endowment payout process posted july 2013. confidential stanford university confidential stanford...
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Endowment Payout Process
Posted July 2013
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Endowment Payout Process Tutorial Segments
1. Basic Mechanics of Endowment Payout Process 2. Commonly Used Endowment Reports
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Basic Mechanicsof Endowment Payout Process
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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
What is Endowment Payout?
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Payout Timing & Spending Flexibility
Monthly Payout = # shares X payout per share 12
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
$1k $1k $1k $1k $1k $1k $1k $1k $1k $1k $1k $1k
Fund-holding orgs may spend anticipated payout anytime during the fiscal year
Example: Fund with 1,000 SharesAnnual Payout = $12/share; Monthly Payout $1/share
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Payout Impact on Share Value
Share value declines by $1/month as payout is distributed
1,000 X $298
=$298,000
Oct
$1K
Aug
1,000 X $288
=$288,000
. . . . . . .
$1K
1,000 X $297
=$297,000
Nov
$1K
Dec
1,000 X $296
=$296,000
$1K
Example: Fund value = $300K (1,000 shares, $300/share).Annual Payout = $12/share; Monthly Payout $1/share
1,000 X $299
=$299,000
$1K
Sept
1,000 X $300
=$300,000
This simple illustration only depicts how payout decrements share valueand does not consider market fluctuation.
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Evaluating Payout Resources
“Payout Resources” are the monies available for a fund (i.e., earnings, appreciation, full market value) to make monthly payout.
Pure B Limited Pure BUnlimited
FFE(Quasi Shares)
# of Shares 1,000 1,000 1,000Book Value $250,000 $250,000 $250,000
Market Value $300,000 $300,000 $300,000
Payout Resources$50,000(MV – BV) + earnings
$300,000(MV)
+ earnings
$300,000(MV)
+ earnings
Example: Monthly Payout Amount = $1/share ($1,000 per fund)
Payout toIncome Fund $1,000 $1,000 $1,000
Vast majority of Stanford Endowment funds have sufficient resources for full payout.
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Evaluating Payout Resources in Funds with Multiple Share Types (Pure & Quasi)
Pure B Shares Quasi Shares
# of Shares 700 300
Book Value $175,000 $75,000
Market Value $210,000 $90,000
Payout Resources $35,000 $90,000
Payout to Income Fund $700 $300
Share types in a fund will be evaluated separately for payout resources and will fund payout proportionately
Payout is covered proportionately. Pure covers pure payout; quasi covers quasi. Fund still gets full payout.
Example Fund: 1000 shares in total; monthly payout per share = $1
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Do Funds Sometimes Have Insufficient Payout Resources?
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• 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
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When Payout Resources are Less than Payout Amount? (affects Pure B Limited Shares only)
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Pure B Limited Healthy
Pure B Limited
Underwater(no appreciation)
Pure B LimitedPartially
Underwater(insufficient
appreciation)
# of Shares 1,000 1,000 1,000
Book Value $250,000 $350,000 $299,500
Market Value $300,000 $300,000 $300,000
Payout Resources
$50,000 +$100 earnings
$100 earnings only
$500 +$100 earnings
Example: Monthly Payout Amount = $1/share ($0.10 earnings, $0.90 appreciation)
Payout to Income Fund $1000 $100 $600
Undistributed Payout N/A $900 $400
Payout of earnings and available appreciation
Undistributed payout is reinvested
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1,000 X $299
=$299,000
Undistributed Payout Purchases New Shares to Restore Fund Value
Payout Resources> Payout“Healthy”
$900 Undistributed payout
1,000 X $300
=$300,000
$1000 PayoutTo Income Fund
After payout
