Endowments Frequently Asked Questions
What is an endowment?
Endowments are a way for donor’s to give to the university, and represent the institution’s promise to donors to use the income and investment gains generated by their gifts to support an aspect of the university’s mission into perpetuity as specified by the donor.
There are three type of endowments:
1) True Endowments are funds given with a donor-imposed restriction that the corpus is not to be expended but is to be invested for the purpose of producing earnings.
2) Term Endowments are funds with a stipulation that the principal may be expended after a stated period or upon the occurrence of a certain event.
3) Quasi-Endowments are institutional funds set aside by the Board which is then treated like a true endowment.
How big is the TTUS endowment?
The TTUS Endowment surpassed $1 billion for the first time in fiscal year 2014 and the endowment’s combined assets were valued at $1.15 billion at the close of fiscal year 2016.
Who is responsible for the management of the TTUS Endowment?
The Board has fiduciary responsibility and manages the endowment in compliance with any donor restrictions and state law, including the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The Board has delegated the day-to-day management of the endowment to the Chief Investment Officer and contracted investment managers and advisors in accordance with the LTIF policy.
How are funds invested?
TTUS pools the individual endowment funds together and invests the group as a single portfolio called the LTIF (Long-Term Investment Fund). The portfolio is invested in diversified assets that seek growth as well as income, with stable funding and low volatility over time.
The goal of the LTIF is to achieve a rate of return slightly above the spending rate plus inflation. The most important benchmark, over longer time periods, is to exceed the 4.5% spending rate which the LTIF has achieved. The next most important goal is to exceed the CPI (Consumer Price Index) + 5%. In generic terms, the goal for endowments is an average return of 8.0%.
What is the spending distribution rate?
The LTIF Policy states the spending distribution rate shall be between 4%-6%. The TTUS spending distribution rate is currently set at 4.5%.
How is the spending distribution calculated?
TTUS distributes earnings from the corpus to the spendable four times per year. The quarterly spending distribution is determined by taking the spending rate (4.5%) times the endowment’s 12 quarter rolling average for the period (not the beginning balance times 4.5%). The result is distributions that are fairly consistent and do not have too much variance from quarter to quarter, as they are safeguarded against market fluctuation.
How much has TTUS distributed for spending?
Over last 20 years TTUS has distributed $457 million for use by the various component institutions. Approximately $52 million was distributed in FY 2016 alone.
Is it possible for an endowment to go below its original value?
Governed by the Uniform Prudent Management of Institutional Funds Act (UPMIFA), the TTUS Endowment seeks to preserve purchasing power and has a flexible framework.
Donations to the endowment are not expected to be spent, but the goal of maintaining an endowment funds’ original value is not a priority. In up years TTUS may spend less than the return to grow the endowment, and in down years TTUS may spend more than the return for the benefit of the mission.
What happens if there is an unused balance in a spendable account?
Any unused balance remains with the spendable account. The intent is to spend 100% of the annual allocation per the donor’s request.
What is the management fee and how is it utilized?
The management fee for funds invested in the LTIF is 70 bps (basis points), or 0.7%, of the 12 quarter rolling average of the net asset value. The use of the fee is outlined in the LTIF Policy, which states 50% of the fee shall be used to support the operations of the Office of Investments, with the remainder of the fee utilized to support the fundraising activities for the TTUS Office of Institutional Advancement.
How does the TTUS management fee compare with other Institutions of Higher Education?
TTUS’s management fee is one of the lowest fees of the Big 12 and AAU Schools.
How can I obtain endowment fund balance information?
Donors can obtain information on their endowment funds by contacting Institutional Advancement’s endowment compliance team at (806) 742-3273 or Ia.email@example.com.
When can I expect to receive my endowment report?
Endowment reports are compiled after the System’s financial statements are due to the State Comptroller the third week of November. TTUS strives to have endowment reports mailed out to donors as soon as possible from that date.