the Old Courts needs attention. We are making progress with these refurbishments as funds allow. The major refurbishment of Harvey Court is due to start in June 2010 and will keep the building out of use for the entire academic year 2010/11. We started the re-roofing of Tree Court in summer 2007 and we aim to complete a phase of this work during each summer vacation.

The major projects completed during this year were:

• Second phase of work on the Waterhouse building roof
• Rewiring in Finella
• Refurbishment of the historic fabric in Gonville Court and the Chapel roof
• Refurbishment of U&V staircases in Tree Court
• Dealing with damp and drainage issues at 3&4 St Pauls Road
• Improving electrical distribution to F, G & H St Michael’s Court to allow removal of gas fires
• Improvements to shower rooms in Rose Crescent
• Replacing the fire screens in G & H St Michael’s Court

Future developments

Gonville & Caius College is fortunate in being a relatively well endowed College and we have the benefit of a very active fundraising team, and a committed investment committee. However, in common with all Colleges, we are unable to determine the income levels from our core activity of providing education, and so our financial situation always seems rather precarious. The government is likely to take increasing action to deal with the UK budget deficit, and this will impact on funding of Higher Education. We have already seen activity to withdraw the levels of government support to research councils and recent announcements suggest that future cuts in funding for teaching costs may lead to significant reductions in the College Fee income received from HEFCE via the University of Cambridge; however, the eventual scale of these reductions may not be known for some time. The College works on the long term assumption that we will have to fund an increasing level of our education provision. Our key challenges for the future are thus

• Maintaining the high levels of teaching, one to one or in small groups that are core to the experience of Cambridge University and Gonville & Caius College.
• Attracting students from the widest possible range of backgrounds and providing them with adequate support through good bursary schemes to enable them to study without the distraction of financial concerns.
• Attracting and retaining an active Fellowship that is committed to excellence in research and teaching against a global marketplace for academic talent. We have introduced more competitive reward systems and try to support younger Fellows in entering the over-heated Cambridge housing market.
• Maintaining our beautiful historic and modern buildings and upgrading them to meet current health and safety standards and modern IT requirements.

Julia Collins
Senior Bursar