Endowment Payout Process
Posted July 2013
Endowment Payout Process Tutorial Segments
1.
2.
Basic Mechanics of Endowment Payout Process
Commonly Used Endowment Reports
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2
Basic Mechanics
of Endowment
Payout Process
What is Endowment Payout?
 Endowed funds in the Merged Pool (Stanford’s primary investment pool)
receive a “spendable” dollar amount monthly to support university
expenditures per donor wishes and restrictions. This is known as “payout.”
 Payout per share is approved by the Board of Trustees every February for
the following fiscal year.

The University balances the need for stable and predictable current spending
with the need to preserve endowment principal to support spending into
perpetuity to create intergenerational equity.
 An endowment “income fund” holds the payout produced by the fund’s
investment in the Merged Pool.


Income funds are accounted for in the SU or operations ledger
The principal investment is accounted for in the EN or endowment ledger
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Payout Timing & Spending Flexibility
Example: Fund with 1,000 Shares
Annual Payout = $12/share; Monthly Payout $1/share
$1k
$1k
$1k
$1k
$1k
$1k
$1k
$1k
$1k
$1k
$1k
$1k
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Monthly Payout = # shares X payout per share
12
Fund-holding orgs may spend anticipated payout anytime
during the fiscal year
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Payout Impact on Share Value
Example: Fund value = $300K (1,000 shares, $300/share).
Annual Payout = $12/share; Monthly Payout $1/share
$1K
$1K
$1K
$1K
1,000 X
$300
$299
=$300,000
=$299,000
1,000 X
$298
=$298,000
1,000 X
$297
=$297,000
1,000 X
$296
=$296,000
Sept
Oct
Dec
Nov
$1K
1,000 X
$288
=$288,000
. . . . . . . Aug
Share value declines by $1/month as payout is distributed
This simple illustration only depicts how payout decrements share value
and does not consider market fluctuation.
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Evaluating Payout Resources
“Payout Resources” are the monies available for a fund (i.e., earnings,
appreciation, full market value) to make monthly payout.
Example: Monthly Payout Amount = $1/share ($1,000 per fund)
Pure B Limited
Pure B
Unlimited
FFE
(Quasi Shares)
# of Shares
1,000
1,000
1,000
Book Value
$250,000
$250,000
$250,000
Market Value
$300,000
$300,000
$300,000
$50,000
$300,000
$300,000
(MV – BV)
+ earnings
(MV)
+ earnings
(MV)
+ earnings
$1,000
$1,000
$1,000
Payout Resources
Payout to
Income Fund
Vast majority of Stanford Endowment funds have sufficient resources for full payout.
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Evaluating Payout Resources in Funds with
Multiple Share Types (Pure & Quasi)
Share types in a fund will be evaluated separately for
payout resources and will fund payout proportionately
Example Fund: 1000 shares in total; monthly payout per share = $1
Pure B Shares
Quasi Shares
# of Shares
700
300
Book Value
$175,000
$75,000
Market Value
$210,000
$90,000
Payout Resources
$35,000
$90,000
Payout to Income
Fund
$700
$300
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Payout is covered
proportionately. Pure covers
pure payout; quasi covers
quasi. Fund still gets full
payout.
8
Do Funds Sometimes Have Insufficient Payout
Resources?
• Affects Pure B Limited Funds only, and only when
fund is “underwater”
•
Monthly payout = earnings and any available
appreciation
• There are very few funds in this category
•
Endow_128_Endow_Investment report displays Quasi,
Pure Limited, and Pure Unlimited to assess Payout
Resources
• Undistributed payout stays in principal side of fund
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When Payout Resources are Less than Payout
Amount? (affects Pure B Limited Shares only)
Example: Monthly Payout Amount = $1/share ($0.10 earnings, $0.90 appreciation)
Pure B
Limited
Pure B
Limited
Pure B
Limited
Healthy
Underwater
Partially
Underwater
(insufficient
appreciation)
(no appreciation)
# of Shares
1,000
1,000
1,000
Book Value
$250,000
$350,000
$299,500
Market
Value
$300,000
$300,000
$300,000
Payout
Resources
$50,000 +
$100
$500 +
$100 earnings
earnings only
$100 earnings
Payout to
Income Fund
$1000
$100
$600
Undistributed
Payout
N/A
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$400
Payout of
earnings and
available
appreciation
Undistributed
payout is
reinvested
10
