Presentations text content in Endowment Account Administration
Slide1
Endowment Account Administration
Finance Division Information Exchange
May 28, 2015
Slide2Endowment Overview
700+ true and quasi-endowment accounts comprise over 90% of a $600 million long-term investment pool
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)
Slide3Investment Objectives
Preservation
of contributed capital
Long-term
growth in excess of
spending
+ inflation
Intergenerational equity
Stable program support
Spending Objectives
Endowment
Management
Slide4Endowment
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 endowmentUnrestricted operating funds or expendable gifts may be used to establish these accounts; earnings remain in unrestricted
net assets.
Slide5Endowment
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
Slide6Endowed 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
Slide7Endowment
Budgeting
O
bjective: 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
Slide8Endowment
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%)
Slide9Endowment
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
Slide10Usage Criteria
Fund documentation is maintained on the
DocFinity
enterprise content management platform:
docfinity10.luc.edu
Slide11Eric Jones
5-7452
ejones6@luc.edu
Erik Grimshaw
5-8599
egrimsh@luc.edu
Treasurer’s Office
Endowment Account Administration
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