Endowment Buy In and Liquidation

EFFECTIVE DATE: July 1, 2011 |LAST UPDATED: August 10, 2017 | Policy Section: endowment

Responsible Executives

Deborah Prentice 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

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 each gift or other addition is divided by the prior 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 and/or liquidations are effective as of the first day of the month.

II. Who is Affected by this PolicyBACK TO TOP

Donors and departments and financial managers who administer and steward invested funds.

III. Definitions

Book Value
The book value of a fund is comprised of the dollar amount of the initial gift plus subsequent additions or liquidations (if any).

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).

Market Value Per Unit
Market value per unit is determined at each month end and equals the total market value of the primary pool divided by the total number of units within the pool.

Quasi-Endowment
A quasi-endowment (subset of “081” prefix), 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.

IV. PolicyBACK TO TOP

The University’s endowment operates similarly to a mutual fund as each specific fund within the long term investment pool (“primary pool”) owns units. At each month-end, when the overall pool value is determined, a new market value per unit is calculated.

Gifts and other additions to the primary pool are converted to shares (“units”) as of the first day of each month based on the prior month’s market value per unit. 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. A gift or pledge must meet a minimum dollar threshold of $50,000 to qualify for the establishment of a newly created fund.

Liquidations from the primary pool redeem units as of the first day of each month based on the prior month’s market value per unit (generally, the book value of a fund is reduced using an average cost methodology). A quasi-endowed gift must remain in the endowment for a minimum of 5 years prior to liquidation.

The following examples illustrate the monthly calculations for primary pool gifts, additions and liquidations. The unit values are not actual and are for illustration only.

Gifts or Additions
June Market Value per Unit: $5,000

Calculation - Number of units added for a gift of $250,000 in July:
$250,000 divided by $5,000 per unit (prior month’s market value per unit) = 50 units

Liquidations:
Fund XYZ holds the following as of June:
Number of units: 100
Book Value: $250,000
Market Value: $500,000

The fund has a liquidation of $150,000 in July.

Calculation - Number of units redeemed:
$150,000 divided by $5,000 per unit (prior month’s market value per unit) = 30 units redeemed
 

V. Procedures BACK TO TOP

VI. Forms BACK TO TOP

VII. Contact Roles and Responsibilities BACK TO TOP

VIII. Update Log BACK TO TOP

8/10/2017

Update Provost to Deborah Prentice

5/24/2011

Approved


 

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