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ENDOWMENTS 101

ENDOWMENTS FAQ

INVESTMENT NEWSLETTER

 

Office of the Chief Financial Officer 
Texas Tech University System 

System Administration Building
1508 Knoxville Ave., Suite 301
Box 42016 
Lubbock, TX 79409-1104

Phone: 806.742.9000

8 a.m. - 5 p.m. Central, 
Monday - Friday

Endowments Frequently Asked Questions

Endowments Frequently Asked Questions

What is an endowment? 

Endowment funds are donor gifts that are invested for the ongoing support of the university. An endowment represents the institution’s promise to use the income and investment gains generated to support an aspect of the university’s mission into perpetuity. Endowments can be unrestricted, or restricted to a specific purpose as determined by the donor. An endowment established by a donor is considered to be a true endowment, also known as a permanent endowment.

 

What is a quasi-endowment?

 Quasi-endowments are institutional funds set aside by the Board which are then treated like a true endowment.

 

How big is the TTUS endowment?

The TTUS Endowment surpassed $1 billion for the first time in fiscal year 2014 and the endowment’s combined assets were valued at $1.26 billion at the close of fiscal year 2017.

 

How much has TTUS distributed for spending?

TTUS’s endowment acts like a mutual fund with our universities and health sciences centers as the beneficiaries. TTUS distributed $52.2 million for spending in fiscal year 2017 and has distributed more than $509 million since the inception of the LTIF in 1996. 

 

What do endowments support?

Endowments provide critical financial resources for programs at the department, college, and university level. Common areas of support include scholarships/fellowships, faculty chairs and professorships, and research activities. Donors can work with their development officer to determine what type of programs their endowments will support based on the donor’s passion and interest.

 

Who is responsible for the management of the TTUS Endowment?

The management of the TTUS Endowment is a team effort between the Board of Regents, Texas Tech Foundation, Office of Investments, Institutional Advancement Stewardship Services, Office of the Treasury, and the departments that make scholarship awards and manage spending.

The Board has fiduciary responsibility and manages the endowment in compliance with any donor restrictions and state law, including the Uniform Prudent Management of Institutional Funds Act. The Board has delegated the day-to-day management of the endowment’s assets to the Chief Investment Officer and contracted investment managers and advisors in accordance with the Long-Term Investment Fund policy.

 

How are funds invested?

TTUS pools individual endowment funds together and invests the group as a single portfolio called the LTIF (Long-Term Investment Fund). The portfolio is invested in diversified assets that seek growth as well as income, with stable funding and low volatility over time.

The goal of the LTIF is to achieve a rate of return slightly above the spending distribution rate plus inflation. In generic terms, the goal for endowments is an average return of 8.0%.

 

What is the spending distribution rate?

LTIF Policy states the spending distribution rate shall be between 4%-6%. The TTUS spending distribution rate is currently set at 4.5%.

 

How is the spending distribution calculated?

TTUS distributes earnings from the corpus to the spendable four times per year. The quarterly spending distribution is determined by taking the spending rate (4.5%) times the endowment’s 12 quarter rolling average for the period (not the beginning balance times 4.5%). The result is consistent distributions with minimal variance from quarter to quarter, as the distributions are safeguarded against market fluctuation.

 

Is it possible for an endowment to go below its gifted value?

TTUS’s management perspective, guided by the Prudent Management of Institutional Funds Act, takes a long-term view of investments and allows for an endowment to go below its gifted value – though going below the gifted value is not common.

In years the market is up TTUS may spend less than the return to grow the endowment, and in years the market is down TTUS may spend more than the return for the benefit of the mission. In effect, a new endowment established during a down market is the most susceptible to going below its gifted value but will regain its value with time. New endowments established during an up market, along with older endowments that have participated in multiple market cycles, are likely to stay above their gifted value. 

 

What happens if there is an unused balance in a spendable account?

Any unused balance remains with the spendable account and is available for future use that benefits the spendable account’s purpose as established by the donor.

 

What is the management fee and how is it utilized?

The management fee for funds invested in the LTIF is 70 bps (basis points), or 0.7%, of the 12-quarter rolling average of the net asset value. The use of the fee is outlined in the LTIF Policy, which states 50% of the fee shall be used to support the operations of the Office of Investments, with the remainder of the fee utilized to support the fundraising activities for the TTUS Office of Institutional Advancement.

 

How can I obtain endowment fund balance information?

Donors can obtain information on their endowment funds by contacting Institutional Advancement’s endowment compliance team at (806) 742-3273 or Ia.endowment.compliance.staff@ttu.edu.

 

When can I expect to receive my endowment report?

Endowment reports are compiled after the System’s financial statements are due to the State Comptroller the third week of November. TTUS strives to have endowment reports mailed out to donors as soon as possible after submitting to the State Comptroller.
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