Endowment Management: Distribution Basics

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Information about Endowment Management: Distribution Basics

Published on February 26, 2014

Author: jsobers1

Source: slideshare.net


You spend time and energy monitoring your investment and maximizing your returns. You’re probably even working with a number of investment managers and brokerage firms. And if you’re like most university foundations, you likely have an enormous Excel spreadsheet to track your endowed funds. How can you be sure you’re properly distributing earned income to the right funds? And how can you spend less time throughout the entire process?

This presentation was delivered as a live webinar on February 25, 2014. If you'd like me to deliver this presentation, or any of my other presentations, to your group, contact me by email at Jeffrey.Sobers@blackbaud.com or on Twitter at @jeffsobers.

Endowment Management Distribution Basics Jeff Sobers Senior Product Marketing Manager

Introduction to Endowments Blackbaud Confidential 3

Pop Quiz, Hot Shot Please Answer True or False • A university or other charity cannot spend from an endowment fund that is “underwater” (i.e. with a value below the value of the original gift(s)) • UMIFA was created to protect money in endowment funds; UPMIFA allows charities to spend whatever they want • UPMIFA changes donor intent • These statutes apply only when a university and donor have not reached some other agreement about the “rules” that will govern endowment spending Blackbaud Confidential 4

Common Endowment Myths • The university can only spend interest and dividends • Any capital gains (net of losses) must be maintained so that the endowment keeps pace with inflation • The money the donor gave, plus the capital gains, is restricted in perpetuity – the university can never spend it • The interest and dividends that the university can spend may be spent for any purpose within the tax-exempt mission of the university Blackbaud Confidential 5

Goals of the Endowment •Create an ongoing source of income •Enhance stability and prestige •Relieve pressure on the annual fund •Allow for program expansion •Provide independence •Offer flexibility for management •Build pipeline of future gifts •Encourage outright gifts Blackbaud Confidential 6

Benefits to the Donor •Perpetuate the donor’s values and priorities •Create a sense of immortality •Make significant investment in the future •Endow annual gifts •Provide incremental funding •Provide lifetime income •Alleviate management burden •Add-as-you-go Blackbaud Confidential 7

The Endowment Process Blackbaud Confidential 8

The Endowment Process Create Spend Fund Endowed Fund Invest Distribute Earn

Asset Allocation of Endowments Level One • Stocks • Bonds • Mutual Funds • Interest-bearing Accounts Level Two • Commodities Level Three • Private equity • Venture capital • Limited partnerships • Hedge funds Blackbaud Confidential 10

Revenue Generated •Interest •Dividends •Royalties •Realized Gains •Unrealized Gains Blackbaud Confidential 11

Income Distribution Methods •Proportional •Unitized

Proportional Distribution Example $5,000 investment earnings Earnings Endowment Balance D; 10,000; 10% C; 38,250; 38% A; 22,500; 23% B; 29,250; 29% D $500.00 10% C; $1,912.50; 38% A; $1,125.00; 23% B; $1,475.00; 29%

Using Excel?

Other Considerations? •Investment Fees •Where is the Income Going?

Scenario Blackbaud Confidential 16

Balances 9300: $11,104,879.22 9301: $1,609,466.86 9302: $2,629,287.44 Balance held in short-term and long-term investment accounts

Income Interest: Dividends: Realized Gains: Unrealized Gains $10,000 $20,000 $50,000 $150,000 TOTAL INCOME $230,000

Fees Investment Manager • Fee varies based on ending balance of assets invested • At the current endowment balance, 0.027% of invested amount is charged as the investment fee

Donor Intent 9300 Earnings are unrestricted 9301 Earnings are used to provide scholarship for gifted students 9302 Earnings are used to fund overseas scholars program

Demonstration Blackbaud Confidential 21

Speaker Follow-up Slide Jeffrey.Sobers@Blackbaud 843.654.3088 (optional) @jeffsobers For more information, resources, and conversations, visit: blackbaud.com/research npEngage.com Blackbaud Confidential 22

Save the Date! October 6 – 8, 2014, Gaylord Nashville, TN

About Blackbaud, Inc. Serving the nonprofit and education sectors for 30 years, Blackbaud (NASDAQ: BLKB) combines technology and expertise to help organizations achieve their missions. Blackbaud works with more than 28,000 customers in over 60 countries that support higher education, healthcare, human services, arts and culture, faith, the environment, independent K-12 education, animal welfare, and other charitable causes. The company offers a full spectrum of cloudbased and on-premise software solutions and related services for organizations of all sizes including: fundraising, eMarketing, social media, advocacy, constituent relationship management (CRM), analytics, financial management, and vertical-specific solutions. Using Blackbaud technology, these organizations raise more than $100 billion each year. Recognized as a top company by Forbes, InformationWeek, and Software Magazine and honored by Best Places to Work, Blackbaud is headquartered in Charleston, South Carolina, and has operations in the United States, Australia, Canada, Mexico, the Netherlands, and the United Kingdom. Blackbaud Confidential 24

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