Endowment Accounting

Report
www.calstate.edu
Lori Redfearn
Assistant Vice Chancellor, Advancement Services
CSU Endowment Market Value
New Gifts to Endowment
Annual Investment Return
Corpus & PY Inv't Return
Distribution
$1.02 B
$1.03
B
$1,024
$1.18 B
2010/11
2011/12
2012/13
$55
$197
$805
-$32
$46
-$12
$1,035
-$42
$62
$130
$1,027
-$37
Endowment Asset Range Profile
Campus
Count
$1.18 B
$485 M
$347 M
$157 M
$192 M
$192
>$100 M
3
$142 M - $184 M
>$50 M to $100 M
5
$50.5 M - $99 M
>$25 M to $50 M
4
$29 M - $48 M
<$25 M
12
$5 M - $24 M
Uniform Prudent Management of
Institutional Funds Act (UPMIFA)
 Effective January 1, 2009
 Applies prudence standard to investing and spending
 Eliminates concept of historic dollar value
 Rules for releasing or modifying endowment terms
Considerations of Prudent Investing
 Effects of inflation
 Investment decisions must be made in relation to
overall resources of the institution and its charitable
purposes.
 No investment decision may be made in isolation, but
in light of the fund’s entire portfolio.
 Investment should be part of a strategy “having risk
and return objectives reasonably suited to the fund
and the institution.”
 Diversify assets as an affirmative obligation unless
“special circumstances” dictate otherwise.
2013 Endowment Asset Allocation
36.01%
27.12%
Domestic Equities
Fixed Income
Int'l Equities
Alt. Strategies
Cash/Other
3.27%
16.47%
17.13%
Endowment Performance
Dollar Weighted Average Investment Return
Endowment Assets
2010/11
2011/12
2012/13
> $100 M
16.02%
-0.67%
10.9%
> $50 M to ≤ $100 M
20.73%
-0.94%
11.3%
> $25 M to ≤ $50 M
20.45%
-2.45%
7.3%
Less than or = $25 M
19.38%
-1.65%
11.3%
Total Market Value
$1,024 M
$1,026 M
$1,181 M
• Net of Management Fees and Expenses
• CSU Median Return =10.93%
• 2012/13 Industry Benchmark: Russell 3000 65% and Barclay's
Aggregate Bond Index 35% = 12.44%
Peer Comparison
Endowment Assets
CSU
NACUBO
Variance
> $101 M to ≤ $500 M
10.9%
11.9%
-1.0%
> $51 M to ≤ $100 M
11.3%
11.6%
-0.3%
> $25 M to ≤ $50 M
7.3%
11.4%
-4.1%
Less than or = $25 M
11.3%
11.6%
-0.3%
• Net of Management Fees and Expenses
• CSU Average Return = 10.99%; Median Return = 10.93%
• NACUBO Average Return = 11.7%; Median Return = 11.7%
Considerations of Prudent Spending
Seven criteria guide board spending decisions:
1. Duration and preservation of the endowment fund
2. Purposes of the institution and the endowment fund
3. General economic conditions
4. Effect of inflation or deflation
5. Expected total return from income and the
appreciation of investments
6. Other resources of the institution
7. Investment policy of the institution
Spending Policies
Moving Average Over
Rate
Flat
12 Qtrs
3.00%
16 Qtrs
20 Qtrs
1
1
3 Yrs
Mix
3
1
3.50%
4.00%
2
4.25%
4
1
1
4.50%
5.00%
Other:
2
1
1
1
• (3) Decide on an appropriate rate or amount each year
• (1) Spend all current income
• (1) Weighted average or hybrid method
Spending Compared to Investment Returns
14%
12%
10%
8%
6%
4%
2%
0%
3 Yr Ave Inv't Return
2012/13 Spending Rate
Modification Rules
 A donor may release or amend a restriction.
 A court may modify a restriction in accordance with
the donor’s probable intention. The Attorney General
must be notified.
 A charity may modify a restriction on a small
(<$100,000) and old (>20 years old) fund without
going to court. If the restriction becomes unlawful,
wasteful, or impracticable to achieve. Use must be
consistent with donor intent. The Attorney General
must be notified.
Questions?
Sheralin Klinthong
Associate Director, Financial Reporting and Review
Endowment - Overview
 An endowment is a transfer of money and/or property




