- What is endowment?
- How does the endowment work?
- Does income from the endowment have a significant impact on a university's budget?
- How is a gift to endowment different from an annual gift or some other type of gift?
- How much does an endowment gift grow over time?
- Can endowment gifts support any type of funding need at the university?
- Why should I make a gift to SUU's endowment when I could invest it for a higher return and then give you the earnings each year?
- Why does SUU need to grow its endowment now?
- What is the endowment investment strategy, and how has it changed in recent years?
- Who manages SUU's endowment investments? What is the decision-making process?
- How has the endowment performed recently?
- How important are endowment gifts to the success of SUU's capital campaign?
- How do I learn more about SUU's endowment and endowed gifts to the university?
An endowment is a gift that keeps on giving, in perpetuity. The endowment is a donation with provisions that the original gift amount not be spent, but is invested prudently to provide a future stream of revenue in support of a specific program of the University. When you establish an endowment gift, SUU invests it with the goal of providing revenue for the intent of the gift and to provide some return to protect the purchasing power of the endowment. The donor can provide specific guidelines as to the use of the endowment earnings, e.g. scholarships, endowed chairs, professorships, etc. The current value of SUU’s endowment is approximately $15 million with a campaign goal set to triple that amount.
Unlike a personal checking account, the endowment is not a cash reserve that SUU can draw on at will. Instead, virtually all endowed funds are invested, and a portion of the earnings is released each year to support the University and the purposes specified by donors. The University is legally prevented from depleting the original value, or principal, of an endowed gift.
SUU trustees determine how much of the endowment earnings to spend each year. The average spending rate of endowments, nationally, is between 4% and 6% of the endowment fund. That means a $1 million endowment may pay out as much as $40,000 and $60,000 per year. Earnings in excess of the payout are returned to the endowment to preserve its purchasing power against inflation, to provide a cushion for periods of poor market performance, and to allow for modest growth over time.
Yes, to the extent that an endowment supports the operation of the University, it is able to enhance the quality, depth and breadth of the educational experience of its students and reduce the cost of attendance through a robust scholarship program.
Different gifts help SUU in different ways. Annual gifts are vital because they meet present needs, but their full value is spent immediately. Endowment gifts provide a source of perpetual support for the University. Each new gift to the endowment adds greater financial support for the long term rather than relying heavily on annual donations.
Based on historical averages, a $1 million endowment gift made today can be expected to pay out about $500,000 over the next 10 years. Over the same period, its principal will have grown to more than $1.8 million thanks to reinvested earnings (assuming an average annual total return of _____%).
Yes. The total university endowment is made up of many smaller endowments supporting people, programs, and facilities across SUU and throughout its colleges and units.
Many endowments support scholarships for students or provide funding for faculty positions. Scholarship funds help SUU attract the best students from a wide range of socioeconomic backgrounds. Endowed faculty positions make it possible for SUU to attract the best scholars in the world. They also have extra value because the prestige associated with named chairs and professorships can be a powerful aid to recruitment.
Other endowment gifts might provide support for a library collection, provide funds for an athletic team, provide operating endowment for a facility, or another University effort designated by the donor. Some endowment gifts are unrestricted, which allows the university to direct proceeds to the areas of greatest need.
Annual endowment payout is typically between three and five percent of endowment principal. Why should I make a gift to SUU's endowment when I could invest it for a higher return and then give you the earnings each year?
There are a couple of important factors to consider. First, the annual payout from the endowment is not the same as its return on investments. Colleges and universities generally have a lower risk threshold than many investors. There is a fiduciary responsibility to protect the corpus of each of the endowed funds for the long term. Modern investment theory indicates that with a certain investment mix, a safe return on investment, a safe return on investment can be achieved and provide the spending rate for the supported function. Individual investors may get better short-term returns, but will have a difficult time maintaining that return over the long term.
There is no question that some universities have amassed large endowments. SUU’s remains very modest in relation to its peers, especially when its annual income is considered against the university’s budget needs. Ideally, it could do much more. The cost of delivering an SUU education will continue to grow faster than inflation, and we must find dependable sources of new funding to keep pace. It is unrealistic to expect substantial increases in state and federal dollars during lean budget times. Raising tuition hurts those who can afford it least and, in turn, increases the demand for university-provided financial aid. The best way to guarantee SUU’s long-term financial health and to sustain its academic and cultural excellence is to grow the endowment.
Donors want to know that SUU is managing the endowment effectively and investing wisely. What is the endowment investment strategy, and how has it changed in recent years?
Because the endowment must last as long as SUU itself, investments are chosen with long-term growth and stability in mind. We are restricted in our investment options by Utah State Statutes and Board of Regent policy, which are very conservative in nature.
The University has a standing subcommittee of its Board of Trustees to oversee the investments of the University. The committee is comprised of two trustees, the Vice President of Finance and Government Relations, the Assistant Vice President for Finance, and two members from the community that have investment knowledge and experience. The Board of Trustees and the Board of Regents receive monthly investment reports and the annual money management report is audited by our internal auditor. The SUU administrative staff manages the day-to-day investments of funds under the general guidelines of the Investment Committee. The Investment Committee recommends and approves all dispositions of long-term investments and the SUU administrative staff invests cash for short-term returns.
Below is the one, three, and five-year total returns for the endowment fund with comparable S&P 500:
Increasing the endowment is critical to the campaign. This new money will allow SUU not only to preserve its signature strengths but also to move with confidence into new interdisciplinary areas of education and fulfill its new mission as the state of Utah’s public liberal arts and sciences institution. A larger endowment will help control tuition increases while helping SUU to attract—and keep—the very best faculty and students. Today’s endowment is simply not large enough to accomplish these many important goals.
If you have specific questions about the endowment or would like to know how you can help, feel free to contact our staff.
Staci J. Carson ‘85
Associate Vice President for Advancement