Frequently Asked Questions About Endowments Updated 4/18/17

Similar documents
New Endowment Spending Budgets

Funds. Authority: Related Links: Responsible Office: Scope. Definitions. Page 1 of 23

NORTH CAROLINA AGRICULTURAL AND TECHNICAL STATE UNIVERSITY

Endowment Management Policy ;;

The Brown University Endowment: Investing in Brown s Future

BRANDEIS UNIVERSITY. Financial Statements. June 30, 2018 (with summarized comparative information for June 30, 2017)

THE ENDOWMENT FUND OF THE UNIVERSITY OF NORTH CAROLINA AT GREENSBORO

STATE OF NORTH CAROLINA

Endowment and Gift Accounting

FLORIDA AGRICULTURAL AND MECHANICAL UNIVERSITY FOUNDATION, INC. (A NON-PROFIT ORGANIZATION)

Governance and Administration

California State University, Northridge Foundation Financial Statements (With Supplementary Information) and Independent Auditor's Report

What is an Endowment?

UC SAN DIEGO FOUNDATION FINANCIAL STATEMENTS

California State University, Northridge Foundation Financial Statements (With Supplementary Information) and Independent Auditor's Report

College of Charleston Foundation. Financial Statements. June 30, 2011

BRANDEIS UNIVERSITY. Financial Statements. June 30, 2013 (with summarized comparative information for June 30, 2012)

THE UNIVERSITY FOUNDATION AT SACRAMENTO STATE

Advisory Guidance. Implementing FASB ASU , Not-for-Profit Entities (Topic 958): Presentation of Financial Statements of Not-for-Profit Entities

Grand Valley University Foundation. Financial Report June 30, 2017

BRANDEIS UNIVERSITY. Financial Statements. June 30, 2016 (with summarized comparative information for June 30, 2015)

BRANDEIS UNIVERSITY. Financial Statements. June 30, 2015 (with summarized comparative information for June 30, 2014)

BRANDEIS UNIVERSITY. Financial Statements. June 30, 2017 (with summarized comparative information for June 30, 2016)

FINANCIAL REPORT FINANCIAL REPORT

The Endowment Fund of The University of North Carolina at Greensboro. Financial Report June 30, 2013

College of Charleston Foundation and Subsidiaries. Consolidated Financial Statements

WINSTON-SALEM STATE UNIVERSITY

UNIVERSITY OF CENTRAL MISSOURI FOUNDATION (A Component Unit of the University of Central Missouri) Auditor s Report and Financial Statements

FAYETTEVILLE STATE UNIVERSITY

DARTMOUTH COLLEGE. Year ended June 30, (With Independent Auditors Report Thereon)

EASTERN WASHINGTON UNIVERSITY FOUNDATION FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 2012 AND 2011

THE COLLEGE OF NEW JERSEY FOUNDATION, INC. (A Component Unit of The College of New Jersey)

TRINITY INTERNATIONAL UNIVERSITY. Auditor s Report and Financial Statements

THE GEORGE WASHINGTON UNIVERSITY. CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 2018 and 2017

FAIRFIELD UNIVERSITY. Financial Statements. June 30, 2018 and (With Independent Auditors Report Thereon)

Western Carolina University Foundation. Financial Statements For the Year Ended June 30, 2012

FAIRFIELD UNIVERSITY. Financial Statements. June 30, 2017 and (With Independent Auditors Report Thereon)

College of Charleston Foundation and Subsidiaries. Consolidated Financial Statements

FINANCIAL STATEMENT REPORT

FINANCIAL REPORT. June 30, 2017

STATE OF NORTH CAROLINA

COLUMBIA UNIVERSITY POLICY ON ENDOWMENT AND GIFT FUND ADMINISTRATION AND COMPLIANCE

THE COOPER UNION FOR THE ADVANCEMENT OF SCIENCE AND ART. Consolidated Financial Statements. June 30, 2013 and 2012

CONSOLIDATED FINANCIAL REPORT (In Accordance With the Requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative

CONSOLIDATED FINANCIAL STATEMENTS. APRIL 30, 2016 and 2015 INDEPENDENT AUDITOR'S REPORT

FAIRFIELD UNIVERSITY. Financial Statements. June 30, 2016 and (With Independent Auditors Report Thereon)

UH Foundation Guide to Understanding Your Endowment Fund

HUDSON VALLEY COMMUNITY COLLEGE FOUNDATION

The Endowment Process at the University Of Houston

1. benefit all generations of endowment beneficiaries equally by maintaining the purchasing power of endowment capital over time;

FLORIDA AGRICULTURAL AND MECHANICAL UNIVERSITY FOUNDATION, INC. (A NON-PROFIT ORGANIZATION)

STATE OF NORTH CAROLINA

COLLIN COUNTY COMMUNITY COLLEGE DISTRICT FOUNDATION, INC.

