8.13 Endowments

Policy Information

Purpose and Summary

To provide guidelines for establishing, investing and managing endowments.

Source

Arizona Board of Regents Policy, including but not limited to: 3-301 University Investments.

National Association of College and University Business Officers, Financial Accounting and Reporting Manual for Higher Education (FARM), including but not limited to ¶352.

The University of Arizona Foundation Investment Policy Statement

Scope

This policy applies to all University locations and units, including all University extensions, satellite locations, and off-site campus units, both domestic and international.

Definitions

1. Endowment: 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, or by the source of the original funds as in the case of a quasi-endowment (see below).
2. Permanent Endowment: The donor specifies the principal is to be invested and maintained in perpetuity; only the payout may be expended for the donor-specified purpose.
3. Term Endowment: Similar to a permanent endowment except a donor specifies that after the expiration of a stated period of time or occurrence of a specified event, all or part of the principal may be expended as directed by the endowment agreement. 
4. Quasi-Endowment (University only): Quasi-endowment funds are funds functioning as an endowment that are established by the University from donor 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.
5. Restricted Endowments:   Funds for which the donor specifies how the endowed payout will be used.
6. Unrestricted Endowments:  Funds for which the annual payout is used at the discretion of the President of the University.
7. Separately Held: Endowments which invest in individual securities per donors’ stipulations are called separately held.  These endowments bear all the gain or loss from such investments.

Policy

1. There are only two authorized repositories for endowment gifts: the University and the University of Arizona Foundation (UA Foundation).
2. The University will invest endowment funds under the direction of an investment committee designated by the President of the University.  Endowments with investment conditions stipulated by the donor will be invested accordingly. 
3. The University assumes certain fiduciary responsibilities upon the acceptance of endowment funds from an outside donor, including ensuring the funds are held and expended in compliance with the donor's wishes.  For this reason, no new endowment accounts are established without obtaining a signed endowment agreement from the donor. 
4. The University will maintain a clear understanding of any donor restrictions in its permanent records for all permanent endowments.
5. Endowment gifts are subject to the provisions of 8.33 University Development Fund Policy and Procedure and policy 8.12 Gifts in the Financial Services Manual.

Procedures

Establishing Endowments

Permanent and Term Endowments

1. The University and the UA Foundation have adopted model endowment agreements.  This signed agreement ensures the donor clearly understands the policies by which their gift will be managed and the institution clearly understands how the payout is to be used and any other unique terms and conditions of the gift.
   1. To establish an endowment at the University of Arizona, contact the Financial Services Endowment team at endowments@fso.arizona.edu to start the process.
   2. To establish an endowment at the University of Arizona Foundation, log in to the UA Foundation website with your Net ID and password and navigate to: Templates > Endowment Gift Agreement.
       
2. Minimum funding levels for the various endowment types are as follows:

Quasi-Endowments (University only)

3. Establishment of quasi-endowments from donor gifts will be considered under the following circumstances:
   1. The University has received at least $250,000 in cash from the donor for deposit into an account. 
   2. The Vice President of Financial Services may approve the creation of a quasi-endowment from donor 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 Vice President of Financial Services is required.
   4. For establishing a quasi-endowment, contact the Financial Services Endowment team at endowments@fso.arizona.edu to start the process.

Investing Endowments

4. 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 UA 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.

Spending Endowments/Payout Rate

5. A payout account is established for each endowment account; this account receives the monthly payout distribution and is the account from which funds are spent for the designated purpose. If a donor deposits restricted funds at the UA Foundation and these funds are later transferred to the University or vice versa, fiduciary responsibilities follow the funds.
6. The UA 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 4.125% for all University and Foundation endowments. Please contact the University Investment Office for any update of the payout rate.
7. For separately held quasi-endowments, the actual earnings of the investments, minus the management fee, will be distributed.

Management Fee

8. 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 1.125% for all University and UA Foundation endowments.  The fee will be collected monthly.  
9. 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.  
10. Endowments funded with non-cash, non-income producing assets will not be subject to the management fee until the assets are sold and reinvested.

Separately Held

11. Departments with separately held quasi endowments should periodically contact the University Investment Office.

Frequently Asked Questions

1. My department has an endowment with the University and I would like to see donor documentation. Who do I contact?
   If you would like to see documentation for an endowment, please contact Endowment Accounting at endowments@fso.arizona.edu.


2. Does the University Development Fund Fee apply when establishing an endowment?
   As with other gifts to the University pursuant to the University Development Fund policy, gifts to establish an endowment are subject to the University Development Fund Fee. This should be considered in any situation when a department is collaborating with a potential donor to ensure that proper funding amounts are met.


3. How can I find out what the projected payout is for my department’s endowment for the upcoming fiscal year?
   This information can be found at either The UA Foundation portal page (user account login required) by going to the Queries and Reports section to find your endowment with the projected payout information, or contact UA Endowment Accounting for further assistance.

Related Information

Policy 8.12 Gifts
Policy 8.33 University Development Fund
University Endowment Gift Agreement Form
UA Foundation Endowment Gift Agreement Form
UA Foundation Investment Policy
University Investment Office
The UA Foundation Portal

* Please note that sections titled Frequently Asked Questions and Related Information are provided solely for the convenience of users and are not part of the official University policy.