8.13 Endowment and Investment Policies

1. An endowment is a fund where the principal (corpus) is held for investment and the payout on the principal is available for spending as directed by the donor.  There are only two authorized repositories for endowment gifts: the University of Arizona and the University of Arizona Foundation.  Endowment gifts are subject to the provisions of 8.33, University Development Fund and 8.12, Gifts.
2. With the acceptance of endowment funds from an outside donor, the University assumes certain fiduciary responsibilities. These responsibilities include making sure the funds are held and expended in compliance with the donor's wishes.  For this reason, no new endowment account should be established without obtaining a signed endowment agreement from the donor. 
   The University of Arizona and the University of Arizona Foundation have adopted model endowment agreements for this purpose.  This signed agreement ensures (a) the donor clearly understands the policies by which their gift will be managed and (b) the institution clearly understands how the payout is to be used and any other unique terms and conditions of the gift.  Since permanent endowments continue in perpetuity, it is very important that the University maintain in all permanent records, a clear understanding of any donor’s restrictions. 
   A separate account is generally created to track the expenses associated with the endowment. If a donor deposits restricted funds at the University of Arizona Foundation and these funds are later transferred to the University or vice versa, fiduciary responsibilities follow the funds.

Types of Endowments

3. Endowments are classified as permanent, term, or quasi.  Funds can be either restricted or unrestricted.  Restricted endowment funds are funds for which the donor specifies how the endowed Payout will be used.  Unrestricted endowment funds are funds for which the annual Payout is used at the discretion of the President of the University.
   1. Permanent Endowments: The donor specifies the principal is to be invested and maintained in perpetuity; only the payout may be expended for the donor-specified purpose. 
   2. Term Endowment: Similar to permanent endowment funds except after the expiration of a stated period of time or occurrence of a specified event as stipulated by the donor, all or part of the principal may be expended as directed by the endowment agreement with the donor. 
   3. Quasi Endowments (University only): Quasi endowment funds are funds functioning as an endowment that are established by the institution from either donor or institutional funds, and will be retained and invested rather than expended.  The quasi endowment must retain the purpose and intent as specified by the donor or source of the original funds and payout may be expended only for those purposes.  Since quasi endowments are established by the institution rather than by an external source, the principal (corpus) may be expended (see item 5(e) below).

Establishing Endowments

4. Permanent and Term Endowments – A signed endowment agreement is required to establish an endowment account.  Complete information on establishing and administering endowments is available from the University of Arizona Financial Services Office or the University of Arizona Foundation.
   
   Minimum funding levels for the various endowment types follow:

For establishing an endowment at the University of Arizona, please follow the Endowment Gift Agreement Form.

For establishing an endowment at the University of Arizona Foundation, please follow the Foundation Endowment Gift Agreement Form.

5. Quasi Endowments (University only) -  Establishment of quasi endowments from donor gifts or institutional funds will be considered under the following circumstances:
   1. The University has received at least $750,000 in cash from the donor for deposit into an account. 
   2. The President of the University may approve the creation of a quasi endowment from institutional funds.
   3. The intent of establishing a quasi endowment should be to spend the Payout.  Less than 10% of the principal (corpus) may be expended in any given fiscal year. If there is a need to use more than 10%; a written approval by the Associate Vice President/Comptroller, University of Arizona Financial Services Office is required.

For establishing a quasi endowment, please follow the Quasi Endowment Agreement Form.

Investing Endowments

6. UA Foundation Endowment Pool: Endowment gifts to the University of Arizona will be invested in the UA Foundation’s endowment pool but at all times remain the property of the University. Gifts to the University of Arizona Foundation will be invested in the Foundation’s endowment pool. Additional information on the investment policies of the University of Arizona Foundation may be obtained at www.uafoundation.org/investmentpolicy
    
7. Separately Held: Some existing endowments which invest in individual securities per donor’s stipulations are called Separately Held.  Endowments which invest in individual securities bear all the gain or loss from such investments.  Therefore, new endowment accounts are discouraged from investing in individual securities. The manner in which these funds are invested depends on the spending plans for the funds.  The appropriate investment strategy for each endowment will be developed in consultation with the appropriate University beneficiary.
   To minimize the possibility of a capital loss, departments with separately held quasi endowments should periodically contact the Investment Office, University of Arizona Financial Services Office, telephone 520-621-7780.

Spending Endowments/Payout Rate

8. The University of Arizona Foundation establishes a Payout rate each fiscal year.  The Payout will be determined and distributed monthly in accordance with the Investment Policy of the Foundation.  The current Payout rate is 4% for all University and Foundation endowments. Please contact the University of Arizona Financial Services Office at 520-621-5140 for any update of the Payout rate.
9. For separately held quasi endowments, the actual earnings of the investments, minus the management fee, will be distributed.

Management Fee

10. All endowments funds will be assessed an annual management fee based on the market value of the assets held in the endowment.  The current management fee is 1.35% for all University and Foundation endowments.  The fee will be collected monthly.  
11. Endowment accounts which contain donor-imposed restrictions on the management fee will be assessed the fee out of discretionary funds of the unit benefitting from the payout.  
12. Endowments funded with non-cash, non-income producing assets will not be subject to the management fee until the assets are sold and reinvested.