What is an endowment?
Endowment funds are resources with respect to which a donor has stipulated, as a condition of a gift, that the gift is to be maintained inviolate and in perpetuity. An endowment is to be invested for the purpose of producing present and future income that may, also by donor stipulation, be expended or reinvested with the original gift. Income earned on such endowments is distributed according to university policy as established by the Board of Trustees, keeping in mind donor intentions as detailed in a gift agreement. The principal or corpus of the endowment must be maintained intact.
What would be an example of an endowed fund?
Suppose a donor gave $100,000 to the University to be treated as an endowed fund to support student financial aid. That $100,000 cannot be spent and will be invested with other endowment funds forever. However, investment earnings on that $100,000 can be spent in the future, but, only on student financial aid, as per the donor’s stipulation.
How are endowment funds invested?
Although the total endowment for the University is often referred to in the singular, the Endowment is a collection of individual endowed funds that are invested together to provide a sustainable level of support for the University. The overall financial objective of the Endowment is to preserve and grow its real value to support the financial needs of the University in perpetuity. This growth will be reflected in market value as fluctuations occur in accordance with the market. The Endowment should provide a level of financial support (as determined by the Endowment’s spending policy) for the University’s operations consistent with the Endowment’s inflation-adjusted purchasing power. This concept is often referred to as “intergenerational equity”. The University is required to make sure that the economic resources of an endowment gift will support not only current, but also future generations of Laurentians. If an endowment spends at too high of a rate, it is benefitting current generations more than future generations. If an endowment spends at too low of a rate, it is benefitting future generations more than current generations. Intergenerational equity consists of finding the right spending rate which equalizes the benefits between current and future generations. The Investment Committee of the Board of Trustees regularly reviews the performance and asset allocation of the Endowment and works with the University’s investment advisor (currently Cambridge Associates), to make sure the investment portfolio is in line with our strategic objectives.
What is SLU’s endowment spending policy?
Even though the original principal of an endowed fund cannot be spent, the University does take an annual draw against endowment earnings to support its financial needs. The spending rate of the Endowment is currently defined as 5.0% of a trailing twelve-quarter average market value as of March 31 three months prior to the start of the fiscal year. Income calculated as of March 31 is for use in the following fiscal year. However, no award will be made from an endowed fund until the historical book value of the fund reaches the minimum as stipulated in its gift agreement. The spending calculated from each fund can only be spent in accordance with the donor’s stipulation.
For FY22, over 80% of the annual endowment draw was considered restricted by purpose (e.g. student financial aid or a named endowed professorship), and not available for general institutional support.
What does market value mean as opposed to book value?
When the University receives an endowed gift, the original cash value of the gift is known as the book value or historical gift value. The book value also represents any income reinvested into a fund. Market value is what the Endowment would be worth today if you were to sell the investments it holds. As an endowed gift is invested along with other endowed funds, the total value of the Endowment increases or decreases depending on the market performance of the investments. Each endowed fund is assigned a proportional share of the total Endowment’s market value each month.
What is the Fiscal Year-To-Date Return?
This figure represents the gains earned or losses sustained by the underlying endowment investments since July 1 of the current fiscal year. It does not take into account fees, contributions, withdrawals, or other transfers, but rather is indicative of the performance of the investments themselves. Performance of some investments may be estimated as necessary.
Who should I contact with additional questions?
Please e-mail firstname.lastname@example.org and your question will be directed to the appropriate party.
Sources: St. Lawrence University Investment Policy
NACUBO Accounting Tutorial – Endowment Definitions
St. Lawrence University Current and Historical Endowment Values