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May 24, 2010
8:30 a.m. CT
Executive Committee: Olathe
MINUTES
Kansas Bioscience Authority
Executive Committee of the
Board of Directors
Monday, May 24, 2010
8:30 a.m.–10:00 a.m..
Call to Order: A quorum being present, a meeting of the Executive Committee of the
Board of Directors of the Kansas Bioscience Authority was called to order by Chairman John Carlin at 8:35 a.m. on May 24, 2010. Additional members of the Committee in
attendance in person or by telephone were Dr. Ray Smilor, Sandra Lawrence and Bill
Sanford. Dr. David Franz joined during the meeting. KBA staff members in attendance
included Tom Thornton, Janice Katterhenry and David Vranicar. Catherine P. Logan,
Lathrop & Gage, was present representing legal counsel.
Review of Minutes: Chairman Carlin asked for a motion to approve the minutes of the
Executive Committee meeting of January 25, 2010.
Motion: Ms. Lawrence moved that the minutes of the January 25, 2010, meeting
be approved as presented. Dr. Smilor seconded the motion, and it was
unanimously approved.
Review Cash Investments and Policy: The next item of business was review of cash investments and policy. A presentation way made by Armand Yambao of Ennis Knupp
& Associates. Mr. Yambao referred the committee members to a power point titled
Credit Update in the committee packet.
Referring to the slides labeled Market Update, Mr. Yambao summarized the
performance of the fixed income market over the past two years. He noted that returns
for the fixed income sector have improved over the past year, and spreads have come
back to historic average levels from high peaks in late 2008 and January, 2009.
Referring to Slide 7, short-term instruments, where KBA is invested, are earning close to zero, compared to other investments which earn a higher yield. Slides 8-9 are a quick overview again of what how markets are being affected by the Greek Debt Crisis and its impact on the Euro.
Chairman Carlin asked Mr. Yambao to remind the committee of how the KBA’s funds are currently invested.
Mr. Yambao referred to slide 12, Current Fund Line-Up. About $30 million of KBA
assets is invested with the Pimco Prime Money Market Fund and about $58 million is
invested with UBS Select Prime Institutional. These are very conservative portfolios
earning close to zero return. Slide 13 shows the longer history of how these funds have performed. Beginning on slide 16 is a presentation of higher yielding fund options while staying with Pimco and UBS. Slides 18-19 provide historical returns on these alternative funds. Slide 20 illustrates projected cash balances assuming a worst case scenario “zero” return. The next slides illustrate projected cash balances if higher yielding investments are considered.
Scenario A, with projected cash balances illustrated on slides 22 and 23, assumes 100% KBA cash is invested in an “Enhanced Cash” fund with a projected annual return of 0.5%. Scenario B, with projected cash balances illustrated on slides 24 and 25, projects 50% of KBA cash is invested in an Enhanced Cash fund, and 50% is invested an “Intermediate Credit” fund with an expected annual return of 1.5%. These tables and graphs project best return and worst return outcomes over a five year period, and
illustrate that Scenario B results in higher cash balances at the end of the period if the
best outcomes are achieved, but that there is a cash deficit under Scenario B at the end of five years if the worst return outcomes occur, compared to Scenario A where there is not a deficit.
If, KBA is willing to seek a higher yield on its cash investments, Ennis has identified two options which will provide increased yield, a PIMCO combination of mutual funds, and a UBS customized separate account. Ennis recommends liquidating the existing PIMCO fund and investing the proceeds in the UBS customized separate account.
Chairman Carlin asked for clarification as to which of the two options is more
conservative. Mr. Yambao confirmed that the UBS customized separate account is the
more conservative investment.
Ms. Lawrence and Dr. Smilor both expressed a preference for the more conservative
option, noting that the KBA funding represents tax dollars.
Mr. Thornton commented that the compelling aspect of the UBS proposal is the
customized element to it. Beyond the approach that Mr. Yambao has already stated, he believes that the combination of the two funds will put KBA in a good spot.
Motion. Ms. Lawrence moved to approve the following resolution:
A RESOLUTION OF THE EXECUTIVE COMMITTEE OF THE BOARD
OF DIRECTORS OF THE KANSAS BIOSCIENCE AUTHORITY TO
ESTABLISH AN ACCOUNT WITH UBS GLOBAL ASSET
MANAGEMENT AND LIQUIDATE THE ACCOUNT WITH PIMCO.
