The outcome for 2015/16 represents the eleventh successive surplus for the College. It reflects a strategy the College has implemented to build new sources of operating income, while seeking to control costs and increase operating efficiencies. This attention to our financial base allows the College both to plan for its future and to provide unsurpassed support to its students and academic staff, as highlighted elsewhere in this report.
Total income including donations from all activities was £13.4m, ahead of budget and a material increase on the results for 2014/15. In particular, recognition must go to the Domestic Bursar and her team for increasing conference rents and catering income, which came in over budget and ahead of the out-turn for the previous year. Similarly, the generosity of our donors, supported by the Development Director and his team, remain a crucial source of support for Balliol as they have done throughout much of the College’s history. These efforts remain crucial to the College as it seeks to deliver its mission.
Expenditure, at £12.3m, reflected our typical composition of costs, with increased expenditure for building renovations, infrastructure, and key academic priorities such as student Financial Aid, the Library, and outreach expenses. While academic salaries are set by national agreement, Balliol seeks to pay its non-academic staff on a competitive basis with other Oxford colleges, and to match Living Wage increases. Overall, expenditure has been carefully managed. Total non-staff expenditure came in below budget for the financial year, we are pleased to report. The forward budget process remains a key discipline for the College. The critical test for Balliol’s financial stability is the relationship between the patterns of income and expenditure, and these are currently in satisfactory balance.
The figures in the charts above are extracted from the College’s statutory audited financial statements for the year 2015/16, which were approved by Governing Body on 9 November 2016. They show that the ongoing generous support of Balliol’s donors is crucial if the College is to continue to build its endowment while achieving many of its academic and operational objectives now and in the future. Generous capital donations of £2.8m are to be transferred to the endowment.
The value of the College’s endowment funds stood at £101.6m as at 31 July 2015, up £9.7m from one year ago on a like-for-like basis. Over the 12 months to 31 July 2016 the College’s investments performed well in excess of benchmark returns, with a total return after expenses of 9.0%.
Several of our holdings made positive contributions. Our diversified asset manager, Oxford University Endowment Management, provided returns of 9.8%. Our equity tracker holdings with Vanguard were up 16.3%. Our holdings with the former Oxford Investment Partnership Fund were also up 16.3%. Private equity holdings have been a key feature of the College’s investment returns in recent years. As these positions are continuing to mature we anticipate further positive returns in the coming years. Our property investments in the Charities Property Fund returned 8% and as the College has no external property portfolio, this holding provides us with exposure to this asset class. Balliol’s exposure to US and developed market equities, and a modest exposure to unhedged US dollar positions, added to our investment performance. The improvements in Balliol’s underlying financial condition have provided scope to be more prudent with expenditure taken from the endowment. The College has reduced its spending rule, based on a four-year rolling average of endowment value, to a drawdown of 3.5%. We believe this will promote sustainability and intergenerational equity for future students and Fellows.
In the financial year 2015/16 the College examined several external risks which might affect investment strategy, including low economic growth, political issues, and the Brexit referendum result. The Investment Committee, membership of which comprises a balance of external members, many of whom are Old Members, plays a central role here. Balliol’sportfolio strategy seeks equity-like returns, but with a significant reduction in risk. This is achieved by having a portion of our portfolio in conservative investments such as cash, bonds, and absolute return holdings. We also use our long investment horizon to seek opportunities, by taking an exposure to multi-asset class managers. Finally, the College is prepared to accept a degree of liquidity and volatility in certain holdings such as equity, property, and private equity, where we consider an enhanced return can be achieved.
In May 2016 Balliol commissioned a review of its investment strategy and portfolio allocation by Lane Clark & Peacock, a leading charity investment consulting firm. Their advice was to continue our risk-averse posture, and they reported: ‘The current allocation of the Balliol investment funds continues to be reasonable in our view, and we see no reason for material changes to the broad asset mix, managers or policy.’ The Investment Committee believes that an independent review of College’s investment policy will promote informed decisions when investing Balliol’s assets, and plans to hold such a review every four to five years.
As the Master discusses in the Annual Report 2017, the College plans to redevelop the Master’s Field in order to expand its undergraduate and postgraduate accommodation capacity. Governing Body approved, in principle, itscommitment to this plan in late 2015. The chart (right) shows that clear improvements in Balliol’s underlying financial position have been achieved over the last five years, and these steps significantly improved the terms on which Balliol could raise the core financing for this critical project.
In the initial planning stages, the College evaluated a variety of ways to finance the project, ranging from use of endowment funds to various forms of debt to a sale-and-leaseback structure. At that time, long-term borrowing costs were seen at an historic low, and some UK academic institutions were securing longterm borrowing in the capital markets. In December 2015 Balliol raised £35m through a private placement bond with a 45-year fixed rate of interest of 3.37% managed by Credit Suisse. The investor is a single institution with a long record of investment in the charitable and academic sectors. We believe the College has secured long-term financing at an attractive level of cost which will enable the Master’s Field development, over the longer term, to repay the principal amount comfortably and indeed, with an increased capacity for banqueting and conference activity, return a positive cash flow to the College.
Annual Report and Financial Statements - Year ended 31 July 2016
Annual Report 2016Annual Report 2015
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