New Liquidity Disclosure Examples

NORTH CAROLINA AGRICULTURAL & TECHNICAL STATE UNIVERSITY

HUMBOLDT STATE UNIVERSITY ADVANCEMENT FOUNDATION

THE MONMOUTH COLLEGE MONMOUTH, ILLINOIS FINANCIAL STATEMENTS. June 30, 2017 With Prior Year Summarized Comparative Information

Financial Statements and Independent Auditor s Report. May 31, 2015 and 2014

GRADUATE INSTITUTE OF APPLIED LINGUISTICS. Financial Statements With Independent Auditors Report. June 30, 2017 and 2016

WINSTON-SALEM STATE UNIVERSITY

ADELPHI UNIVERSITY. For the years ended August 31, 2016 and 2015

UPMIFA Guide for Florida Not-For-Profit Corporations August 31, 2011

Financial Statements and Independent Auditors' Report June 30, 2017 (With Summarized Financial Information for the Year Ended June 30, 2016)

College of Charleston Foundation and Subsidiaries. Consolidated Financial Statements

MOREHEAD STATE UNIVERSITY FOUNDATION, INC. Financial Statements. Years Ended June 30, 2017 and 2016 with Report of Independent Auditors

Financial Statements Together with Report of Independent Certified Public Accountants ST. JOSEPH S COLLEGE. For the years ended June 30, 2016 and 2015

Financial Statements. Wheelock College. June 30, 2015 and 2014

CONTENTS. Independent Auditors Report Statements of Financial Position Statements of Activities Statements of Cash Flows...

SAN FRANCISCO STATE UNIVERSITY FOUNDATION (A COMPONENT UNIT OF SAN FRANCISCO STATE UNIVERSITY)

INDEPENDENT AUDITORS' REPORT. To the Board of Directors of the Indiana University Foundation Bloomington, Indiana

PROCEDURE POLICY DEFINITIONS ER ENDOWMENT MANAGEMENT. Section: Subject: External Relations (ER) Fundraising. APPROVED: President and CEO

Norwalk Community College Foundation, Inc. Financial Statements (Together with Independent Auditors Report)

Babson College Consolidated Financial Statements June 30, 2013 and 2012

Kansas State University Foundation

IDAHO STATE UNIVERSITY POLICIES AND PROCEDURES (ISUPP) Gifts and Donations ISUPP 6010

Financial Statements. Wheelock College. June 30, 2014 and 2013

Financial Statements June 30, 2018 American Indian College Fund. (With Comparative Totals for 2017) eidebailly.com

CLEMSON UNIVERSITY FOUNDATION (A Component Unit of Clemson University)

Goucher College. Financial Statements. June 30, 2017

THE COLLEGE OF NEW JERSEY FOUNDATION, INC. (A Component Unit of The College of New Jersey)

STATE OF NORTH CAROLINA

PACIFIC UNIVERSITY. Financial Statements. June 30, (With Independent Auditors Report Thereon)

University Park, Los Angeles

Higher Education Survey

Assumption College Financial Statements May 31, 2010 and 2009

Kansas State University Foundation

Kansas State University Foundation

THE HEALTH SCIENCE CENTER AT BROOKLYN FOUNDATION, INC. POLICIES & PROCEDURES. Title: Gift Acceptance Original Issue Date: 05/2006

New Hampshire Charitable Foundation and Affiliated Organization

The John Marshall Law School. Reports Required by the Uniform Guidance and Government Auditing Standards August 31, 2016

PROVIDENCE COLLEGE. Financial Statements. June 30, 2017 and (With Independent Auditors Report Thereon)

Kellogg Community College Foundation. Financial Report May 31, 2018

FINANCIAL STATEMENTS. June 30, 2016 and With Independent Auditor's Report

Goucher College. Financial Statements. June 30, 2018 and 2017

FLORIDA AGRICULTURAL AND MECHANICAL UNIVERSITY FOUNDATION, INC. (A NON-PROFIT ORGANIZATION)