Payout Resources< Payout
“Underwater”
1,000 X $300
=$300,000
$100 Payout To Income Fund(Actual Earnings)
After payout & reinvestmentBefore payout
Buys 3.01 shares at $299 /share
1,003 X $299
=$299,900
Applies to all funds that do not get full payout (e.g., Pool A)
Before payout
$1,000
=$300,000
$100
=$300,000
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Funds with Pure B Limited and Quasi Shares: Decapitalization Policy
Pure B Limited Shares
Quasi B Shares
# of Shares 700 300
Book Value $240,000 $100,000
Market Value $210,000 $90,000
Payout Resources $70 earnings only
$90,000
Payout to Income Fund $70 $300
If pure portion does not have enough payout resources to make payout on pure shares, total payout will be impacted
Payout on pure shares is made with available pure resources only.Total payout to fund = $370
Reinvest Undistributed Payout $630 $0
Option to de-capitalize quasi shares to make up ‘missed’ payout
Example Fund: 1000 shares in total
Commonly Used Endowment
Related Reports
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YEAR-TO-DATE FUND STATEMENT WITH TRANSACTION DETAIL
By Project For Non-Sponsored Funds For the period ending November 30, 2013
Information contained in this report is incomplete if the Report Period is after the LAST CLOSE
Report Prompts:001: Award Number KXXXX 005: Award Purpose % 009: Award Donor % 013: Set of Books SU
002: Award Owner % 006: Award Free-form % 010: Award Start Date % 014: Award Status %
003: Award Manager % 007: Award Lvl Control % 011: Award End Date % 100: Award Org %
004: Award Type % 008: Award Lvl Restr % 012: Award Name % 200: Ending Period NOV-2013
KXXXX
Project Org Object Source Journal Description Date Amount YTD Total
Beginning Balance Beginning Balance 0.00
Receipts Receipts - Endowment Payout
1000000 ZZZZ Endowment Payout "Payout" 09/01/13 10,000.00 1000000 ZZZZ Endowment Payout "Payout" 10/01/13 10,000.00 1000000 ZZZZ Endowment Payout "Payout" 11/01/13 10,000.00 1000000 Total - Unspecified General Operations 30,000.00
Total Receipts 30,000.00 30,000.00
Transfers (95,000.00)
Total Transfers (95,000.00) (95,000.00)Expenses
1999999 Total- Project XXXXX Total Expenses .00 .00
Fund Balance Fund Balance (65,000.00)Net Investments
Total Net Investments .00 0.00
Available Balance Available Balance (65,000.00)
Endowment Payout Note: Endowment payout is distributed monthly. The following information is a projection for planning purposes only and not a guarantee of future payout or return.
Year-to-date Payout Anticipated Remaining Payout (1)
Anticipated Annual Payout Anticipated Available Balance
30,000.00 90,000.00 120,000.00 25,000.00 (1) Anticipated Remaining Payout = latest monthly payout multiplied by number of months remaining in the fiscal year
Fund_153 Report
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Fund_154a Report – data download
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
A B C D E F G H I J L M O Q RS T U V W X
A B A + B
Award Beginning
Balance
Receipts - Endowment
Payout Expenses Avail Balance [Due
to/from] Anticipated Remaining
Payout
Anticipated Available Balance
KXXXX 0.00 30,000.00 (95,000.00) (65,000.00)
90,000.00 25,000.00
YTD Payout November
Nov payout x 9 months
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Use Fund_128 Report – data download tabto assess health of Pure B Limited Funds
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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
CURRENT
Limited & Unlimited combined
Pool B Pure Shares
Pool B Pure Book Value
Pool B Pure Market Value
KXXXX 15,000.00 3,000,000.00 4,065,000.00
KXXXA 10,000.00 2,000,000.00 2,710,000.00
Limited Unlimited
Award Pool B Pure
Shares (Limited)
Pool B Pure (Limited)
Book Value
Pool B Pure (Limited)
Market Value
Pool B Pure Shares
(Unlimited)
Pool B Pure (Unlimited)
Book Value
Pool B Pure (Unlimited)
Market Value
KXXXX 15,000.00 3,000,000.00 4,065,000.00
KXXXA 10,000.00 2,000,000.00 2,710,000.00
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