Endowments may be established with a $25,000 minimum gift, but must be funded at the appropriate level so that annual payout is sufficient to support the intended wish of the donor. Endowments previously approved at lower levels will now be grandfathered into the policy, but must have achieved a minimum of $10,000 in principal to receive annual payout.
True endowments are funds for which donors or other external agencies have stipulated under the terms of the gift instrument creating the fund that the corpus of the fund is not expendable-that is, it is to remain inviolate in perpetuity and is to be invested for the purpose of producing present and future income, which may be expended through annual payout or added to principal.
Quasi or board-directed endowments are those funds that have been turned into endowments at the approval of the Foundation Board of Directors. These endowments are invested and managed with other endowed funds; however, board-directed endowments may spend principal in accordance with the terms of the particular board endowment agreement. In these cases, spending of principal will be permitted only when it is documented in the Foundation’s files that the Board of Directors has discretion over the funds and/or has specifically approved requests to spend principal.
Endowment principal shall be defined to include both the original gift and any subsequent donations to the fund. Any additional accumulation or appreciation other than the current-year payout is referred to as “quasi-endowment” and can be expendable to make up the payout in low-income years, or through written consent by the Foundation Board of Directors.
In managing the endowment funds, the Foundation follows the “total return” concept of investment management for setting investment objectives and determining investment performance. This concept recognizes traditional yield (dividends and interest), plus or minus realized and unrealized gains or losses, in determining the total return earned or performance of an endowment fund during any particular period.
In order for the Foundation to remain a viable, healthy entity, it must maintain adequate purchasing power. Therefore, the overall performance objective for the portfolio is to exceed the regional inflation rate (measured by the Bay Area Urban Consumer Price Index) by a minimum of 4% annually net of management fees. During high-growth years, additional income will be placed back into principal, thus establishing a reserve for distributions in future years when growth is low or negative.
The Foundation Board has set an investment strategy with the objective of maintaining a minimum distribution rate of 4% of the portfolio’s fair market value. In years when the investment performance is low, the reserve set aside as a hedge against inflation may be drawn upon to maintain the established distribution rate.
Distribution is the amount of money paid out each year in adherence to the Foundation’s established payout procedures. Although invested with a merged pool, each endowment fund is created and accounted for separately and used in accordance with the donor’s wishes. Distribution comprises earned income and a portion of the funds’ appreciation. Additional appreciation is reinvested with the funds’ principal where it becomes part of the funds’ market value. Up to 2% of the endowment portfolio’s fair market value will be assessed each year to offset the associated administrative expenses incurred by the Foundation.
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