Five common questions we’re asked about Endowment Funds
Tue. Dec. 15, 2020
Photo courtesy of The University of Winnipeg Flickr
Hi! My name is Teresa Murray, I’m the Stewardship and Communications Manager at the Foundation. I started as a Development Assistant WAY back in 2006 and have held many roles since. The move to Stewardship is my latest endeavour, this began in 2019. One of the biggest jobs in the stewardship department is preparing and mailing our annual Endowment Fund reports. This year, The University of Winnipeg Foundation’s Endowment Fund reports were mailed to donors in November, later than usual, and for every excuse in the book, including the obvious one. We are sorry it took so long to get them to you and are committed to doing better next year.
Our reports have evolved over time, thanks to the valuable feedback we receive from our community of donors who support our endowment. We are grateful for these conversations and welcome them.
Donors usually have questions about their endowment when they are first establishing it, after receiving their first annual report and if and when numbers look significantly different than the previous year’s report.
This is my attempt to answer some of the more frequently asked questions.
What is an endowment?
The Foundation’s endowment fund is a pool of investments that encompasses over 600 individual endowment accounts supporting a wide array of scholarships, bursaries, programs and capital projects at The University of Winnipeg and The Collegiate. Endowed donations are invested by the Foundation such that the interest produces the award amount annually and in perpetuity. Some donors choose to support existing unrestricted funds, while others prefer to create their own named endowment.
When a donor makes a donation to establish a new endowment with us, those funds are invested and will never to be encroached upon. It’s the income earned on these investments that are allocated to a specific need and done so according to the donor’s wishes.
These wishes are captured in a Terms of Reference document which serve as a binding agreement between the Foundation, the donor and The University of Winnipeg and provides the Awards Office and other Departments with clear direction on how the income allocation can be used.
How long does an endowment have to be invested before it makes its first disbursement?
An endowment must sit one FULL fiscal year before an award or disbursement is made. For example if you establish your new endowment with a gift of $10,000 on September 1, 2020, the first award would be made in fall 2022. For this reason, many donors elect to provide a gift of current or immediate use funds to ensure the award can be allocated as soon as possible. In this example, the donor would provide $400-$500 in current funds (immediate use) to be awarded in fall 2021.
What is the difference between a current trust and an endowment fund?
Unlike an endowment, a current trust is established through immediate use contributions from the donor and all or a portion of those monies are awarded during the upcoming award cycle.
Some donors choose to make a larger gift of current funds intended to be disbursed annually until the balance is depleted. Others choose to make a gift equal to the intended award value on an annual basis. Immediate use funds are due before August 31 to ensure they are processed in time for the fall disbursement schedule. If a donor chooses to fund an award through monthly pledge payments, the first award is made as soon as the fund can produce the intended award value in full by the August 31 deadline.
What is the difference between contributed capital and market value?
The Foundation sends an annual update on each endowment to its endowment fund donors and department contacts. This report serves as an update on the fund’s performance and provides the updated contributed capital balance as well as the market value at year-end for the previous fiscal year. Contributed capital is the total amount invested in the fund, including donations and other transfers added to the principle. Market value reflects the dollar value assigned to each unit in a fund and is based on the performance of our investments.
How is the income allocation determined?
The income allocation is based on a percentage of the prorated contributed capital held in the Endowment Fund or “agreed to percentage”. This percentage is set annually by the Foundation’s
Board of Directors and members of the University’s Board of Regents.
The agreed-to percentage for 2020/21 was determined at the Foundation’s Annual General Meeting and remained at 4.25% resulting in a 2020/21 gift to the University totalling $2,297,000.
How long can I take to build my fund to Endowment level?
Establishing an endowment with us is not as intimidating as you might think and it’s not a decision exclusive to Major Gift donors. Many donors, especially faculty and staff, elect to grow their fund over a longer period of time, there is no limit. Many accomplish their goal through manageable annual or monthly pledge payments. Our minimum endowment level is set at $10,000, however, donors can set a larger goal for their fund before it begins paying out.
For example, monthly pledge payments of $100, stretched out over, say, ten years will produce an endowment of $12,000 in contributed capital. Once that level is reached it would produce an award around $500 or more depending on the annual agreed to percentage. Ten years really isn’t that long when you consider your endowment will serve students in perpetuity! If you are interested in starting this process please contact me or our main line (204-786-9995) and you will be put in touch with one of our knowledgeable Development Officers.
Will my fund continue to produce an award even if markets underperform?
Yes, the Foundation’s Endowment Fund was established in order to ensure reliable regular funding to support programs and awards. The Foundation does this in two ways: through its asset mix, and by way of a Reserve Fund, which serves as a hedge against fluctuations in investment earnings. If markets dip the Foundation has the ability to borrow from the Reserve Fund to provide the income allocation to the University. In years, where this occurs, like 2019/20, we work with donors to help repay the reserve to ensure it continues to perform at its maximum capacity. These solicitations are underway now.
The Reserve Fund (Market Value) at September 30, 2020 is $17,403,975, a major rebound since March 31, 2020.
If you have any questions or suggestions on how to improve your report please contact me at t.murray@uwinnipeg.ca / 204-955-1848. If you are interested in setting up your own endowment fund, as mentioned previously, I would be pleased to introduce you to one of our development officers who will happily guide you through the process.
Sincerely,
Teresa Murray
Donor Stewardship and Communications Manager