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Purdue University Executive Vice President and Treasurer Memoranda Master Listing

PURDUE UNIVERSITY
OFFICE OF THE EXECUTIVE VICE PRESIDENT AND TREASURER
MEMORANDUM NO. A-32

July 31, 1992

To: Vice Presidents, Chancellors, Deans, Directors, and Heads of Schools, Divisions and Offices

Re: Endowment Spending Policies and Procedures

The present spending policy allows expenditure of current dividend and interest income earned by the endowment fund. However, due to the strategy of investing a relatively high percentage of the portfolio in equities, including a new component of small capitalization companies to achieve growth in the total endowment, overall yield on the portfolio has declined.

The equity oriented investment strategy has been very successful and will be continued. However, the Board of Trustees has approved a change in the spending policy to supplement the portfolio's current yield by adding the potential of spending a portion of the market appreciation achieved during the preceding year in addition to dividend and interest income.

This new component of the income stream will be in the form of an annually declared non-recurring investment bonus which will be declared only if market appreciation exceeds that necessary to offset inflation. The initial goal will be to achieve a total pay out of interest, dividends and bonus equal to a minimum of four percent of the market value of the portfolio. However, it will be the responsibility of those managing the expenditure of the endowment income to anticipate that the size of the bonuses will vary from year to year and will not exist for years when market appreciation is small or negative.

A new Temporary Investment Policy for distributed endowment income has been approved also to allow the accumulation of endowment income with interest.

Investment Objectives for the Endowment Portfolio

The primary investment objectives are the preservation of the Endowment's capital, the protection of the capital from inflation, and the enhancement of the capital through market appreciation. Capital preservation and market appreciation will be activated by investing for the long-term and by maximizing the total return from investments.

New Spending Policies and Investment Bonus Plan

  1. The participants of the unitized endowment pool shall receive a distribution of current revenues on a periodic basis. This distribution of current revenues will be made on the basis of participating units during the period (participating units represent a weighting based on timing of entry into the pool). In addition, an annual non-recurring bonus will be distributed if the total return of the investment of the unitized endowment pool exceeds a certain criteria as set forth below. The bonus will be distributed based on the participating units in the pool during the designated period; however, if during the period a total withdrawal from the pool occurred, there will be no bonus distribution.

  2. The bonus, if any, will be declared at the end of the calendar year upon recommendation of the Treasurer and approval of the Finance Committee of the Board of Trustees.

  3. A bonus will be declared only if the market appreciation of the endowment pool exceeds the annual inflation rate as recognized by the Consumer Price Index at the close of the calendar year. Only a portion of the excess market appreciation will be available for distribution as a bonus in the following fiscal year.

  4. The goal will be to have a total pay out of interest, dividends and bonus to yield a minimum of four percent of the market value of the endowment portfolio at the close of the calendar year. However, it should be recognized that in some years there will be no bonus declared when market appreciation is insufficient to offset inflation.

  5. Any bonuses for accounts having a market value of less than $50,000 will be automatically reinvested as principal until such time as the $50,000 limit is reached. Any such reinvestment while added to the respective accounts' book values will not be considered as an addition to historic dollar value.

  6. No bonus will be distributed from any account if the payment of such bonus would reduce the aggregate fair value of that account to an amount less than its historic dollar value.

Management of Endowment Income and Bonuses

  1. All income and bonuses will be distributed to a support account. Exceptions will be made by the Treasurer for unusual circumstances.

  2. Some or all of the funds in endowment support accounts can be invested in short term fixed rate investments if they are being accumulated for a period over six months toward a specific goal. This investment will be through participation in the Cash Management Investment Pool (CMIP). See Executive Vice President and Treasurer's Memorandum No. A-33 for details.

  3. Monies once distributed will not be reinvested as part of the unitized regular endowment pool without the specific approval of the Treasurer.

Questions concerning these new endowment policies and procedures should be directed to your school's Business Administrator or, if not available, to the Comptroller's Office or the Office of Investments at the West Lafayette Campus or the Chief Business Officer on the Regional Campuses.

F. R. Ford
Executive Vice President
and Treasurer

 


Last Updated on March 05, 2008