Gettysburg College 2018 Endowment Report

Kansas State University Foundation

THE GEORGE WASHINGTON UNIVERSITY. CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 2017 and 2016

THE COLLEGE OF NEW JERSEY FOUNDATION, INC. (A Component Unit of The College of New Jersey)

SAN FRANCISCO STATE UNIVERSITY FOUNDATION (COMPONENT UNIT OF SAN FRANCISCO STATE UNIVERSITY)

Transcription:

Frequently Asked Questions About Endowments Updated 4/18/17 1. Why are endowments important to NC State University? An endowment creates financial stability, allowing NC State to be less dependent on unpredictable sources of revenue, such as state appropriations. The base of resources from endowments represent a rich variety of activities such as scholarships and fellowships for talented students, support for distinguished and dedicated faculty members through professorships and chairs, support for research, support for the libraries, or support for other programs. 2. How can an endowment be established at NC State University? Any of the development officers listed at this link can explain how to create an endowment: http://giving.ncsu.edu/connecting-to-nc-state/staff-listings/ 3. What is an endowment? An endowment is a long-term investment in NC State University that provides benefits to students, faculty and programs year after year, generation after generation. An endowment is made up of gifts (including will bequests) that are subject to a donor requirement that corpus be maintained and invested to create a stream of income, with a portion of the average investment earnings expended to carry out the specified purpose of the endowment. To guard against the eroding consequences of inflation, the remaining portion of investment return is reinvested to help ensure that the endowment maintains its purchasing power over time to support future generations. 4. What is corpus? NC State defines corpus as total donor gifts to an endowment. Corpus for older endowments may also include (a) investment earnings during the period before achieving the minimum endowment level and (b) donor-specified returns of a percentage of income to principal. 5. What is endowment principal? Here at NC State, the term endowment principal incorporates corpus as well as excess returns (see #16 for definition) not needed for spending, any unused spending budgets that have been returned to principal and reinvested, and unrealized appreciation or depreciation. NOTE: Sometimes the terms principal and corpus have been used interchangeably. Usually the context in which either term is used clarifies the intent of the speaker or writer. For example, 1

older endowment agreements include a phrase similar to Income, but not the principal, of this endowment may be used to fund scholarships. In this context, principal is understood to mean corpus. 6. What is the difference between a quasi endowment and a true endowment? A true endowment is one created by an external donor that requires that corpus be maintained. A quasi endowment is one that has been established by an internal board or administrative unit that may be fully expended or unendowed by that internal board or administrative unit. The corpus of a quasi endowment is always zero. 7. What is the difference between market value and book value? The difference between book value and market value is unrealized appreciation (if market value is more than book value) or depreciation (if market value is less than book value). 8. What legal requirements regulate endowments in North Carolina? In March 2009, North Carolina adopted the Uniform Prudent Management of Institutional Funds Act (UPMIFA). This act replaces the previous guidance (UMIFA) adopted in 1985. (See Chapter 36E of the NC General Statutes). Unlike UMIFA, UPMIFA does not prohibit invasion of the endowment corpus, but instead applies a prudence standard for investment and spending decisions. Endowment spending rules adopted by the various entities supporting NC State have established 15% as the prudence level, or floor, for spending into corpus, if not prohibited by the endowment agreement. 9. Do other states have the same legal requirements for endowments? With various modifications, UPMIFA has been adopted by 49 states and the District of Columbia. As a result of the state-by-state modifications to UPMIFA, legal requirements for endowments in other states may differ from North Carolina. 10. Who will oversee my endowment in support of NC State University? The following entities hold endowments benefitting NC State University: - The North Carolina Agricultural Foundation, Inc.* - NC State University Alumni Association, Inc.* - The Endowment Fund of NC State University* - NC State Engineering Foundation, Inc.* - NC State Natural Resources, Foundation, Inc.* - North Carolina State University Foundation, Inc.* - North Carolina State University College of Sciences Foundation, Inc.* - North Carolina Tobacco Foundation, Inc.* - North Carolina Veterinary Medical Foundation, Inc.* - NCSU Student Aid Association, Inc. 2

