What is an endowment and what does it support?
Endowments are long-term assets of the Foundation, created either by donor gifts or by actions of the Board of Directors. Their purpose is to generate annual support for scholarships, academic programs, faculty development or the general use of Towson University. The gift is invested, and a portion of the return is used each year to support the scholarship, college or program designated by the donor.
Endowments may be established for a wide variety of purposes, including undergraduate scholarships, fellowships, faculty chairs, program support, and research. Gifts of endowment may be named for the donor or someone the donor wishes to honor or memorialize.
When will a gift of endowment be eligible for spendable incomes?
For an individual fund to be eligible for spendable income, an amount equal to the minimum endowment level must be invested for at least six months as of June 30 spendable income calculation date.
What is UPMIFA, and how will it impact my endowment?
UPMIFA stands for the Uniform Prudent Management of Institutional Funds Act. It was adopted as a law in the State of Maryland on April 14, 2009.
UPMIFA changes the way that endowment spending decisions are made. It eliminates the historic dollar value concept, whereby spending was not permitted if the market value fell below the amount of the original gift (i.e. the fund was “underwater”).
Under UPMIFA, the Foundation may apply a spending calculation to an endowment even when it is underwater, resulting in a prudent expenditure. According to Foundation policy, if the endowment is underwater and the founding donor of the fund (i.e. the individual(s) who signed the gift document) is living, the Foundation may seek the donor’s permission to spend the calculated amount in a given fiscal year. If the founding donor is deceased, the Foundation Board of Directors will make the decision with careful consideration and in compliance with the prudence standards of the law.
How is the endowment spendable income calculated each year?
Each fall, a spending rate is determined by the Spending Committee of the TU Foundation Board of Directors according to approved policy and taking into account the prudent standards introduced with UPMIFA.
The rate is then applied to the 20-quarter rolling average market value of each fund (as of June 30), yielding the amount available for spendable income. Any excess of the total return over the spendable income allowance is retained in the endowment and thus helps keep the fund growing over time.
When is spendable income distributed?
Spendable income becomes available for use each July 1 – June 30. Each endowment is assigned to a program director, who has primary responsibility for spending the available funds according to the donor’s wishes as articulated in the gift instrument or memorandum of understanding.
Are endowments subject to any fees?
The Foundation charges each individual endowment a fee based on the March 31 market value, which serves to recover the cost of administering and carrying out the terms of the endowment. For endowments valued under $2.5 million, current policy mandates the fee charged shall not exceed two percent. (NOTE: for the past 5 years, fees actually charged have been less than 1%). The percentage charged is reviewed annually by the Spending Committee to ensure that the fee is appropriate. The Foundation’s goal is to maximize spending for the donor-specified purposes and minimize fees.
What is the Foundation’s fiduciary responsibility to the donor of an endowment?
The Foundation has a fiduciary responsibility to ensure that endowment gifts are prudently invested today and in the future. In accepting an endowment gift, the Foundation agrees to comply with donor restrictions covering the use of spendable income.
Who manages the TU Foundation’s endowment investments?
The endowment portfolio is invested under the direction of the Investment Committee of the Towson University Foundation Board of Directors. The committee’s goal is to provide a predictable stream of funding while seeking to preserve the purchasing power of the endowment assets.
How is the TU Foundation’s endowment invested, and what investment principles are followed?
The investment strategy for the endowment portfolio is to rely on total return, in which investment returns are achieved through capital appreciation (realized and unrealized) and current yield (interest and dividends). The TU Foundation targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints, all while controlling administrative and management costs.
The TU Foundation has a stated policy for asset allocation, reviewed periodically, that sets parameters for what can be invested in various asset classes.
How is the endowment’s investment performance measured?
Endowment Investment Performance is measured against appropriate indices (e.g. S&P 500, Barclays, Aggregate, Russell 1000 Value, etc.)) to ensure that investments are performing as expected.
What were the 1-, 3-, and 5-, and 10-year Endowment Portfolio investment performance results as of June 30, 2015?
1-year – 0.0%
3-year – 6.5%
5-year – 7.1%
10-year - 6.3%
GLOSSARY OF TERMS
John J. Mease, Jr., Vice President & CFO