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Endowment Payout

SAU Foundation Policy on Endowment Payout

Consistent with the overriding intent to encourage the growth of the foundation’s assets through reinvestment of a portion of the annual earnings and to provide support for university priorities, projects, and programs at a level consistent with the intentions of the donors, the initial payout policy shall be 4.25% of the current market value of the foundation’s assets based upon a 3 year rolling average.

Rationale:

  • The objective is to sustain and increase the value of the endowment – that is, the income 30 years from now should be sufficient to underwrite the designated purposes of the donor’s criteria for which the endowment fund was originally set up.
  • The endowment is not monolithic but instead consists of a great number of individual funds. Each fund must be accounted for separately. Objective of the 4.25% over a 3 year rolling average is to maintain the purchasing power of each fund in relation to the average level of the cost-rise across the institution.
  • Sufficient total return must be reinvested and new funds added in order to maintain the endowment’s share of total income supporting academic operations.
  • The rolling average is a “smoothing” tool. It is intended to mitigate the effects of the short-term market volatility on spending from endowment.
  • The rolling average is a common practice of university foundations (source: 1988 NACUBO Endowment Study; exhibit 9). Page 41 of Endowment: Perspectives, Policies and Management by William F. Massey, Stanford University.
  • A “prudent man” standard needs to be applied when setting target return rate and spending rate.
  • We must think about what it means to support in “perpetuity.” For example if a partial tuition scholarship is funded by $15,000 today, how much would it take to fund the same partial tuition scholarship in 30 years?
  • The 4.25% rolling average is a starting point, with hopes to move to a 5% 5 year rolling average.
  • .25% is assessed to the endowment to help pay for the foundation’s operations.

Modified: February 26, 2010 at 2:52 pm