APPENDIX TO POLICY

CEF and GIP Income Distribution and Rates

Overview

The Consolidated Endowment Fund (CEF) and the Group Income Pool (GIP) distribute income on a quarterly basis as of the closing value date for each quarter (i.e. September, December, March, June).  Income is distributed the following month.

Colleges/departments may designate where the quarterly income distribution is paid. Colleges/departments may choose to have the income deposited into an operating account or may choose to reinvest the income into a restricted or unrestricted investment account.  Income received from restricted investment accounts (e.g. true endowment, quasi-restricted endowment) must be spent in accordance with the donor intent as documented when the endowment was established.

Principal appreciation and investment earnings generated above and beyond the distributed income remain in the investment account. The calculation for CEF and GIP income distributions vary.

CEF Income Distribution

Income distributions for True, Term or Life Income endowments will be reduced or suspended if the result of the distribution would be an erosion of the endowment’s market value below the historical value, or original principal. Historical value is calculated as the sum of all deposits less withdrawals.

The quarterly CEF income distribution is calculated as follows:

Average Market Value of an Endowment x Annual Income Distribution Rate ÷ 4

Where, Average Market Value of an Endowment = 60-month average number of shares x 60-month average share value.

The annual income distribution rate for the CEF is determined by the Board of Regents.  The current distribution rate is 4.5% annually.

CEF Income Distribution Example:

Your department has a true endowment invested in CEF. For the last 60 months, the endowment has had an average of 12,765 participating shares. For the same 60 months, the average per-share market value was $85. The annual distribution rate for FY 2016 is 4.5%. The quarterly income distribution is calculated as follows:

Average Market Value = 12,765 x $85 = $1,085,025

Quarterly Income Distribution = $1,085,025 x 4.5% ÷ 4 = $12,206.53

Estimating CEF Income Distribution

The Participant Position page in the financial system contains 60 months of historical Market Values for all University endowments. For information regarding the Participant Position page, refer to Administrative Policy: Appendix - How to the Interpret Market Valuation of an Investment Account.

Using month-end data, calculate the Average Market Value of an endowment for the last 60 months. Multiply this Average Market Value by one-fourth of the annual distribution rate to estimate the endowment’s quarterly income distribution.

For example, using the most recent 60 months of data, the Average Market Value of an endowment is $5,650,000. If the annual distribution rate is 4.5%, the estimate for the next quarterly income distribution is $5,650,000 x 4.5% ÷ 4 = $63,562.50.

If the market value of a True, Term, or Life Income endowment is less than the historical value (as shown on the Participant Position page in the financial system), income distributions will be suspended until such time as the market value is greater than the historical value. Moreover, the income distribution will be reduced or suspended if the distribution itself would cause the market value to be less than the historical value.

GIP Income Distribution

The GIP income distribution is based on annual earnings of the total investment pool, minus a 1% administrative fee assessed across the pool participants. The remainder of the income earned is distributed to the participants.

Document Feedback