Endowment Spending

EFFECTIVE DATE: July 1, 2011 |LAST UPDATED: September 17, 2013 | Policy Section: endowment

Responsible Executives

David S. Lee, provost

Carolyn Ainslie, vice president for finance and treasurer

Responsible Offices

Office of the Provost

Office of the Vice President for Finance and Treasurer

Contact

Matthew Kent, associate treasurer, (609) 258-6452

I. Policy StatementBACK TO TOP

The University uses spending distributions from endowment and quasi-endowments to provide fundamental support for its teaching and research mission. The Princeton University Board of Trustees monitors, adjusts, and approves the annual spending distribution. By maintaining the spending distribution rate within a prescribed policy band over time, the institution meets current program support needs and ensures the long-term, intergenerational purchasing power of the endowment.

II. Who is Affected by this PolicyBACK TO TOP

Department and financial managers who administer and steward endowed funds.

III. Definitions

Endowment
An endowment is a permanently invested fund. While “income” (see Spending Distribution, below) from the fund may be spent, the principal of the fund must remain intact. Donors may restrict the purposes for which endowment “income” can be spent. (See also Quasi-Endowment).

Invested Funds
Invested funds include funds in the University’s primary pool, secondary pool and externally managed trusts.

Quasi-Endowment
A quasi-endowment, also known as "funds functioning as endowment" or "designated endowment," is an invested fund that is treated as an endowment for investment purposes, but is not legally restricted as such. The principal of a quasi-endowment fund may be liquidated.

Spending Distribution
The spending distribution represents the dollar amount of funds made available for expenditure from each unit of the endowment for a given fiscal year, as governed by the spending rule.

Spending Rate
The spending rate is a statistical measure calculated by dividing the total fiscal year spending distribution per unit by the market value per unit in effect at the beginning of that fiscal year. The Trustees have set a policy band that allows the spending rate to range from 4% and 5.75%. The spending rate calculation does not apply to secondary pool (082) or external trust (056) accounts.

Spending Rule
The spending rule is the policy set by the Trustees to govern the amount of primary pool spending distribution available for a given fiscal year. The standard spending rule directs the spending distribution per unit to increase by 5% per year. . The spending rule may be modified by the Board of Trustees for a given year if, for example, the standard rule results in a spending rate that falls outside of the recommended spending rate band.

IV. PolicyBACK TO TOP

Unit Conversion Policy:

Gifts and other additions to Princeton University’s endowment are converted to shares (“units”) in the long-term investment pool (“primary pool”). The dollar amount of a gift or other addition is divided by the previous month’s market value per unit of the primary pool to calculate the number of units permanently associated with that addition. As such, the number of units in an endowment or quasi-endowment fund depends on the dollar amount of the addition and the market value per unit at the time of the addition. All unit additions are effective as of the first day of the month. Please see the Market Value per Unit (5-Year History) and the Endowment Buy In and Liquidation Policy for more information.

Spending Policy:

Princeton University’s endowment spending policy ensures a prudent tradeoff between current program needs and long-term endowment purchasing power. The Trustees have endorsed a spending rate range of 4%-5.75% to achieve this balance. In order to enhance predictability and stability in endowment payout, the Trustees have established a standard spending rule that increases the spending distribution per unit by 5 percent per year, although the standard spending rule increase may change if necessary to maintain the spending rate within the prescribed policy band.

Actual Spending Distribution Policy:

Primary pool spending distributions are calculated for each fund on a monthly basis, and are posted to spending project grants each quarter.

Distributions based on funds’ units in July, August, and September will be posted in the October accounting period; October, November, and December in the January period; January, February, and March in the April period; and April, May and June in the June accounting period. Changes to a fund’s units that occur during a given quarter will be reflected in that quarter’s posted spending distribution. For example, a fund created with a new gift in July will produce its first spending distribution in October, based on three months (July, August, September).

To see examples of calculations and quarterly postings, please see Appendix A.

Estimated Spending Distribution Policy:
Please see Appendix A to see examples of monthly calculations and quarterly postings for mature, new, and liquidating Primary Pool funds.
 

V. Procedures BACK TO TOP

VI. Forms BACK TO TOP

VII. Contact Roles and Responsibilities BACK TO TOP

VIII. Appendices BACK TO TOP

Appendix A


IX. Update Log BACK TO TOP

5/24/2011

Approved


 

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