WHEREAS, the Bioscience Authority Act, K.S.A. 74-99b01 et seq. (the
“Act”) authorizes the Kansas Bioscience Authority (the “Authority”) to
accept any gifts, grants and loans of funds and to deposit any moneys of
the Authority in any banking institution within or without the state or in any
depository authorized to receive such deposits, one or more persons to
act as custodians of the moneys of the Authority; and
WHEREAS, the Authority from time to time reviews investment
performance and cash requirement needs with the Authority’s financial
advisor, the Authority desires to accept the financial advisors
recommendation to liquidate the Authority’s account with PIMCO and
establish a new account with UBS Global Asset Management which will
allow the Authority to pursue higher yields while taking into account
expected cash flows.
NOW THEREFORE BE IT RESOLVED, BY THE EXECUTIVE
COMMITTEE OF THE BOARD OF DIRECTORS OF THE KANSAS
BIOSCIENCE AUTHORITY, AS FOLLOWS:
SECTION 1. UBS Global Asset Management, is hereby designated a
depository of the Authority, and an account shall be opened and
maintained, for deposits of funds received by the Authority, and such
Account shall be held and maintained by the Authority in accordance with
the Act.
SECTION 2. The Authority hereby authorizes and instructs the Treasurer
or President or Chief Financial Officer of the Authority to execute any
agreements, pledges or any other documents or certificates as may be
necessary to accomplish the purposes set forth in this Resolution.
SECTION 3. The Authority hereby authorizes and instructs the Treasurer
or President or Chief Financial Officer of the Authority to liquidate the
PIMCO fund.
SECTION 4. This Resolution shall be in full force and effect from and
after its adoption.
The motion was seconded by Dr. Smilor and unanimously approved.
Final AOP Review: Chairman Carlin announced that the committee would next take up
the item of business Final AOP Review. Chairman Carlin asked Mr. Thornton and Ms.
Katterhenry to confirm that what the committee will approve is the final Annual Operating Plan for Fiscal Year 2011, as revised to reflect input from KBA directors.
Mr. Thornton noted that discussion of the plan in executive session at the May Board
meeting was very productive. The AOP under consideration is not changed as to
thematic priorities or major sections or elements as it relates to research and
development or the commercialization activities of the KBA. In the final version,
approximately $100,000 was repositioned to emphasize programmatic and marketing
activities associated with Heartland BioVentures.
Mr. Thornton also noted that the AOP is a living document and the KBA board and staff will revisit it, if necessary, perhaps in the January meeting if that was acceptable.
Chairman Carlin agreed that there ought to be course corrections if called for.
Mr. Thornton confirmed that the AOP being approved by the Committee includes only
very modest changes from the draft considered at the May Board meeting. Once
approved the KBA sends out a press release, although the actual plan itself is available upon request.
Dr. Franz joined the meeting.
Motion. Dr. Smilor moved that the Executive Committee approve the Annual
Operating Plan for FY 2011 in the form prepared by KBA staff and discussed at
this meeting. The motion was seconded by Ms. Lawrence and unanimously
approved.
Executive Session: Chairman Carlin suggested that the committee recess into
executive session to discuss personnel matters
Motion to Recess into Executive Session. Dr. Smilor moved that the committee
recess into executive session pursuant to K.S.A. 74-4319(b)(1) for the purpose of
discussing personnel matters of non-elected personnel. The executive session
will begin at 9:05 a.m. and continue for 15 minutes. The meeting will reconvene
at 9:20 a.m. in this conference room. Included in the meeting will be members of
the committee and Katie Logan, legal counsel. The motion was seconded by
Sandra Lawrence and unanimously approved.
Return to Open Session: The Board reconvened in open session at 9:20 a.m.
Tom Thornton Contract: Governor Carlin announced that the specific item under
consideration is a form of employment agreement with chief executive officer, Tom
Thornton.
Ms. Logan stated that the employment agreement under consideration and reviewed in
executive session shifts the employment year for the chief executive officer to match the fiscal year for the KBA. It raises his base compensation and bonus percentage and then it adds specific metrics to support the determination of the bonus.
Motion. Dr. Smilor moved to approve the form of employment agreement
considered by the committee. The motion was seconded by Ms. Lawrence and
unanimously approved.
Discussion followed of targeting the next Executive Committee meeting for July 20.
Adjournment: There being no further business to come before the meeting, the meeting was adjourned at 9:24 a.m.
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