makerere university old investment policy

Makerere University Investment Policy 2006

MAKERERE UNIVERSITY

INVESTMENT POLICY

January 2006

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Table of Contents

PAGE

1.0 INTRODUCTION ...................................................................................................................................................... 3

2.0 INVESTMENT POLICY ........................................................................................................................................... 4

2.1 OVERVIEW ................................................................................................................................................................... 4

2.2 PURPOSE OF THE INVESTMENT POLICY....................................................................................................................... 4

2.3 INVESTMENT POLICY GOAL ......................................................................................................................................... 5

2.4 OBJECTIVES OF THE INVESTMENT POLICY .................................................................................................................. 5

2.5 SCOPE........................................................................................................................................................................... 5

2.6 SOURCES OF FUNDING................................................................................................................................................. 5

2.7 INVESTMENT GUIDELINES........................................................................................................................................... 6

2.7.1 General Investment Principles.......................................................................................................................... 6

2.7.2 Authorized Investments..................................................................................................................................... 6

2.7.3 Prohibited/forbidden areas ............................................................................................................................... 8

2.7.4 Use of Proceeds ................................................................................................................................................... 8

2.8 STRUCTURE AND RESPONSIBILITY............................................................................................................................... 8

2.8.1 Investment Advisory Committee (IAC) ........................................................................................................... 8

2.8.2 Investment Department (ID) ............................................................................................................................ 9

2.8.3 Director of the Investment Department (ID)................................................................................................ 10

2.8.4 Investment Managers....................................................................................................................................... 11

2.8.5 External Financial Advisors/Firms ................................................................................................................ 11

2.9 CONTROLS.................................................................................................................................................................. 12

3.0 SCHEDULES ............................................................................................................................................................ 13

3.1 SCHEDULE ONE: QUALIFICATIONS OF THE INVESTMENT DEPARTMENT HUMAN RESOURCE .................................. 13

3.2 SCHEDULE TWO: EXPLANATION OF TERMS, RIGHTS AND RESPONSIBILITIES............................................................ 13

3.3 SCHEDULE 3: INITIAL INVESTMENTS AND WORK PLAN ............................................................................................ 16


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1.0 INTRODUCTION

Until the early 1990s, Makerere University was 100 percent reliant on funding from

Government. By then it was still the only public institution at University status in Uganda.

Now Government funding is spread out to three other public Universities (namely, Mbarara

University of Science and Technology, Kyambogo University and Gulu University) besides

other tertiary institutions. Government priority in the education sector is on Universal

Primary Education (UPE) which takes 65 percent of the budget allocated to the Education

Sector. The declining funding to higher education institutions including Makerere

University , coupled with the increased demand for higher education prompted it to start

income generating activities one of which was the self sponsorship scheme. The scheme

has tremendously increased student enrolment without a commensurate growth in the

University�s resources.

Table 1 presents the key sources of funding to the University which include: Government

Subvention from the national budget, support from Development Partners and Internally

generated Income/Appropriation in Aid (AIA) (including Tuition, functional fees,

boarding fees and income/cost-saving from commercial/and service units).

Government Subvention from the national budget declined from 44 percent of the

University�s budget in 2001/02 to 39 percent in 2004/05. Internally generated

Income/Appropriation in Aid (AIA) increased from 31 percent in 2001/02 to 41 percent in

2004/05. A big portion of funds generated through the self sponsorship scheme is used to

enhance staff salaries leaving a small portion for infrastructure and other development.

Table 1 Funding of Makerere University; 2001/02�2004/05 (UGX billion)

2001/02 2002/03 2003/04 2004/05 Source/FY

Amount % Amount % Amount % Amount %

Government 27.54 44% 26.63 39% 27.52 35% 35.6 39%

AIA 19.03 31% 29.44 44% 31.92 41% 37.41 41%

Donor 15.5 25% 11.6 17% 18.22 23% 17.8 20%

Total 62.07 100% 67.67 100% 77.66 100% 90.81 100%

Most of the funding to Makerere University is spent on employee costs. As indicated in

table 2, the employee costs increased from 48.1 percent in 2002/03 to 57.5 percent in

2004/05. Consequently other expenditure lines have either been decreased or eliminated

and in some cases there have been budgetary reallocations. In other instances, the

University has differed payments for supplies of goods and services thereby accumulating

arrears. Due to the limited resources, expenditure on maintenance was on average 2

percent of total expenditure over the period 2003/03-2004/05, which partly explains the

continued deterioration of the existing physical infrastructure.


