ENDOWMENT MANAGEMENT:

Frequently Asked Questions:

What is an endowment?

Why are endowment assets pooled?

How can I establish an endowment?

What are spendable dollars?

What is the endowment spending policy?

How can I monitor my department's endowment activity?

Q: What is an endowment?

Endowments serve as vehicles through which donors can provide permanent funding to University programs of their choice. Endowment funds are invested for the long term. Three principal categories of endowment are: endowment funds (true endowments), term endowment funds, and quasi-endowment funds (funds functioning as endowment).

True endowments are funds received from external donors with the restriction that the principal (gift amount) is to be retained in perpetuity and cannot be spent. The donor signs the governing document (Declaration of Intention, aka DOI); true endowments are controlled by donor stipulation.
Term endowments are like true endowments, except that all or part of the principal may be used after a stated period of time or upon the occurrence of a certain event.
Quasi-endowments (funds functioning as endowment) are funds the University, rather than a donor or other external agency, has determined to treat as permanent capital although there is no legal obligation to do so. Quasi-endowments are submitted to the Board of Trustees for acceptance. The governing document (generally a Statement of Quasi-Endowment) is signed by a University employee and controlled by the University and department.

Q: Why are endowment assets pooled?

Endowment assets are pooled and maintained similar to a mutual fund in that each individual endowment maintains a separate identity yet is commingled with all endowments for purposes of investment and accounting efficiencies. As of June 30, 2008, the endowment pool held approximately 700 individual endowments. Pooling the endowment assets provides the opportunity to develop a more diversified investment portfolio which in the long term should maximize investment performance. The WMU Foundation endowment pool investment structure consists of a diversified mix of equity (stocks), performance enhancement investments (private equity and venture capital), and fixed income (bond) securities managed by investment professionals appointed by the WMU Foundation Board of Directors.

Q: How can I establish an endowment?

To establish a true or term endowment, contact the WMU Foundation Development office. To create a quasi-endowment, contact Gail Kurtz: the following information will be required:

Endowment title
Criteria (purpose for which the quasi-endowment will be used; the department has the latitude to change a quasi-endowment's purpose but it requires a new Statement of Quasi-Endowment approved by the Treasurer, President and Board of Trustees; thus it is recommended that the criteria be broad enough to sufficiently support its purpose)
Fund/Department of the funding source
Funding amount (requires a minimum threshold of $10,000)
Name and title of University employee to sign Statement of Quasi-Endowment (generally a chair, dean, department head, etc.)
Complete the Profile of persons Designated to Act of Behalf of the Department and/or College as Administrator of the Endowment form

Q: What are spendable dollars?

Spendable Dollars is the title applied to the funds calculated and made available (allocated) as per the spending policy authorized by the WMU Foundation Board of Directors, the stewards of the Foundation endowment assets. The dollars are determined at the beginning of the fiscal year, for each qualified endowment, and can be accessed by the benefiting department throughout the year. The fiscal year runs July 1 through June 30.

Q: What is the Endowment Spending Policy?

The spending policy determines how much of the total return will be allocated and identified as spendable (amount available to distribute) and how much will be reinvested in the endowment investment pool. Total return is defined as the accepted method of measuring the performance of equity and bond funds; it is the combination of income (interest and dividends) and appreciation/depreciation in the funds' value for a specified period of time.

In June 2000, the WMU Foundation Executive Board authorized a 4.5% spending policy. The calculation is: 4.5% of the average market value for the 60 months prior to and including June 30 if the fund has been in existence for 60 months or more; or, 4.5% of the average market value for the actual number of months the fund has existed prior to and including June 30 if the fund has been in existence for less than 60 months. This policy is designed to ensure that the purchasing power of an endowment fund is maintained into perpetuity. The policy, ideally, maximizes the probability that the distributions steadily increase from year to year.

The spendable dollars are calculated annually in July. The calculation is referred to as the "Spending Allocation". Spendable dollars accumulate from year to year, and remain invested until withdrawn from the endowment fund.

Specific to true endowments, additions, withdrawals, and/or adverse market conditions could limit the spendable dollars available for distribution. If an endowment's market value is less than its total gift amount, no distribution will be allowed until the market value exceeds the total contributions. If a true or term endowment's market value at June 30 is less than the gift amount, no spendable dollars will be allocated in July.

Q: How can I monitor my department's endowment activity?

The endowment management system (EMS) is an application that provides sub-accounting processes necessary in administering and managing the endowments. The EMS allows recipient departments to view their accounts and make spending requests using the EMS web site.

The web site address is: http://www.endowment.wmich.edu/login.aspx. Please contact Gail Kurtz to obtain your assigned Username and Password, or to obtain assistance in using this site. The Username and Password will be assigned once a Persons Designated to Act on Behalf of the Department and/or College as Administrator of the Endowment form has been completed and forwarded to the Investments and Endowment Management Office.

Categories of information available to authorized users include the following:

Summary - displays the endowment title, general ledger identification number (endowment's fund/department number), endowment type, destination (distribution) fund/department number; identifies the authorized web users and primary and secondary contacts; displays current values (both pooled and total market values and defines each), historical gift, spending bucket (accumulated net spendable dollars) and the available spendable dollars;
Spending Bucket - provides distribution history and spendable dollars allocations;
Distribution - displays the distribution activity and pending distribution requests not yet posted;
Request Distribution - for those users assigned distribution access the page displays current available spendable dollars; endowment type; allows authorized users to submit distribution requests; displays destination (distribution) fund/department number; and current market value; and
History/Market Value - provides monthly detail activity, including investment activity, transfers, distributions, etc. The information can be copied to a Microsoft Excel spreadsheet for summation of columns.

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