Endowment Policies & Definitions

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The UofL Foundation Inc. was incorporated in 1970. The foundation receives and administers all gifts to UofL, including outright gifts, bequests, charitable remainder trusts and gift annuities. Contributions are tax deductible and are allocated according to criteria established by donors. Although closely associated with the university, the UofL Foundation is a separate and distinct charitable corporation, and its affairs are directed and supervised by its own board of directors.

Investment Strategy

The UofL Foundation board’s investment strategy for the pooled endowment fund involves mitigating market risk by maintaining diverse investments through the use of target asset allocation guidelines. These guidelines ensure the foundation’s investment pool consists of a variety of publicly traded fixed income and equity securities, private equities and other nonmarketable securities, and real estate investments. The UofL Foundation’s investment objective is to preserve the principal of each endowment both in absolute and real terms while reasonably maximizing the total rate of return.

Spending Policy

Endowment gifts remain permanently invested and only a portion of the total return is expended. The amount distributed to each endowment is determined by the Foundation’s Board of Directors. The current spending policy to support our academic units provides for an annual distribution of 4.09 percent of each endowment’s three-year average market value as calculated on December 31. This formula reduces the volatility of an endowment’s spending from year to year and minimizes the negative effects of moderate market downturns. For underwater endowments, the Foundation has established a pro-rated amount based on this policy.

Budgeting

The UofL Foundation’s fiscal year is July_1 through June 30 and mirrors that of the University of Louisville. In January the university begins projecting its budget for the following fiscal year. In February the foundation calculates the projected spending amounts for all endowments using the formula in the approved spending policy. Final decisions on UofL’s budget are made in June when the board of trustees formally approves the new fiscal year budget.

Vesting Requirement

All newly created endowments must be invested for one full calendar year prior to participating in the UofL Foundation’s spending policy calculation. This investment time begins on January 1 following the date of the gift.

Governance

The University of Louisville Foundation’s board of directors follows the Uniform Prudent Management of Institutional Funds Act (UPMIFA), a law providing parameters for charitable institutions regarding investment and expenditure practices. The law ensures nonprofit administrators remain focused on the long-term viability of the funds entrusted to the organization.

  • UPMIFA requires “prudent judgment” be used to ensure management costs associated with endowment funds are proportional and appropriate.
  • UPMIFA allows flexibility in defining and spending from “underwater” endowments (funds with a market value lower than the book value).
  • UPMIFA reinforces the importance of “donor intent” and provides a closely controlled process for modifying restrictions that have become impracticable.
     

DEFINITIONS 

Gift Instrument: A will, deed, grant, conveyance, agreement, memorandum, writing or other governing document (including the terms of any institutional solicitations) under which property is transferred to or held by the UofL Foundation.

Book Value: The aggregate fair value in dollars of an endowment at the time it became an endowment plus subsequent gifts and, in some cases, reinvested funds. It can be used synonymously with “principal,” “gift corpus” or “historic dollar value.”

Market Value: The value of an endowment’s portion of the total assets of the UofL Foundation’s pooled endowment fund. It includes realized and unrealized capital appreciation and is net of spending that has taken place to support the endowment’s purpose. This figure represents what these assets were worth or could have been sold for on the specified date.

Contributions: All outright gifts and/or pledge payments received from donors during the most recent fiscal year with specific instructions to establish or add to the endowment principal.

Pooled Endowment Fund: A commingled pool of assets in which nearly all endowed funds established through private gifts are invested. The pool closely resembles a mutual fund. Each endowment owns a number of units in the pool. The value of each unit at the time the funds are invested in the pool determines how many units an individual fund owns. In other words, the endowed fund buys units in the pool much as one buys shares in a mutual fund.

Expenditures: The dollars spent during the most recent fiscal year in support of the purpose of the endowment.

Spending Policy: The amount of investment earnings projected to be available in the coming fiscal year to be spent in support of the purpose of the endowment.

Carryover: Unused funds from past spending policy.

Budget: Refers to spending policy + Carryover