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Table 2 Actual Recurrent Expenditure (UGX Billions); 2002/03-2004/05 2002/03 2003/04 2004/05

Category Amount % of Total Amount % of Total Amount % of

Total

Employee Costs 30.130 48.1 36.160 53.5 47.330 57.5

General Expenses 7.159 11.4 7.155 10.6 9.678 9.16

Utilities & Property Expenses 3.563 5.7 3.867 5.72 4.411 5.5

Supplies & Services 4.325 6.9 4.965 7.34 5.101 5.62

Travel & Transport 1.890 3.0 2.070 3.06 3.844 3.36

Maintenance 1.226 1.96 1.673 2.47 2.516 1.96

Consumption of Property, Plant

& Equipment

8.388 13.4 3.116 4.61 9.380 8.3

Others 5.948 9.54 8.606 12.7 8.03 8.6

Total 62.629 100 67.612 100 90.29 100

Others includes: communication; professional services, insurance & licenses, contributions to local and

international organizations, employer social benefits to employees, scholarships and

miscellaneous/operational expenses.

Over the years, Makerere University has been grappling with inadequate funding of its

activities, rising student enrolment with associated costs, and physical infrastructure which

is in a state of disrepair. To reverse this state of affairs, there is a need to enhance the

University�s financial resource base. This calls for a policy framework that will guide the

initiatives for enhancing the University�s financial resource base.

2.0 INVESTMENT POLICY

2.1 Overview

This Investment Policy is formulated in accordance with the Universities and Other

Tertiary Institutions Act 2001 Part XI: Financial Provision for Public Universities. The

policy is intended to enhance University revenue so as to: modernize existing facilities and

introduce new ones; fund research activities; and improving the general service provision.

The policy is designed to maximize rate of return subject to policy constraints with respect

to risk, liquidity and diversification of investments. Funding for these investments shall

include but not be limited to grants, loans, donations acceptable to University Council. Use

shall also be made of accumulated funds within the University system.

2.2 Purpose of the Investment Policy

The Policy provides guidelines within which the University�s investment portfolio is to be

effectively and ethically maintained, managed and enhanced for the benefit of Makerere

University. It specifically seeks to:

o Establish clear understanding of the University Investment goals and objectives;

o Define and assign responsibilities for investing activities;

o Offer guidance and define the scope of parties involved in investment undertaking

o Ensure prudent management of university assets according to agreed standards

o Consistent with the laws of the government of Uganda; and

o Establish benchmarks for evaluating results.


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2.3 Investment Policy Goal

The major goal of this Investment Policy is to enable Makerere University to attain financial

sustainability.

2.4 Objectives of the Investment Policy

Investments shall be made with following objectives of:

a) enhance University revenue;

b) Introduce new services as well as improving and modernizing existing services

(introduction of cafeteria system in the dining halls).

c) Generate resources for research and the establishment of facilities commensurate with

the growing student numbers (for instance, lecture theatres, libraries, internet cafes,

text books).

2.5 Scope

The Investment Policy shall cover short-, medium � and long-term investments.

Short Term : The length of time during which the University's stock, bond or any other

liability is held before it becomes a long term investment. Normally, this will be a period of

one year and below within the annual budgetary cycle.

Medium Term: Depending on the type of security under consideration, a medium term

position will range from two to ten years. During this period, the University will consider

investments which include; mid-term economic infrastructure and other development

reforms with emphasis on transfer of technology and training to realise increased returns.

Long-Term: This is the period of time during which the University will reallocate

resources and generally re-establish equilibrium. This period focuses on corporate and

other investment-grade securities with an average effective duration of more than 10 years.

The results of such reallocation may be realised in the next 20 to 30 years

2.6 Sources of Funding

The funds to be used for investment shall among others include:

o donations/endowments;

o funds set aside from tuition fees;

o pooled resources from faculties; and

o Any other unutilized University cash balances.

o Private Investors

o Pension funds


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2.7 Investment Guidelines

This section outlines the general investment principles, authorized investments,

prohibited/unauthorized investments as well as the use of proceeds.

