Endowment Account Administration

Endowment Account Administration Endowment Account Administration - Start

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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. Investment Pool. (Assets by Type). ID: 628342 Download Presentation

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Endowment Account Administration




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Slide1

Endowment Account Administration

Finance Division Information Exchange

May 28, 2015

Slide2

Endowment 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)

Slide3

Investment Objectives

Preservation

of contributed capital

Long-term

growth in excess of

spending

+ inflation

Intergenerational equity

Stable program support

Spending Objectives

Endowment

Management

Slide4

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 endowmentUnrestricted operating funds or expendable gifts may be used to establish these accounts; earnings remain in unrestricted

net assets.

Slide5

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

Slide6

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

Slide7

Endowment

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

Slide8

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%)

Slide9

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

Slide10

Usage Criteria

Fund documentation is maintained on the

DocFinity

enterprise content management platform:

docfinity10.luc.edu

Slide11

Eric Jones

5-7452

ejones6@luc.edu

Erik Grimshaw

5-8599

egrimsh@luc.edu

Treasurer’s Office


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