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Definition
The Endowment is the University's income producing capital derived from donations. It is actually composed of several endowed funds, or sub accounts, each established for a particular purpose. Endowed gifts are invested with two goals in mind: to provide spendable income for the purpose agreed upon with our donor, and to grow the principal at a rate that exceeds inflation. The original gift, or principal, is never spent, and any investment return over permitted spending and fees is channeled back into the fund for continued growth.
Endowed gifts, while generating current income and long term growth, are unique in that the underlying gift is never actually spent. In this way, they are distinct from annual gifts, which are used to fund operational needs on a current basis. Both types of giving are critical to the mission of The Catholic University of America, and many of our donors participate in both annual and endowed giving.
Governance
The Endowment is overseen by our Board of Trustees, and more specifically, by the Investment Subcommittee of the Board. The Investment Subcommittee, which includes members of the University's Office of Finance and Administration, continuously monitors the endowment and regularly conducts reviews of the financial objectives, the asset allocation, and the selected money managers, among other relevant administrative elements. Decisions regarding endowment management are approved by the Board, which formally meets three times per year.
Purposes
Endowed funds can be established for the general, unrestricted benefit of the university, or for a specific purpose the donor wishes to promote. Often, they provide for undergraduate scholarships, graduate fellowships, and faculty professorships or chairs. The funding of capital projects, an annual lecture series, or library collections, are also among the many possibilities. A more complete description on endowed fund purposes can be viewed on the our "Opportunities" section of the planned giving web page.
Mechanics
To establish an endowed fund, a gift agreement between the donor and the university is typically executed. The gift agreeement is a document that outlines how the fund is to be administered, and protects both the donor's intent and the best interests of the university. This is particularly important since an endowed fund will create a permanent legacy at CUA, long beyond the lifetimes of the parties involved in the original gift. Minimum gift amounts, which depend upon the designated purpose, are required to establish an endowed fund at CUA, and can be found on the "Opportunities" section of the planned giving web page.
Investment/Asset Allocation
Endowed funds are invested in a diversified mix of both equity and fixed income funds, as the university has developed an investment policy that over time will produce attractive returns with lower volatility. The investment policy is focused on long term return relative to the level of risk taken. In implementing the investment strategy, the university utlizes top investment managers who through their expertise add value to the investment pool.
Expenses
The necessary custodial and investment management fees applied to the endowment are among the items reviewed continuously by the Investment Subcommittee of the Board, and are a reason minimum gift amounts are required for endowed funds. To maximize the benefit of our donors' generosity, the university seeks the highest levels of administrative efficiency and investment performance at the most reasonable costs available. Fees are typically paid from a university operating account, which is then reimbursed with portions of the growth or income generated in our endowed funds. The underlying gift principal is never utilized to cover these expenses.
Endowment Payouts
Distributions, or payouts, are made quarterly from our endowed accounts to fund the scholarships, professorships, and other various purposes for which they are intended. In order to allow for growth and income generation, payouts do not begin until one year after the fund has reached endowed status under our required gift minimums. An average value, relying on total return and calculated from the preceeding twelve fiscal quarters, is used to determine the payout amounts, which are typically made at a rate of between 4.0 and 5.5 percent. By using an average over a longer time span, CUA cushions itself against down years in the market and ensures consistent payouts from year to year.
Growth
Factors such as market performance, expenses, and payouts play a role in the growth of the university's overall endowment, and each individual endowed fund, like a holder of mutual fund shares, is influenced by those factors on a pro rata basis. A primary aim of our investment strategy is to protect future purchasing power by growing our endowed funds at a rate that exceeds inflation. As a result, any investment returns which exceed fee and distribution amounts are reinvested for further growth. Ideally, as each endowed fund grows, so does the support it provides. In the samples below, rates of return reflect percentages of growth after expenses ("net of fees"), and endowment payouts are based upon an average market value for the twelve preceeding fiscal quarters. These are provided to show what may be considered fairly typical patterns of growth for an endowed fund over time in light of all the relevant variables:
$500,000.00 gift received, beginning of year, 10% return
Year 1 Year 2 Year 3 Year 4 Year 5
Beginning Balance - $550,000 $582,674 $617,289 $653,960
Gift Received $500,000 - - - -
Returns $50,000 $55,000 $58,267 $61,729 $65,396
Spending Rate (4.5%) ($22,326) ($23,652) ($25,057) ($26,546)
Endowment Growth $50,000 $32,674 $34,615 $36,671 $38,850
Ending Balance $550,000 $582,674 $617,289 $653,960 $692,810
$500,000 gift received, beginning of year, 5% return
Year 1 Year 2 Year 3 Year 4 Year 5
Beginning Balance - $525,000 $529,939 $534,924 $539,956
Gift Received $500,000 - - - -
Returns $25,000 $26,250 $26,497 $26,746 $26,998
Spending Rate (4.5%) ($21,311) ($21,512) ($21,714) ($21,918)
Endowment Growth $25,000 $4,939 $4,985 $5,032 $5,080
Ending Balance $525,000 $529,939 $534,924 $539,956 $545,036
(The samples above are for illustrative purposes only, as they do not reflect the historical growth of an existing endowed fund, nor are they any guarantee of future results. Assumptions have been made regarding the variables which influence growth. Those assumptions may vary slightly from case to case, but have been relied upon here to provide an understanding of endowment growth through plausible scenarios.)
Stewardship
The university provides timely, personalized acknowledgement on all gifts received. We recognize our obligation to communicate openly with donors regarding gift purposes, to adhere to agreed upon gift restrictions, and to comply with generally accepted accounting principles. To affirm the connection between the generosity of our donors and the benefits their gifts confer upon CUA, we provide regular reports highlighting the use and growth of each endowed fund. Such stewardship reports reflect the financial status of the fund and, where possible, additional information on the specific beneficiaries, such as scholarship recipients, faculty members, or academic programs. These obligations of stewardship are undertaken to express our gratitude, and to emphasize the importance of our donors within our community.
HISTORY/CURRENT STATUS
The endowment is currently comprised of 548 endowed funds, which collectively had a market value of $165,576,300.00 as of July 31, 2009. The cumulative return from inception through our most recent fiscal year (though April 30, 2009) was 6.5%.
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