2.7.1 General Investment Principles

Investments shall be guided by the following key principles:-

o Safety and Preservation of the Principal.

Safety of the principal is the foremost objective of the Investment Policy.

Investments shall be undertaken in a manner that seeks to ensure the preservation

of capital in the overall portfolio.

o Sufficient Liquidity.

The Investment Portfolio shall remain sufficiently liquid to meet all operating

requirements.

o Maximization of yield on the portfolio.

The investment portfolio shall be designed with the objective of attaining a market

rate of return, taking into account the investment risk constraints and liquidity

needs.

o Public trust from prudent investment activities.

All participants in the University investment process shall seek to act responsibly as

custodians of public trust. Investment officials shall avoid any transaction which

might impair public confidence.

o Investments shall be made with the aim of enhancing University revenue

o Investment can be both national and international

o Investment funds shall be diversified so as to minimize the risk.

o Investment returns will be measured on the basis of total return; that is the aggregate

return from capital appreciation, dividend and interest income

o Officers and employees involved in the investment process shall refrain from personal

business activity that could conflict with the proper execution and management of the

investment program, or that could impair their ability to make impartial decisions.

o For each investment, there should be a cost-benefit analysis prior to investment.

2.7.2 Authorized Investments

The following shall constitute eligible investments and the possible funding sources under

this policy. These will be updated from time to time as the need arises.

(a) Liquidity Related Investment which include the following:

o Treasury Bills

o Shares

o Bonds

o Fixed deposit account

o Any other short term investment that may arise


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Source of Funds: Excess balance, pension funds and any other that

may be identified by the University.

(b) Capital Investments which include the following:

o Academic/ Buildings

Source of Funds: donations, fees and borrowing

o Residential/Students Halls

Source of Funds: Build Operate and Transfer (BOT), Borrowing, Donations

and Fees

(c) Service Providing Facilities

o privatization of the management of halls of residence;

o Sports facilities/ complexes;

o Theatre/conference facilities;

o Student center/ Cafeteria (outsourced catering services)

o Banking facilities

o Shopping centers

o Day care centre

o Contract the management of the Primary School

o Petrol station

o Parking services

Source of Funds: Build Operate and Transfer (BOT), Borrowing, Donations and

Pre paid rent.

(d) Developing Commercial Units at Research Centre

o Makerere University Agricultural Research Institute Kabanyolo

o Buyana Stock Farm

o Biological Field Station Kibale

Separate the teaching and the commercial part of these research centers. Outsource

the Management team outside the Faculty.

(e) Cost-Cutting Investments through:-

o Stationery (Recycling)

o Water harvesting

o Solar energy

o Biogas, through human waste

Water harvesting, solar energy and biogas should be funded through the existing budget

while the paper plant should be financed by means of a joint venture arrangement with

private enterprises.

(f) Technical Expertise � where the University has a comparative advantage

o Faculty / Discipline- based consultancies


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Source of Funds: by faculty budgets. To establish a Policy on percentage of tuition for

investment in technical expertise

(g) Redesign off Campus estates

Develop a hotel/shopping complex on the University land in Kololo and Makindye

Source of Funds: Private Sector Investment, endowment fund and BOT

2.7.3 Prohibited/forbidden areas

University resources shall not be invested in volatile risky business as identified by the

Investment Department. These include but are not be limited to:

o Trading in merchandise

o transport;

o gambling activities;

o Securities in companies not listed on the security exchange for short term

investment; and

o Socially undesirable commodities/services.

2.7.4 Use of Proceeds

The proceeds from the University�s investments shall be used for:

o introducing modern facilities;

o funding research activities;

o improving general service provision;

o re-investment; and

o Other areas as determined by the Investment Advisory Committee.

The proportions of the proceeds to be spent on each of the above areas shall be determined

by the Investment Department in consultation with the Investment Advisory Committee.

2.8 Structure and Responsibility

This section of the policy defines the overall structure of the investment management

program.

