endowment payout process

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

Financial Management Services

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?


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


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.


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.


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


When Payout Resources are Less than Payout Amount? (affects Pure B Limited Shares only)


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


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


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


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 TotalBeginning Balance

Beginning Balance 0.00Receipts 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


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

BalanceReceipts -

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


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

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

endowment payout process

Documents

endowment funds

sharesannual payout

anticipated payout

endowment ledger

endowment principal

endowment income fund

shares x payout

funds investment