Endowment accounts begin with the numbers “32.” They are the backbone of philanthropic giving. More than 60 percent of the funds held at the UW Foundation are in these long-term accounts, which provide funding for the future.
The Johnson Chair has given me the ability to work outside my comfort zone, and, often, it is these adventures that lead to new discoveries.
Ben Shen, Charles Melbourne Johnson Endowed Chair in Pharmacy
While each endowment account remains a separate account, the assets from all of them are pooled. Individual endowment gifts of cash, securities or property are valued and exchanged for units that represent a portion of the pooled investment portfolio.
Income for each account is determined by the number of units it represents in the pooled fund. Gifts are invested to provide spendable income and grow the principal.
Endowment accounts
- are typically established by an individual giver
- require a minimum balance of $10,000
- are invested in the pooled investment portfolio
- have the potential to earn income each quarter
- allow income earned to be spent at any time
- allow income earned to be reinvested
Why do I have a “12” account and a “32” account for the same fund?
An expendable “12” account is automatically created with each “32” account. Many are used only to hold gifts until they are transferred.
Gifts are moved from “12” accounts into endowment accounts at the end of each quarter.
How do I know what funds can be used for?
Endowment accounts are set up through Memoranda of Agreement (MOA) between the Foundation, the campus unit and the donor. These documents outline how funds may be used.
Authorized users, including department chairs and administrators, can find fund descriptions on the Foundation’s Campus Access site. Those same users can contact the Foundation’s donor relations representative for their school or college for additional information.
How does the Foundation determine the income available in an endowment account?
We use a spending plan to make allocations from the pooled endowment fund to individual endowment accounts. Income available is based on 4.5 percent of the average market value of the pooled endowment over the last 16 quarters beginning in July 2011. The value was previously averaged over 12 quarters.
The spending plan allows University units to plan their budgets and protects them from dramatic swings in the markets.
How does the Foundation determine estimated annual income?
By multiplying the most recent quarter’s spendable income allocation by 4.
Can I spend the original endowment gift?
Usually no. Most endowment funds are permanently restricted to protect the original gift. In rare cases a donor may allow spending from the principal.
Memoranda of Agreement and new fund letters are among legal documents that define the spending options.
What is a quasi endowment?
A quasi endowment is established when funds that are not required to be invested with the endowment are invested there anyway. The donor or campus unit may make a request to deposit funds with the endowment, or the Foundation may make that decision.
What is the difference between book value-principal and market value-principal?
Book value-principal is the total of all gifts and reinvested income received since the fund was established. The principal cannot be spent unless specifically allowed by the donor in the memorandum of agreement.
Market value-principal shows the current fund value. It is updated quarterly based on market fluctuations.
The difference between the book value and market value represents appreciation or depreciation of the book value.
Endowment: A permanent fund established to benefit the University of Wisconsin-Madison into the future.
Principal: The total value of gifts plus designated investment income that generally cannot be spent but generates future income for the University.