2.8.1 Investment Advisory Committee (IAC)

There shall be an Investment Advisory Committee appointed by the Vice Chancellor

composed of the following:

o Deputy Vice Chancellor (F&A)

o University Bursar

o Dean, Faculty of Law

o Dean, Faculty of Economics and Management

o Director, Planning and Development Department

o Member from the Uganda Securities Exchange

o Member Housing Finance Company


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The IAC shall be responsible for overseeing and ensuring that this Investment Policy

established by the University Council is implemented and adhered to. The committee shall

operate in an evaluative and advisory role providing advice to the University Council with

respect to all aspects of the investment program, including but not limited to, investment

strategies, policies and procedures; investment performance and external investment

advisors.

The committee�s responsibilities shall include but are not be limited to:

o Recommend the appointment of the Director and Investment Managers to the

University�s Appointments Board;

o Review policies relating to the administration of the University�s investment

portfolio, and when appropriate make recommendations to the University council;

o Select and terminate financial advisors/dealers for specific funds;

o Establish appropriate performance benchmarks for the Director and Investment

Managers;

o Oversee the director and review the performance of the director and investment

managers on a quarterly basis;

o Screen potential consulting firms and recommend to the University Council;

o Establish and approve of specific guidelines for each of the types of funds; The IAC

will determine the diversity levels of each investment.

o Receive quarterly reports on the investment status of the portfolio(s) and transmit

relevant information to the University Council;

o Monitor performance of the investment portfolio on a regular basis (at least

quarterly); Maintain sufficient knowledge about the portfolio so as to be reasonably

assured of compliance with the Investment Policy; and

o Consider other investment-related matters.

Matters from the Investment Advisory Committee will be communicated to the University

Council through the Finance and Planning Committee of Council.

2.8.2 Investment Department (ID)1

The University investments shall be managed by an Investment Department headed by a

Director answerable to the Deputy Vice Chancellor (Finance and Administration). The

Investment Department shall diligently implement this Investment Policy. The Investment

Department shall be managed by the Director assisted by two (2) Investment Managers as

indicated in the organ gram. In addition, the unit will be beefed up with external financial

advisors/firms. The Investment Department shall provide a quarterly investment report to

the IAC. The report shall contain:

o Asset values;

o Investment returns versus performance benchmarks;

o Forward cash flow statements;

o The investment manager's compliance with the Investment Policy & Guidelines

Statement;

1 The Planning and Development Department currently has a resource mobilization unit headed by the Deputy Director Resource Mobilisation, whose functions are similar to the proposed department. This would be a duplication of activities.


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o The portfolio's investment performance and risk level;

o The ID�s current and proposed investment strategy;

o The ID�s views concerning the economy and the securities markets; with focus on the

likely impact on the unit's strategies and the portfolio's performance; and

o Recommendations on the way forward regarding investments.

Qualifications and requirements are given in schedule 3.1.

Figure 1: Organizational Structure of the Investment Department

2.8.3 Director of the Investment Department (ID)

There shall be a Director of the Investment Department responsible for the overall

management of the Department. The Director is responsible for all aspects of managing and

overseeing the University�s investment portfolio. On an ongoing basis, the Director shall:

o Implement the overall investment strategy;

o Annually develop and communicate to the IAC an appropriate strategy to meet the

objectives of this Investment Policy;

o Advise the IAC regarding searches for financial advisors;

o Provide a monitoring and measurement program which will permit evaluation of the

performance of the investment managers and financial advisors;

o Monitor the asset mix and allocate assets of each investment strategy within the

Investment Policy guidelines;

o Identify appropriate investment opportunities;

o Invest the assets in a prudent manner and consistent with established guidelines;

UNIVERSITY COUNCIL

INVESTMENT ADVISORY COMMITTEE

DIRECTOR

SHORT TERM INVESTMENT MANAGER

LONG TERM INVESTMENT MANAGER

PROGRAM OFFICER/ADMINISTRATOR

RESEARCH ASSISTANT

RESEARCH ASSISTANT


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o Identify appropriate investment/financial advisors;

o In consultation with the University Bursar, identify any unutilized funds from

University units to be pooled;

o Provide the IAC with quarterly performance reports;

o Provide the IAC with an annual review of the Investment Policy Statement, including

an assessment of the current asset allocation and investment objectives; and

o Provide such other information pertaining to the investment program as may be

reasonably required for the attainment of the objectives of this Investment Policy.

