Investment of Funds
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Investing in the LTCAP
Endowed donations and endowed grants are sent to the LTCAP for investment by Trust Accounting and no action is required from the division. Since endowment capital is intended to be invested in perpetuity, the LTCAP investment strategy has been set with this very long-term horizon in mind and therefore, only donations and grants intended to be invested in perpetuity are invested in the LTCAP.
The LTCAP is a unitized investment pool with monthly valuations (end of each month). The fair value of an LTCAP unit is set each month, and is calculated as the market value of all the investments of the LTCAP divided by the total number of units held. At the beginning of each month, new funds can be added to the LTCAP and units purchased for the endowment at the prevailing market price per unit.
Endowed donations and endowed grants received are sent to the LTCAP. Generally, donations and grants received up to the end of each month will be added to the LTCAP at the beginning of the following month.
For more information about investing in the LTCAP and other information such as investment return expectation, market value of an endowment, allocation for spending (payout) and preservation of capital, refer to the section Long Term Capital Appreciation Pool.
Endowment of Expendable Funds
Occasionally a fund manager may wish to convert expendable donations to permanent investment capital (endowments) to generate investment income in perpetuity for specific purposes. It may also be desirable to capitalize (endow) some of the investment income distributed on an endowment fund, in order to increase the earning power of the endowment fund to the level required to fund a specific future purpose. It should be noted that the endowment of expendable funds should be considered as an option only when the intention is to invest these funds in perpetuity.
In some cases, long-term accumulation of expendable funds may not be consistent with the donor’s expectations and therefore, funds managers must investigate and determined whether the terms and conditions of the donations permit this. The manager should refer to the terms and conditions of the fund or any agreement established with the donor. When further assistance is required, please contact the Trust Accountant in the Financial Services Department.
If consistent with the terms of the trust, the department will request the endowment of expendable funds by completing the Request for Endowment of Expendable Funds form, and send the completed form to the address indicated in the form.
Investing (commitment) in EFIP
The EFIP contains expendable funds that are pooled and invested until spent. It includes the University’s cash for operations, capital projects, ancillary operations, expendable donations, expendable payouts from endowments and research grants.
Expendable donations are eligible to be committed to earn interest to the extent they have not been committed, i.e. encumbered, for other purposes. Restricted funds which receive income other than donations and investment income on donations (i.e. research awards and other restricted agreements) are not eligible under this policy to be committed to earn interest.
Funds must be committed specifically for this purpose for a minimum period of 3 months. Should committed funds be required for expenditure or commitment for other purposes before the end of a quarter, or should the account go into overdraft in the quarter, the total commitment is released prior to the end of the quarter. Interest earned is paid at fiscal year-end only on commitments of at least one full quarter of the year.
The commitment dates are the first day of May, August, November and February.
Except for May, commitment requests are accepted up until the fifth working day of the month.
For May, the deadline is extended to the last working day of the month to allow fund managers to include the annual distributed investment income in the calculation of total funds available for investment in the upcoming period.
Adjusting or Releasing the Commitment
On these same dates (the first day of May, August, November and February) a commitment may also be increased, decreased or cancelled.
The Commitment / Release of Restricted Funds Form
Complete the Commitment / Release of Restricted Funds form, by filling in the appropriate information on the form. After approval is obtained, send the completed form to the address indicated on the form.
The determination of the interest rate to be paid on committed funds is made by the Chief Financial Officer and it is currently set at the three months T-bill rate.
Income distribution date
Interest for the twelve months ending April 30 is distributed annually in April.
Statement of account
After confirmation of eligibility and availability of funds, commitments and releases are processed in AMS. The commitment is recorded in the restricted fund account as a reserve (investment reserve) of funds.
The income distribution is recorded in April as investment income revenue with the respective increase of expense budget in the fund.
Annual Expendable Pool Interest Report
This report identifies commitments by quarter for each fund and the net interest earned in each quarter. This report is distributed annually in May to the faculty offices for the further distribution to departments and divisions.
Last revision: September 22, 2010