Undistributed Payout Purchases New Shares to
Restore Fund Value
Payout Resources
> Payout
“Healthy”
Before payout
After payout
1,000 X
$300
=$300,000
1,000 X
$299
=$299,000
$1000 Payout
To Income Fund
Before payout
Payout Resources
< Payout
“Underwater”
1,000 X
$300
=$300,000
$900 Undistributed
payout
Buys 3.01 shares at
$299 /share
$100 Payout To Income Fund
(Actual Earnings)
=$300,000
$1,000
After payout & reinvestment
1,003 X
$299
=$299,900
=$300,000
$100
Applies to all funds that do not
get full payout (e.g., Pool A)
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Funds with Pure B Limited and Quasi Shares:
Decapitalization Policy
If pure portion does not have enough payout resources to
make payout on pure shares, total payout will be impacted
Example Fund: 1000 shares in total
Pure B Limited
Shares
Quasi B Shares
# of Shares
700
300
Book Value
$240,000
$100,000
Market Value
$210,000
$90,000
Payout Resources
$70
$90,000
earnings only
Payout to Income
Fund
$70
$300
Reinvest
$630
$0
Undistributed Payout
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Payout on pure shares is
made with available pure
resources only.
Total payout to fund = $370
Option to de-capitalize
quasi shares to make up
‘missed’ payout
12
Commonly Used
Endowment
Related Reports
Fund_153 Report
YEAR-TO-DATE FUND STATEMENT WITH TRANSACTION DETAIL
By Project
For Non-Sponsored Funds
For the period ending November 30, 2013
Information contained in this report is incomplete if the Report Period is after the LAST CLOSE
Report Prompts:
001: Award Number
KXXXX
005: Award Purpose
%
009: Award Donor
%
013: Set of Books
SU
002: Award Owner
%
006: Award Free-form
%
010: Award Start Date
%
014: Award Status
%
003: Award Manager
%
007: Award Lvl Control
%
011: Award End Date
%
100: Award Org
%
004: Award Type
%
008: Award Lvl Restr
%
012: Award Name
%
200: Ending Period
NOV-2013
KXXXX
Project
Org
Object
Source
Journal
Description
Date
Amount
YTD Total
Beginning Balance
Beginning Balance
Receipts
Receipts
1000000
1000000
1000000
1000000
- Endowment
ZZZZ
ZZZZ
ZZZZ
Payout
Endowment Payout
Endowment Payout
Endowment Payout
"Payout"
"Payout"
"Payout"
Total - Unspecified General Operations
09/01/13
10/01/13
11/01/13
0.00
10,000.00
10,000.00
10,000.00
30,000.00
Total Receipts
30,000.00
Transfers
30,000.00
(95,000.00)
Total Transfers
Expenses
1999999
(95,000.00)
(95,000.00)
.00
.00
Total- Project XXXXX
Total Expenses
Fund Balance
Net Investments
Fund Balance
Total Net Investments
Available Balance
(65,000.00)
.00
Available Balance
0.00
(65,000.00)
Endowment Payout Note: Endowment payout is distributed monthly. The following information is a projection for planning purposes only and
not a guarantee of future payout or return.
Year-to-date Payout
Anticipated Remaining Anticipated Annual Payout
Anticipated Available Balance
Payout (1)
30,000.00
(1)
90,000.00
120,000.00
25,000.00
Anticipated Remaining Payout = latest monthly payout multiplied by number of months remaining in the fiscal year
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Fund_154a Report – data download
A
BCDE F
G
H
I J
LM
O
Q
RS
A
Award
KXXXX
Receipts Beginning
Endowment
Balance
Payout
0.00
30,000.00
Expenses
Avail Balance [Due
to/from]
(95,000.00)
YTD Payout
November
T
U
B
A+B
VWX
Anticipated Anticipated
Remaining
Available
Payout
Balance
(65,000.00)
90,000.00
25,000.00
Nov payout
x 9 months
Anticipated Remaining Payout: current month payout times the number of months remaining in the fiscal year
Anticipated Available Balance: actual available balance plus anticipated future payout
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Use Fund_128 Report – data download tab
to assess health of Pure B Limited Funds
CURRENT
Limited combined
Limited & Unlimited
Pool B Pure Pool B Pure
Pool Shares
B Pure Pool
B Pure
(Limited)
Shares
Book
(Limited) Book Value
Value
Award
Unlimited
Pool B Pure Pool B Pure Pool B Pure Pool B Pure
Pool
B Pure
(Limited)
Shares (Unlimited) (Unlimited)
Market
Market Value
Value (Unlimited) Book Value Market Value
KXXXX
KXXXX
15,000.00
15,000.00 3,000,000.00
3,000,000.00 4,065,000.00
4,065,000.00
KXXXA
10,000.00 2,000,000.00 2,710,000.00
10,000.00 2,000,000.00 2,710,000.00
 Report Purpose

Summarize share book and market value by fund/pool
 Allows users to:


Analyze limited and unlimited shares separately
Determine available payout resources for each share type
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End