donated with the intention to support the University and
its auxiliary organizations in perpetuity or during a
stipulated term.
Based on Ed code 89721, endowment funds received by the
university should be deposited in California State
University Trust fund (0948-466).
CSU Fund 921 is available for auxiliary organizations to
record endowment funds.
Endowments may come with stipulations regarding its use
(by donor or governing board).
Endowment funds can be unrestricted or restricted.
Endowment Investment as June 30, 2013
CSU
Aux Org
Most endowment
in the CSU are held
by the auxiliaries
(usually
foundations) to
maximize the
return on
endowment
investments and
for other
considerations.
Sources of Endowment Balance
Original Gift
Net Appreciation
(realized and unrealized)
Interest/Dividends
Types of Endowment Funds
Source of
Funds
Time
Requirement
Use of Funds
External
Donor
Permanent
Unrestricted
Governing
Board (quasi
endowment)
Term
Restricted
True Endowment
Definition
Established when the donor states that the gift is to be held
permanently as an endowment as identified in a written gift
agreement or the organization restricts it for specific use as solicited
from donors. The original funds and any additional principal cannot
be withdrawn, expended, or otherwise exhausted.
FASB
Fund is classified as Permanently restricted net assets
GASB
Also referred to as Permanent Endowment. Fund is classified as
Restricted nonexpendable net position
Term Endowment
Definition
Funds set aside for a specific period of time or until
occurrence of a certain event. These funds can be
established by a donor or the organization.
FASB
Fund is classified as Temporarily restricted net assets
GASB
Fund is classified as Restricted expendable net position
Quasi Endowment
Definition
Funds set aside by an organization’s governing board, which
maintains the power to release the restriction on principal
spending. Additional reserve funds, and other unrestricted gifts
are often used to set up this fund type. The Funds are held by
board resolution and therefore can have policies and procedures
that allow withdrawal of principal. Also referred as BoardDesignated Funds.
FASB
Fund is classified as Unrestricted net assets
GASB
Fund is classified as Unrestricted net position
GASB Example: Permanent Endowment
Facts: A corporation gives $5 million to a state university (recipient) with the stipulation
that the university establish an endowment, invest the gift, and maintain the principal intact
in perpetuity. The investment income is to be used for scholarships for underprivileged
students majoring in business or public administration.
Type: Permanent endowment (permanently nonexpendable addition to net position).
Restrictions:
 Purpose restriction - the requirement to invest the gift and use of investment income
for specified purposes
 Time restriction - the stipulation that the principal be maintained intact in
perpetuity (can never be expended)
Accounting: recognize assets and revenues when the gift is received because at that time the
university begins to comply with the time requirement (to maintain the principal intact).
The university should always report resulting net position or fund balance (principal) as
restricted because of the purpose restriction and the time requirement (investment in
perpetuity).
GASB Example: Term Endowment
Facts: An alumnus promises to donate $500,000 to his alma mater with the stipulation that the
university invest the principal and use the income to provide summer research grants for
accounting faculty members. The terms of the agreement specify that, after the donor’s death, the
university should withdraw the principal of the gift and use (expend) it, also for summer research
grants for accounting faculty members.
Type: Term endowment
Restrictions:
 Purpose restriction - requirements to invest the principal until the donor’s death and then
to expend it for summer grants
 Time restriction - requirement to maintain the principal intact until after the donor’s
death
Accounting: The university should recognize assets and revenues when the gift is received. It
should not recognize a receivable when the promise is made because it cannot begin to comply
with the time requirement until the gift is received. When the gift is recognized, the university
should report resulting net position or fund balance as restricted because of the purpose
restrictions and the time requirement. However, it should continue to report net position or fund
balance as restricted after the donor’s death, until the principal is expended in accordance with the
donor’s stipulations.
Investment in Land and other Real
Estate Held by Endowments (GASB)
GASB 52 requires that land and other real estate held by
endowments (except federal land grants) be reported at
fair value at the reporting date. Any changes in fair value
during the period should be reported as endowment
income. Significant assumptions used to determine fair
value should be disclosed as required by GASB 31.
Underwater Endowment
Definition
Underwater endowment occurs when the value of donor-restricted endowment funds
decline below the corpus. Consideration of various accounting issues is required.
GASB
 Reduction of Restricted net position is ALLOWED.
 If liabilities that relate to specific restricted assets exceed those assets, no restricted
component net position should be reported – the net negative amount should reduce
unrestricted net position.
FASB
 Permanently restricted net assets is NOT reduced by losses.
 Losses on donor restricted endowment fund shall reduce temporary restricted net
assets to the extent that donor-imposed temporary restrictions on net appreciation
of the fund have not been met before loss occurs. Remainder shall reduce
unrestricted net assets.
Endowment Accounting (FASB)
IMPORTANT REMINDER
Assess the relevant facts and circumstances of
the endowment gifts and relevant laws to
determine appropriate accounting treatment.
Relevant Pronouncements
FASB:
FASB ASC 958-205 (pre-codification: FAS 117)
GASB:
GASB Statement No. 34, Basic Financial Statements and MD&A for
State and Local Governments
GASB Statement No. 52, Land and Other Real Estate Held as
Investment by Endowment
GASB Statement No. 63, Financial Reporting for Deferred Outflows of
Resources, Deferred Inflows of Resources and Net Position
Contact Us
Lori Redfearn
Assistant Vice Chancellor, Advancement Services
[email protected]
Sheralin Klinthong
Associate Director, Financial Reporting & Review
[email protected]
Any Questions?

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