The value of endowments
An endowment is a permanent fund, invested for growth and income. Its purpose is to provide a perpetual source of income. Endowment funds are important to Carolina because they relieve the University from having to raise every single dollar it needs every single year. They provide income that the College of Arts and Sciences can depend on. They support undergraduate scholarships, graduate fellowships, professorships and research funds. They build the bulwark for everything the College must do: recruit the best students and faculty, generate trailblazing research and work for a better world.
By generating a steady stream of income while leaving the principal untouched, the endowment makes it possible for the College to respond to unforeseen opportunities and weather the ebb and flow of state funding, tuition income and federal government grant making.
Endowments can be restricted or unrestricted. The donor of an endowment fund names the endowment and can specify its purpose. Donors who establish an endowment fund in the College receive updates on the fund’s financial performance as well as its usage. The donors’ heirs may also receive these reports.
The University’s last major fund-raising drive, the Carolina First Campaign, raised $962.4 million in endowment funding before ending Dec. 31, 2007.
How endowments are invested
All College of Arts and Sciences endowments are invested in the University of North Carolina at Chapel Hill Foundation Investment Fund, also known as the Chapel Hill Investment Fund (CHIF). CHIF is part of the UNC Investment Fund, which also includes funds invested to support other schools in the UNC system.
For the fiscal year ending June 30, 2010, CHIF had an annual return of 6.8 percent. That compared to a 10.9 percent return for its primary investment benchmark, the Strategic Investment Policy Portfolio (SIPP). The return was 13.3 percent for the 70/30 domestic benchmark (70 percent invested in the S&P 500 and 30 percent in the Barclays Aggregate Bond index). The return within a universe of 150 college and university endowments was 12.4 percent, as reported by the consulting firm Cambridge Associates.
Comparisons over longer periods show CHIF performing better than these benchmarks in most cases:
3-year, ending June 30, 2010
CHIF: -2.5 percent
SIPP: -1.7 percent
70/30: -4.5 percent
Universe of 150 college/university endowments: -3.9 percent
5-year, ending June 30, 2010
CHIF: 6.4 percent
SIPP: 4.8 percent
70/30: 1.4 percent
Universe of 150 college/university endowments: 3.8 percent
Oversight and spending policies
CHIF is overseen by a board of directors that includes Carolina alumni who are professional investors. The fund is well diversified among asset classes and fund managers who are recommended by UNC Management Company, Inc. and approved by the board.
Each year, the board authorizes a spending rate for the annual endowment distribution. This rate is determined according to a board-adopted spending policy that seeks to increase the prior year’s “per unit” spending by an inflation factor, typically the Consumer Price Index, so long as the resulting spending rate is at least 4 percent and no more than 7 percent of the fund’s market value.
This “constant growth” spending policy provides a stable, predictable and sustainable stream of spending intended to grow with inflation to support programs at the University. In high return years, investment returns in excess of the spending rate are reinvested so that in down years increases in the distribution amount can be maintained. Using this approach, the spending rate as a percent of the Chapel Hill Investment Fund’s market value fluctuates from year to year. Over the long term, the intent is to distribute approximately 5 percent to 5.5 percent of the fund’s market value annually.
For more information
If you are interested in creating an endowment fund in the College of Arts and Sciences, either with outright gifts or through planned giving, please contact Shannon Kennedy, director of capital gifts, at 919-962-6182, firstname.lastname@example.org.