- North Carolina Textile Foundation, Inc. The board of directors and investment committees for each entity listed above has legal fiduciary responsibility for endowment oversight. *The endowments for these entities are invested in the NC State Investment Fund, Inc. (See #12) and the University Treasurer s Division assists in carrying out their board policies. 11. What is the difference between University and Foundation Endowments? North Carolina State University and the numerous non-profit organizations associated with the University (see #10) are separate legal entities, each with its own federal tax I.D. number and each with its own endowment. When an endowment is established, a determination is made as to whether it should reside in the University or in an associated entity depending on how the donor s gift is designated. In accordance with North Carolina General Statute 116-36.(j), any gift, devise or bequest to NC State University, or a college, department or division of the University, shall be considered a part of the NC State University Endowment Fund. Consequently, endowment gifts must be specifically designated by the donor for an associated entity in order for the gift to reside there. All entities that invest their endowments with the NC State Investment Fund (NCSIF), including the University Endowment Fund and 8 foundations, follow the same investment and spending policies. 12. How are endowment investments managed at NC State University? Most endowments are invested with the NC State Investment Fund, Inc. (NCSIF), an external investment pool established April 1, 1999. The NCSIF strives to preserve both the corpus and the spending power of the endowments. Asset allocation is the cornerstone of the endowment s investment policy. The strategic asset allocation policy should set the course for endowment investing for many years to come. The overall investment objective is to earn a total net return at least equal to the sum of inflation plus the endowment spending rate over the long-term investment horizon. For more information, see: http://foundationsaccounting.ofa.ncsu.edu/investment-policy/ 13. What investment performance returns have been earned by the NCSIF? See: http://foundationsaccounting.ofa.ncsu.edu/investment-fund/investment-fund-performance/ 14. What is asset allocation? Asset allocation is the manner in which endowment funds are distributed among the various long-term investment asset classes. Asset allocation is a major factor in maximizing portfolio return taking into consideration an acceptable risk level. The objective of an endowment, and 3

thus the allocation decision, is to provide generational neutrality. In other words, endowment management seeks to provide at least the same level of inflation-adjusted support to future generations as the current beneficiaries receive. The most recent quarter end asset allocation is available under Investment Performance at this link: http://foundationsaccounting.ofa.ncsu.edu/investment-fund/investment-fund-performance/ 15. How is spending determined? What is the relationship between overall investment return and the spending on an endowment? Spending policies are set by the various boards of the entities supporting NC State University. A sustainable spending rule is total net investment return minus inflation to cover programmatic spending as well as assessment fees (see #26). Programmatic endowment spending is generally computed as 4% of the average market value of the previous 20 quarters. The annual increase in spending, however, is generally limited to CPI + 1%, unless there were significant additions to an endowment during the last fiscal year. The supporting entities use this averaging method in order to smooth out significant changes from year to year that would otherwise occur due to market volatility. The endowment spending rule utilized by NC State entities is available at this link: http://www.ncsu.edu/project/fdns-acct/dev_officers_toolbox/spending_rulefy14.pdf 16. What happens to any excess returns in the endowment? Earnings beyond the amount needed for spending are referred to as excess returns and are added back to principal and reinvested in the long-term pool to promote growth and protect against inflation for future programs. These excess returns are also used to provide funding for future spending budgets in down investment performance periods. 17. How soon will new endowments start to spend for programmatic purposes? If the endowment agreement prohibits spending of corpus, new endowments may begin spending after accumulated investment earnings (also referred to as spending reserves) are sufficient to fund a spending budget, subject to the annual computation date for endowment spending budgets of June 30th. Normally, it takes at least one full year before a new endowment can begin to spend. If the endowment agreement does not prohibit spending of corpus, an exception request may be approved which would allow new endowments to begin spending at some level as long as endowment market value is greater than 85% of corpus as of the annual computation date for endowment spending budgets of June 30th. 18. What happens when investment returns are negative? 4

