endowment account administration finance division information exchange may 28, 2015
TRANSCRIPT
Endowment Account Administration
Finance Division Information Exchange
May 28, 2015
Endowment Overview
700+ true and quasi-endowment accounts comprise over 90% of a $600 million long-term investment pool
True
45% Quasi
47%
Reserves9%
Fi-nancial Aid28%
Chair/Prof25%
Pro-gram
/Other
40%
Research6%
Investment Pool(Assets by Type)
Endowment Accounts(Assets by Use)
Each fund (AU) receives a pro rata share of pool earnings and is accounted for separately (akin to individual shareholders in a
mutual fund)
Investment Objectives
• Preservation of contributed capital
• Long-term growth in excess of spending + inflation
• Intergenerational equity• Stable program support
Spending Objectives
Endowment Management
1.00
1.50
2.00
2.50
3.00
3.50
4.00
June30 '96
FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Real Dollar Growth (After Spending + Inflation) Real Return (After Inflation) Nominal Return
Endowment Account Characteristics
True Endowment Donor-restricted gift meant to be invested in perpetuity or, for a “term endowment,” for a specified length of time
Contributed gifts are recorded in permanently restricted net assets (unless donor stipulates principal to be expendable); outstanding pledges may also be part of this balance.
Fund earnings are recorded in temporarily restricted net assets. Spending from a fund is deducted from this balance.
Quasi-Endowment Funds the University elects to designate for a specific use, invest and administer in the same manner as a true endowment
Unrestricted operating funds or expendable gifts may be used to establish these accounts; earnings remain in unrestricted net assets.
Endowment Account Characteristics
Total Assets =
Net Pledge Receivable+
Invested Asset Balance- / +
Due To/Due From University
1240/1245
+1350
- / +1971
This will equate to total net assets, so be sure to adjust for pledges if your reporting uses net assets to determine a fund’s balance
• A fund’s invested asset balance will be the sum of its actual gifts received and accumulated earnings, net of all prior spending
• Activity from the previous month (gifts less spending) generates a net “Due to/Due from” figure
• Investment earnings are allocated each month based on this total for each fund as a proportion of the total investment pool’s assets and dt/df
• Endowed funds are budgeted according to BoT guidelines– Budgets are capped at 5% in absence of donor stipulations
directing otherwise– Current base budget calculation results in effective budget
rates that float in a 3-5% band
• Funds budgeted for an endowment account remain invested until drawn (effectively, until one month after spending occurs)
Endowment Budgeting
Rule of thumb: Most fund budgets can be estimated at 4% of asset value
Endowment Budgeting
• Objective: mitigate year-to-year fluctuation while maintaining responsiveness to changes in asset values
• Budgets are calculated as an equal-weighted average of:– (1) Prior-year budget, adjusted for inflation– (2) A base spending rate applied to measurement-date
asset value
– Results are subject to a 3% floor in addition to the 5% cap
• Inflation increment and rate applied to market value can each be adjusted annually in response to costs, market conditions
Endowment Budgeting
Example: ABC Endowed Fund
Measurement Value: 66,000
Prior-year Budget: 2,100
Inflation Factor: 2.0%Inflated PY Budget: 2,142
Spending Rate: 4.0%MV Component Calc:
2,640
Calculated Budget: 2,391(Effective Budget Rate:
3.6%)
Endowment Budgeting
• Initial calculations are made in the Fall (for the following FY) to allow for evaluation and adjustment to inputs as necessary
• Calculations are finalized and loaded as BAS budgeting system “control totals” in February
• Administrators allocate budget dollars up to the control total across applicable expense codes in BAS
• BAS output is transferred to Lawson in advance of the new FY
Budget calculation timeline and mechanics:
Ideally, BAS output and a fund’s Lawson budget matches the budget calculation/ control total, easing expense tracking and subsequent years’
planning
Usage Criteria
Fund documentation is maintained on the DocFinity enterprise content management platform:
docfinity10.luc.edu
