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
CHAIR/PROF
25%
TRUE
QUASI
45%
47%
FINANCIAL
AID
PROGRAM/OTHER
40%
29%
RESERVES
8%
Investment Pool
(Assets by Type)
RESEARCH
6%
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)
Endowment Management
Investment Objectives
Spending Objectives
• Preservation of contributed capital
• Intergenerational equity
• Long-term growth in excess of
spending + inflation
• Stable program support
4.00
3.50
3.00
2.50
2.00
1.50
1.00
June FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
30 '96
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
Endowment Budgeting
Rule of thumb: Most fund budgets can be estimated at 4% of asset value
• 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
• 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
Budget calculation timeline and mechanics:
• 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
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
Treasurer’s Office
Eric Jones
5-7452
ejones6@luc.edu
Erik Grimshaw
5-8599
egrimsh@luc.edu