An endowment can spend from prior years excess returns, also referred to as spending reserves. However, if there are no spending reserves available, there are two possibilities with respect to spending when investment returns are negative: A. If the endowment agreement prohibits spending of corpus, there can be no spending. B. If the endowment agreement does not prohibit spending of corpus and endowment market value is greater than 85% of corpus, spending at some level may be possible. 19. What is an underwater endowment? This is an endowment that, through declining market performance has used all accumulated earnings and appreciation and has eroded the original gift value, or corpus. Eroded corpus and negative spending reserves are other terms used to denote underwater endowments. The market value of an underwater endowment is less than corpus. Spending of corpus, if permitted by the endowment agreement, by its very nature creates an underwater endowment. 20. How will spending occur if an endowment is underwater? See #18. Also, when an endowment is underwater, donors may elect to contribute to the endowment income fund (also known as the spending account) for current year spending until the endowment recovers and is able to fund spending budgets again. 21. What is the minimum amount for establishment of an endowment? The University s minimum to fund a scholarship endowment is $25,000. See http://giving.ncsu.edu/supporting-nc-state/how-to-give/endowment-levels/ for other minimum endowment levels. Also, donors may specify an endowment level greater than the University minimum in their endowment agreement. 22. What is a BTE? A BTE is a fund that is Building To (the minimum) Endowment level. Minimum endowment levels have been established for each type of endowment, depending on purpose. (See link provided in #21.) Also, donors may specify an endowment level above the minimum set by the University in their endowment agreement. BTE s are allowed a five-year period to achieve the minimum required level. If the BTE does not reach the required minimum within 5 years, it will be converted to a restricted fund or transferred to the general fund, depending on the donor agreement, and the balance spent in accordance with the stated purpose. 23. How do I know when a BTE fund has reached the required minimum? 5

For BTE funds in the foundations, Foundations Accounting & Investments (FAI) staff reviews BTE s monthly to identify those that have achieved the required minimum balance. The foundation development officers are notified by email of the funds that have reached endowment level that will be invested in the foundation s long-term investment pool. Time is allowed for the development officer to respond in case the donor has requested a portion of the funds not be endowed and left for spending. If there is no response from the development officer, FAI will endow 100% of the balance in the BTE fund. Distinguished professorship BTE s in the University Endowment Fund are tracked by the Office of Development Communications and Donor Relations to determine if the minimum level specified for a matching grant from UNC-GA has been achieved. The Chancellor s Office then sends a letter to the Office of the President notifying them of the fund balance and requesting the matching funds. When those matching funds will be disbursed by UNC-GA is dependent upon the number of requests for matching funds and the level of state funding provided for the program each year. For more information on the Distinguished Professors Trust Fund matching program, see: http://www.northcarolina.edu/apps/policy/index.php?pg=vs&id=s425 Other BTE s in the University Endowment Fund are reviewed annually to determine if the minimum endowment level has been achieved. 24. When can I spend from a BTE? Spending is not permitted from funds building to endowment level, unless there is a specific donation earmarked for current year spending. After a BTE fund has been endowed, the endowment follows the board-approved spending policy subject to covenants contained in the endowment agreement. 25. What are assessment fees? Assessment fees are annual charges against endowment investment earnings that help fund additional fund-raising efforts. In essence, these fees are an investment in future fundraising efforts to help the University to continue to be successful in meeting its mission. All endowment assessments are computed using the same methodology as programmatic spending (see #15). In the event that spending reserves are insufficient, priority is given to the programmatic spending budget. Your development officer can provide specific information on assessments, including the total assessment that is applicable to your endowment. 26. What are basis points (bp)? 6

A basis point (bp) is a unit that is equal to 1/100th of 1%, and is often used instead of percentages when discussing interest rates, rates of return, and other percentage-based metrics that can occur as fractions of a percent. EXAMPLES: 1% = 100 basis point; 0.50% = 50 basis points; 0.01% = 1 basis point. 27. Can an Endowment be designated for a specific purpose? Absolutely! As with any gift to NC State, an endowed gift offers alumni and friends the opportunity to have their names, or the name of a loved one, linked to an area of the University in which they have a special interest. Some donors create unrestricted endowments, recognizing that the needs and challenges of the future will differ from those of today. Unrestricted gifts are used for the highest priority needs on campus, and provide the most flexibility as these needs change. Many donors create undergraduate scholarships or graduate fellowships to aid deserving students. Some donors choose to endow a professorship in the academic discipline that inspired them as students. Others choose to support research in areas of particular importance to them. Other donors choose to direct their gifts to areas or programs of special concern to them, knowing that these additional funds provide an opportunity for those programs to grow and continue to excel. Again, here is the link to a list of development officers who can answer your questions about how to establish an endowment at NC State: http://giving.ncsu.edu/connecting-to-nc-state/stafflistings/ 7