Endowed Fund Reports

Endowment Overview

The University of Pittsburgh Endowment Fund (the “Endowment”) has a current market value in excess of $2.3 billion and consists of nearly 1,800 individual funds. The majority of these funds are endowed gifts which provide perpetual financial support for scholarships, fellowships, faculty chairs, instruction, and other important University programs and services. An endowed gift is intended to provide the University with a permanent source of funding by investing the principal amount of the gift and making available a portion of the income it generates. The amount of endowment “income” available for spending is determined by the Investment Committee of the Board of Trustees and is governed by Pennsylvania law.

Funds that comprise the Endowment also include donor contributions and surplus funds that are designated by the University as “quasi-endowments” as well as annuity and life trust funds. Quasi-endowments are treated like endowed funds, except that no laws prohibit any portion of a quasi-endowment from being spent in accordance with its designated purpose. However, University policies and procedures govern the minimum investment timeframe before the principal of a quasi-endowment fund may be withdrawn. Spending for an annuity or life trust fund is governed by the annuity or trust agreement.

Virtually all of the endowment and quasi-endowment funds are collectively invested as a large, singular pool of funds, called the Consolidated Investment Pool (the “Pool”). Although the Pool is invested as a singular fund, each of the individual endowment and quasi-endowment funds are tracked individually. This is done by assigning each fund shares of ownership in the Pool, similar to how an individual’s investment in a mutual fund is tracked.

The Pool is invested with the goal of preserving the purchasing power of every endowment fund while distributing a meaningful, stable flow of support to the University. To reach this goal, investment policy for the Pool seeks to maximize long-term total returns relative to acceptable levels of investment risk. Investments are diversified among various asset classes with a bias toward equities. The asset allocation targets for the Pool were revised by the Investment Committee of the Board of Trustees in June 2008 and are shown in the chart on the following page.

Targeted Allocation for Consolodated Investment Pool

 

		=	Domestic Equality
		=	International Equity
		=	Emerging Markets Equity
		=	Fixed Income
		=	Marketable Alternatives
		=	Non-Marketable Alternatives
		=	Inflation Assets

Pursuant to Pennsylvania law, the University elected in 1999 to base its spending policy for the Pool on a “total return” approach that takes into consideration capital appreciation as well as dividend and interest income. According to the Pennsylvania statute, “income” that may be distributed for spending is the stipulated percentage of asset value (which is required to be determined at least annually and averaged over a period of three or more preceding years). The stipulated percentage may be no less than 2% and no more than 7% per year. The University’s stipulated percentage is currently 4.25% with asset value determined annually and averaged over a three-year period.

In a year in which many investors lost money, the Pool managed to preserve capital and remain flat in fiscal year 2008 with a 0% one year return, net of manager fees. The amount of Pool income that was distributed to the University during fiscal year 2008 was nearly $85 million. The endowment continued to distribute pool income despite earning a 0% return bringing down the market value of some individual endowment accounts at year end versus the beginning of the year. This is due to the University spending policy (outlined above) which distributes income based on the three-year average market value per share of the Consolidated Investment Pool. Annualized net returns for the three, five, and ten-year periods ending June 30, 2008 were 11.4%, 12.0%, and 7.4%, respectively.

Endowed Investment and Spending Policies

Goal

The Consolidated Investment Pool is charged with the goal of preserving the purchasing power of every endowed gift while distributing a meaningful, stable flow of support to the University of Pittsburgh.  To reach this goal, the investment policy for the Consolidated Investment Pool seeks to maximize long-term total returns relative to acceptable levels of investment risk.

This has many benefits for both the University and our donors.  Primarily, for our donors, the University is able to maintain the value of the donor’s gift in perpetuity without it being eroded by the effects of inflation.  As a result, the University is able to meet the current and future needs of the school or department for which an endowed gift is designated.  Also, as the endowment grows, there is more distributable income available to be used according to the donor’s wishes. 

Definitions

Endowed Fund

And endowed fund requires that the principal amount of the fund be held in perpetuity.  Only distributed income, calculated according to the University’s spending policy, is available to be expended for the specific purpose of the endowed fund.

Consolidated Investment Pool

The Consolidated Investment Pool was established to manage and invest the University’s endowed funds.  Individual endowed funds added to the pool are used to “purchase” shares of the pool.  To calculate the number of shares for a new endowed fund, the University divides the endowed gift amount by the current market value per share on the gift date.

For example:

Investment Policy

The Consolidated Investment Pool is invested in a diversified portfolio of assets, including equity securities (domestic and international), bonds (domestic and international), hedge funds, private equity securities, timber, energy, and real estate.

Spending Policy

The spending policy benefits both the donor and the University by protecting the core growth of the endowment.  This protects the distributable income.  If the previous year’s distribution rate is higher than the calculated amount for the current year, the distributed income will follow the previous year’s distribution.  Therefore, the University ensures that donors’ funds are not losing income for awards made according to donors’ wishes.

As permitted by Pennsylvania law, the University has adopted a spending policy that distributes income based on calculating 4.25 percent of the three-year average market value per share of the Consolidated Investment Pool. 

For example:

The amount of the distribution is also subject to the condition that the distribution amount per share for any given year cannot be less than the prior year’s rate.

If you have any questions about the endowment you have contributed to or created, please contact Jacquelyn Keyes at Jacki.Keyes@ia.pitt.edu or by phone at 412-624-6804.