2.8.4 Investment Managers

There shall be two (2) Investment Managers namely, short-term investment manager and

long-term investment manager. Their responsibilities shall include but are not limited to

the following:

o Acknowledge in writing the acceptance of the objectives, guidelines and standards of

performance as defined in the Investment Policy;

o Execute investment transactions within this Investment Policy;

o Be available to meet with the IAC at least once every quarter and be prepared to

discuss any matters pertaining to the management of the Invested Assets;

o Report on a timely basis monthly investment performance results to the Director;

o Provide regular quarterly reports, as directed by the IAC, describing portfolio

holdings, at both cost and market value, purchases, sales, income, and performance,

both gross and net of fees, compared to the agreed upon benchmark;

o Communicate any major changes in economic outlook, investment strategy or any

other factors that affect investment or investment objectives to the Director;

o Inform the Director of any qualitative changes in the portfolio management,

personnel for cases of joint ventures, and investment portfolio;

o Provide the Director with any other information that may affect the University�s

investments as outlined in the general investment principles;

2.8.5 External Financial Advisors/Firms

External financial advisors/firms may be appointed by the IAC to assist the ID in the

oversight of the management of the invested assets. The financial advisor/firm shall be

compensated as agreed upon between the financial advisor/firm and the IAC. The financial

advisor shall have the following responsibilities:

o Identify appropriate financial instruments in which University resources can be

productively invested;

o Provide a complete report on a quarterly basis which includes the market value of

the Invested Assets, the performance of the investments, both on an absolute basis

and relative to the benchmark;

o Be available to meet on a monthly basis with the Director of the ID;

o Be available to meet on a quarterly basis with the IAC to provide a review of the

investment program; and

o Perform other projects as may be requested by the Director of the ID and the IAC.


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2.9 Controls

As part of internal control measures there will be an annual independent review by an

external auditor to ensure compliance with policies and procedures.


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3.0 SCHEDULES

3.1 Schedule One: Qualifications of the Investment Department Human

Resource

1. Direct Master of Business Administration (Finance Option)

2. Manager Short Term Investment MBA (Finance)

3. Manager Long Term Investments MBA (Finance) and/or MSc Civil Engineering

4. Program Officer/ Manager MA/ MSc with B. Com/ Economics as first degree

5. Research Assistant B.com/ BBA/ B.A Econ

Applicants for posts 1-3 above must have a proven and thorough knowledge of investment

management, including various investment philosophies and styles, performance measures

and methodologies used in evaluating managers, and investment reporting; demonstrated

leadership, administrative, decision-making and communication skills; and facility with

personal computers. Applicants must have substantial experience in endowment

investment administration or investment consulting.

3.2 Schedule two: Explanation of terms, rights and responsibilities

1. Asset Allocation: Mix of Investments

This is an investment portfolio technique that aims to balance risk and create

diversification by dividing assets among major categories such as: cash, bonds, stocks and

real estate. Each asset class has different levels of return and risk. The right asset mix

relative to an investors risk tolerance can generate higher returns, while effectively

managing risk. An optimum investment mix considers the following factors:

o performance expectations,

o amount of time expected to achieve goals, and the

o level of risk that the investor is prepared to accept

2. BOT (Build, Operate, & Transfer)

A contractual arrangement whereby a prospective investor undertakes the construction,

including financing of a given infrastructural facility, and the operation and maintenance

there after. The investor operates the facility over a fixed term during which s/he is allowed

to charge facility users appropriate fees or rentals within limits as negotiated in the contract

to enable him/her recover his/hers operating and maintenance expenses in the project. The

investor transfers the facility and the developments thereon to the owner at the end of the

contracted fixed term.

Makerere University may enter into contract with an investor to refurbish and expand to

modern standards all commercially-viable units e.g. an all-facility sports/health complex.

While a membership fee will be charged and collected from both the students and the

general public, the University will collect a monthly fee from the investor and gain from the

expertise and transfer of management skills and efficiency.

