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Endowment Payout Process

Endowment Payout Process. Posted July 2013. Endowment Payout Process Tutorial Segments. Basic Mechanics of Endowment Payout Process Commonly Used Endowment Reports. Basic Mechanics of Endowment Payout Process. What is Endowment Payout?.

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Endowment Payout Process

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  1. Endowment Payout Process Posted July 2013

  2. Endowment Payout Process Tutorial Segments Basic Mechanics of Endowment Payout Process Commonly Used Endowment Reports Financial Management Services

  3. Basic Mechanics of Endowment Payout Process

  4. What is Endowment Payout? • Endowed funds in the Merged Pool (Stanford’s primary investment pool) receive a “spendable” dollar amount monthly to support university expenditures per donor wishes and restrictions. This is known as “payout.” • Payout per share is approved by the Board of Trustees every February for the following fiscal year. • The University balances the need for stable and predictable current spending with the need to preserve endowment principal to support spending into perpetuity to create intergenerational equity. • An endowment “income fund” holds the payout produced by the fund’s investment in the Merged Pool. • Income funds are accounted for in the SU or operations ledger • The principal investment is accounted for in the EN or endowment ledger Financial Management Services

  5. Payout Timing & Spending Flexibility Example: Fund with 1,000 Shares Annual Payout = $12/share; Monthly Payout $1/share $1k $1k $1k $1k $1k $1k $1k $1k $1k $1k $1k $1k Fund-holding orgs may spend anticipated payout anytime during the fiscal year Sep Mar Apr May Oct Nov Dec Jan Feb Jun Jul Aug Monthly Payout = # shares X payout per share 12 Financial Management Services

  6. 1,000 X $299 =$299,000 PayoutImpact onShare Value Example: Fund value = $300K (1,000 shares, $300/share). Annual Payout = $12/share; Monthly Payout $1/share 1,000 X $300 =$300,000 Sept $1K $1K $1K $1K $1K Share value declines by $1/month as payout is distributed 1,000 X $298 =$298,000 1,000 X $296 =$296,000 1,000 X $297 =$297,000 1,000 X $288 =$288,000 This simple illustration only depicts how payout decrements share value and does not consider market fluctuation. . . . . . . . Oct Nov Dec Aug Financial Management Services

  7. Evaluating Payout Resources “Payout Resources” are the monies available for a fund (i.e., earnings, appreciation, full market value) to make monthly payout. Example: Monthly Payout Amount = $1/share ($1,000 per fund) Vast majority of Stanford Endowment funds have sufficient resources for full payout. Financial Management Services

  8. Evaluating Payout Resources in Funds with Multiple Share Types (Pure & Quasi) Share types in a fund will be evaluated separately for payout resources and will fund payout proportionately Example Fund: 1000 shares in total; monthly payout per share = $1 Payout is covered proportionately. Pure covers pure payout; quasi covers quasi. Fund still gets full payout. Financial Management Services

  9. Do Funds Sometimes Have Insufficient Payout Resources? • Affects Pure B Limited Funds only, and only when fund is “underwater” • Monthly payout = earnings and any available appreciation • There are very few funds in this category • Endow_128_Endow_Investment report displays Quasi, Pure Limited, and Pure Unlimited to assess Payout Resources • Undistributed payout stays in principal side of fund Financial Management Services

  10. When Payout Resources are Less than Payout Amount? (affects Pure B Limited Shares only) Example: Monthly Payout Amount = $1/share ($0.10 earnings, $0.90 appreciation) Payout of earnings and available appreciation Undistributed payout is reinvested Financial Management Services

  11. Undistributed Payout Purchases New Shares to Restore Fund Value After payout Before payout 1,000 X $300 =$300,000 • Payout Resources • > Payout • “Healthy” =$300,000 $1000 Payout To Income Fund $1,000 After payout & reinvestment $900 Undistributed payout Before payout Payout Resources < Payout “Underwater” 1,000 X $300 =$300,000 =$300,000 Buys 3.01 shares at $299 /share 1,003 X $299 =$299,900 1,000 X $299 =$299,000 $100 Payout To Income Fund (Actual Earnings) $100 Applies to all funds that do not get full payout (e.g., Pool A) Financial Management Services

  12. Funds with Pure B Limited and Quasi Shares: Decapitalization Policy If pure portion does not have enough payout resources to make payout on pure shares, total payout will be impacted Example Fund: 1000 shares in total Payout on pure shares is made with available pure resources only. Total payout to fund = $370 Option to de-capitalize quasi shares to make up ‘missed’ payout Financial Management Services

  13. Commonly Used Endowment Related Reports

  14. Fund_153 Report Financial Management Services

  15. Fund_154a Report – data download YTD Payout November Nov payout x 9 months Anticipated Remaining Payout: current month payout times the number of months remaining in the fiscal year Anticipated Available Balance: actual available balance plus anticipated future payout Financial Management Services

  16. Use Fund_128 Report – data download tabto assess health of Pure B Limited Funds • Report Purpose • Summarize share book and market value by fund/pool • Allows users to: • Analyze limited and unlimited shares separately • Determine available payout resources for each share type Financial Management Services

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