1 — PURPOSE
It is the purpose of this policy to establish a) the maximum level of disbursements that can be made in any one fiscal year from the University's endowment funds, b) the authority and process for making those disbursements and c) a process that will ensure that disbursements are used solely for the purposes for which the funds were endowed.
2 — POLICY
2.1 Maximum Level of Disbursements
Disbursements from the funds are to be limited so as to provide for the preservation of capital (adjusted for inflation) in the long term. Accordingly, in any fiscal year the aggregate of a) disbursements and b) management and other fees charged to the funds in the previous fiscal year shall not exceed 5% of the lessor of
- i) the market value of the funds as of the end of the previous fiscal year, or
- ii) the average of the market values of the funds at the end of the sixteen quarters in the previous four fiscal years.
Disbursements are limited as provided in the previous paragraph so that income will be capitalized in years when income exceeds disbursements so that disbursements can be made as provided above in years when income is less than disbursements. The University recognizes that when income is less than disbursements a negative recapitalization will be necessary to cover the spending allocation.
The maximum level of disbursements from the Responsible Investment portion of the endowment fund will be determined as specified in Appendix-A.
2.2 Authorization of Disbursements
Other than annuity payments and investment management, custodial, audit, legal and consulting fees which are charged to the funds, no disbursement from the University's endowment funds will be made unless authorized by resolution of the Board of Regents or its Executive Committee.
When the Board of Regents approves the annual endowment budget, it approves the percentage of the market value of the endowment funds that can be disbursed in that budget year. No further authorization is required for disbursements up to that percentage of the market value of the endowment funds and for the purposes stated in the budget.
2.3 Transfer of Disbursements
The University officers who have the authority to instruct custodians to disburse funds from endowment funds to the University are the Controller, the Vice-President (Administration) or the President.
2.4 Internal Audit
In order to ensure that disbursements are used for, and only for, the purposes for which the funds were endowed, and in order to ensure that the funds were used in accordance with any restrictions placed on them, each year the University's Controller will conduct an audit of the funds and prepare a written report to the Audit Committee on the results of that audit. This audit will be considered sufficient if it involves an examination of 5% of the accounts, randomly chosen, in each of the various categories of accounts which make up the funds, representing at least 10% of the total value of the funds.
Appendix A - Responsible Investment Segment of Endowment Assets
In December, 2017 a new investment option was created for donors who desire a responsible investment option.
Given that the responsible investment segment of the endowment fund has a unique asset allocation and cost structure with respect to the rest of the endowed assets, it also has a different long term expected rate of return. Since the interaction of investment returns and the level of disbursements impacts the ability of the endowed assets to meet its objectives, a unique disbursement policy is required.
Accordingly, in any fiscal year, disbursements from the responsible investment portion shall not exceed 4% of the market value of the funds as of the end of the previous fiscal year, less any internal administration and other expenses charged to the responsible investment segment of endowment assets.