Endowment Spending — Frequently Asked Questions

What is an endowment spending policy?

The policy that determines how much will be distributed to support programs and how much will be reinvested in the CEF (i.e. how the endowment payout amount will be calculated).

Who determines spending policy?

> The Board of Regents approves spending policy based on recommendations from UW management and consultants.

What is the benefit of a spending policy?

The spending policy provides programs with a predictable revenue stream during volatile markets. It also insures that effects of inflation on program support will be minimal.

What is the UW Consolidated Endowment Fund (CEF) spending policy?

The payout rate is 5% of a three-year moving average market value. As a practical matter, the policy is administered on a quarterly basis. This means that an average of the prior twelve quarters unit market value is calculated and 1.25% applied. The result is the quarterly payout rate per unit.

For example:
Average market value 12 quarters ending 6/30/04	=	$73.58
	x	1.25%
9/30/04 payout per Unit	=	$ .9197

 

 

 

 

How is the payout calculated for new endowments?

In exactly the same way. New endowments buy units similar to buying into a mutual fund. The units purchased then receive the rate described above. All units in the CEF receive the same payout rate at all times.

When do new endowments receive their first distribution?

At the end of the third quarter invested. For example, an endowment invested January 1, 2003 will receive a distribution in October 2003. Under the Board-adopted policy to fund expenses related to obtaining new gifts, distributions for the first two quarter's of an endowments existence go to fund the Development Office.

Will distribution amounts ever decline?

Yes. Distributions are reflective of market changes. If markets decline significantly, especially over a long period, payout rates will decline. Departments need to manage cash flows accordingly.

Will the spending policy ever change?

The policy is constantly monitored. A review of the policy will occur if conditions seem to require it. Because the investment strategy is built around the spending policy, frequent changes are not prudent.

What is the source of the funds paid out?

The source of funds for payout is income and appreciation (total return).

What happens to a return that is not distributed?

It is kept in principal to protect against inflation and to fund future distributions. Nothing is removed from the endowment other than distributions to departments and fees.