Policy Manual
University of North Texas
Number: 7.6
Page 1 of 4
Date Issued: 11/01,8/02*, 4/03,10/06
Policy Manual |
Classification Number: 7.6 Page 1 of 4 Date Issued: 11/01,8/02*, 4/03,10/06 |
Preface
This policy statement is issued by the Board of Regents of the University of North Texas (UNT) for guidance in the investment of endowment funds.
Gifts are critical to the UNT's mission to develop and maintain quality in faculty, students and facilities. The UNT Board of Regents recognizes the importance of establishing policies and procedures to meet the development needs of UNT and of directing vigorous efforts to attract private fund support. This policy is intended to establish administrative processes to accept and administer gifts in a fiduciarily prudent and efficient manner. When this policy does not indicate the appropriate course of action, or is inappropriate in light of all aspects of a specific situation, the Vice President for Finance and Administration is to work with the Finance Committee to establish the recommended course of action. This policy shall be reviewed annually.
An endowment is established with a gift from the private sector, which comprises the corpus or principal of the endowment. The corpus is invested, and the income or the capital gain is used to fund a project or need. The corpus remains intact in perpetuity, thereby continuing to generate funds to be used by the institution. Endowments are divided into the following three categories:
Permanent endowments
Permanent endowments are sometimes referred to as "true" or "pure" endowments and are assets designated by the donor to be held in perpetuity. The corpus of these endowments may never be spent. Earnings and capital gains must be expended in accordance with the terms and conditions established by the donor. However, it must be recognized that the corpus may decline during unfavorable market conditions.
Term endowments
Term endowments are established when the donor specifies that the endowment shall terminate following a particular date or event and that the corpus of the endowment may be expended in accordance with the terms and conditions specified by the donor. Until the passage of the specific date or event, term endowments operate in a manner similar to permanent endowments with expenditures made in accordance with the conditions established by the donor.
Quasi-endowments
The University Administration may set aside certain institutional funds to be maintained as endowments and will specify the use of the assets and spendable income, and set other terms and conditions relating to the fund. The University Administration may change the terms and conditions of the endowment or terminate the endowment.
Gifts to Establish Endowments
A written donative instrument should be provided for each new endowment fund established. This instrument would provide:
In cases where an endowment is established pursuant to a component solicitation or campaign, the solicitation letter or document sent to the donor or donors may be used as the donative instrument to evidence the donative intent and purposes.
The Board of Regents reserves the right to establish the amount required for a permanent endowment for an academic position (i.e. chairs, professorships, lectureships, and fellowships). Current guidance is found in Policy Number 7.4. In no case will an endowment for an academic position be established without prior approval of the President.
Fiduciary Responsibility
The Board of Regents of the University of North Texas has a fiduciary responsibility to comply with the restrictions imposed by the donors of endowment funds. The Regents also have a legal responsibility to ensure that the management of endowment funds is in compliance with Subchapter A, Chapter 51, Education Code, Section 51.003 (d) and, to the extent applicable, Section 163.002 Property Code (the Uniform Management of Institutional Funds Act).
The primary and constant standard for making investment decisions for endowment is the "Prudent Person Rule" which states that the investment manager may trade and retain investments…"that standard of judgment and care that prudent investors, exercising reasonable care, skill, and caution, would acquire or retain in light of the purposes, terms, distribution requirements, and other circumstances of the fund then prevailing, taking into consideration the investment of all the assets of the fund rather than a single investment”.
Investment Policy
No endowment shall be accepted in which the donor directs the investment transactions or holdings or may approve investment policy or strategy. The endowment fund shall be under the sole control of the Board of Regents of UNT.
It is the specific and strong preference of the Board of Regents that all endowment gifts be eligible for commingling for investment purposes with other endowment funds. This commingling permits enhancement of long-term investment programs, affords appropriate risk control through diversification, and provides for optimization of asset mix through time.
The financial goal for management of endowment funds is to preserve the real (i.e. inflation-adjusted) purchasing power of principal and income after accounting for endowment spending, inflation and costs of investment management. Performance of the endowment fund against this objective is to be measured over rolling 5-year periods.
Unitization of Endowments
The commingled endowment funds, excluding endowments not permitted to be invested in equities, shall be unitized and each new endowment gift added to the Fund shall receive units in the fund based upon the market value of the gift and the unit value of the Fund for the preceding quarter. The unit value of the endowment fund shall be determined at least quarterly. Income determined under the policy statement's spending policy should be calculated on a unit basis for distribution purposes.
Spending Policy for unitized endowments
UNT recognizes the need for spendable income by the beneficiaries of the endowment funds under their custodianship. The following spending policy reflects an objective to distribute as much total return as is consistent with overall investment objectives defined herein while protecting the real value of the endowment principal.
The following definitions are used:
Total return is defined as the sum of total interest and dividends, and realized and unrealized gains, less all investment management costs.
Net current yield is defined as the sum of total interest and dividends earned less investment management costs.
An endowment should be excluded from the target distribution until the endowment has been established for one year.
The target distribution of spendable income to each unit of the endowment fund will be between 3 to 6 percent of the average market value of a unit of the endowment fund for the preceding 12 quarters. Unless otherwise determined by the Finance Committee of the Board of Regents the target annual distribution rate shall be 4 percent of the average unit market value. Distribution shall be made quarterly, as soon as practicable, after the last calendar day of November, February, May and August. This distribution amount shall be recalculated each quarter based on a 12 quarter rolling average.
If, at any point of distribution, the fair market value of the endowment is below the corpus of the endowment the distribution shall be net current yield.
If, in any given fiscal year, the total return shall be less than the target annual distribution, the actual distribution shall be limited to the net current yield, not to exceed the target distribution rate.
Endowment funds
The majority of endowment funds are invested in the Commonfund, which is a nonprofit organization established for the purpose of providing investment opportunities for public and private educational institutions. The Commonfund manages several mutual funds of which UNT uses two to invest in equities and bonds. A portion of endowment funds may be invested in the University's investment pool.
Asset allocation for unitized endowments
To achieve the goal and objectives of the endowment fund, the fund's assets may be invested into two categories: an equity component and a fixed-income component. The endowment fund shall be diversified to limit the specific risk associated with any single security. The target asset allocation of the endowment funds shall be structured as follows:
Range
Equity Fund 70% 60% - 75%
Bond Fund 30% 25% - 40%
The asset allocation shall be monitored on an ongoing basis and rebalanced on a yearly basis or as needed during the fiscal year. Any rebalancing of assets will be done shortly after the end of each fiscal year.
Endowments not unitized
Endowments that do not provide for investments in equities will not be unitized and they will receive interest and dividends on their funds invested in fixed income securities.
Management Fees
Effective January 1, 2003 endowment accounts established on or after January 1, 2003 will be charged an annual fee. The management fee will be charged and collected on a quarterly basis. The fee will be based on the market value of each account at the close of the quarter. The fee is based upon the following account market values:
Annual Fee Rate From Market Value To Market Value
1.50% $0 $750,000
.80% $750,000 $1,500,000
.70% $1,500,000 Higher
Reporting
The performance of endowment investments will be reported with the investments reports submitted each quarter to the Board of Regents. The report shall:
Contain a summary of:
Book value, by asset class;
Market value, by asset class;
Performances measures;
Benchmarks against which to measure performance; and
Beginning and ending market values for the quarter, with changes in market values
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