3. Fees


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An amount of money charged by Makerere University to cover costs of the various services

rendered on campus. It is a charge for a particular service or benefit paid by choice and

collected from the students to defray living and tuition expenses. The fees may be internally

or externally generated under the following categories:

Internally-generated fees:

- Application fees

- Registration fees

- Examination fees

- Hire of University facilities

- Mature-Age Application fees

- Certificate fees

- Graduation fees

- Certificate fees

- Academic Transcript fees

Externally-generated fees:

- Exam fees paid by Makerere students at MUBS

- Fees paid by connected Institutions students

4. Faculty Budget

An annual financial proposal which outlines anticipated Faculty revenue and expenditures

for a fiscal year. Funds are generated from the private programs as well as from donors

among others to facilitate the maintenance and sustenance of Faculty programs.

5. University Budget

This is the University�s plan of financial operations embodying an estimate of proposed

annual expenditures and proposed means of financing them. The University is funded

from various sources including Government, internally-generated funds and donor

funds.

6. Private Sector

A basic organization principle of economic activity in that part of a market-based economy

which is not controlled by the Government and where:

7. Joint Venture

A contractual agreement between Makerere University and firm or individual to mutually

accomplish a business objective by sharing the cost, the risk and the reward.

8. Pooled Resources

Funds raised/ contributed by various units to a specific investment.

9. Borrowing

Taking loans from recognized financial institutions.

10. Donations

Contributions in cash or in kind by individuals, corporate bodies or foundations in support

of the University�s overall objectives. These may include; gifts of buildings, seed capital for


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research projects, sponsorship for conferences and academic activities, and donations of

equipment, software, books, furniture and objects of art.

11. Endowments

A restricted donation made to the University where the capital value is invested, and the

annual investment income supports a specified educational purpose. The funds are held in

perpetuity.

12. Privatization of Management

Divesting the management of non core service.

13. Outsourcing

A phenomenon in which the University delegates a part of its in-house operations to a third

party with the third party gaining full control over that operation/process for a fee.

14. Pre-paid Rent

This is an income from rent received by the University in advance.

15. Unutilized Balance

This is the amount of working capital in excess of the amount necessary to keep University

operations afloat throughout the operating cycle. Unutilized balance may result from excess

amounts of fees or other payments that the University has collected over an accounting

period. It is a situation in which assets exceed liabilities, while income exceeds expenditure.

16. Pension Fund

Social security fund contributions from both University employees and the University

Council.

17 Investment Advisors/ Firm

An external investment who


3.3 Schedule 3: Initial Investments and Work Plan

Project

Identification

Prospective

Partner(s)

Intervention Expected Output Initial

Requirement

Modern Sports/Health

Club Facility

Property

developers

- Sudhir

Ruparelia

- Karim Hirji

- Property

Services

B.O.T contract 1. fully-fledged

sports facility

2. increased

revenue

3. improved

leisure/health

facilities for

students

Feasibility Study and

scouting for location

of the facilities

Senior Common Room/

Catering services

- Rwenzori

Coffee

- Nandos Group

Renovation &

Outsourcing

services

- improved image

- rent income

Makerere Primary

school should be taken

over on management�

contract basis

Expansion/construction

of new private Halls of

residence

- ROKO

- Hima Cement

- Casements

- B.O.T contract

- In-kind

Contributions

- increased space

- revenue

- improved living

conditions



of the facilities

Construction of

conference facilities

- ROKO

- Hima Cement

- Casements

- B.O.T contract

- In-Kind

contribution

- modern

conference

facility

- revenue



of the facilities

Establishment of

Internet cafes

- Infocom

- Afsat

- Spacenet

Pre paid rent - improved access

to

internet services

- revenue for the

Halls

residence

Identification of

placement

Bookshop renovation /

expansion

Banking Facilities DFCU Pre Paid Rent Increased

efficiency in the

Banking services

available

Liaison with DWGS

Water Harvesting in

halls of residence

University Budget Identification of

pilot hall of

residence

Students Catering

services

??? Outsource the

student

Increased

efficiency and

reduced

management costs

(dining halls in halls

of residence should

be phased out as

soon as the cafeteria

system is

introduced);

Pension Funds

Management

Investment

Managers

(Godfrey to list)

Pension funds Increased boost to

retirement benefits

and reduction in

arrears

Multi Purpose/ Faculty

Lecture halls

Pooled resources

(fees)

MUARIK Management

makerere university old investment policy

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