Monitoring and managing endowments

Endowment accounts need active monitoring.

Spendable accounts need active management.

People have a tendency with any savings or investment account to “buy it and forget it.” Doing that’s a mistake, though.

 “At a minimum, monitoring is needed,” says James Preston, senior director in the University of Missouri Office of Gift Planning and Endowments. His office helps council’s do that. “We send out a yearly mailing in the fall, updating councils of their endowment account balances. We also provide a monthly update to the Extension Development Office,” says Preston.

For monthly account balances and other endowment information, councils should contact the advancement office at 573-884-8570.

Active management of spendable accounts

A spendable account balance that is more than 15 percent of the corpus suggests that funds are just accumulating. These funds need to be mobilized to reach important goals.

  • Use the funds. Use them wisely within months of receiving them to honor and accomplish the donors’ intentions.
  • Move funds that are for long-term endowment growth goals into the endowment, thereby increasing the monthly distribution from the endowment.
  • Move spendable account funds into a different account. Although an option, doing this delays the money being used to address the donors’ goal or further building the corpus. Be careful you’re not wasting the money’s time.

Quick facts about MU Extension endowments

  1. The endowment pool of funds managed by MU grew by 13.7 percent in 2012.
  2. Funds in the spendable account earn about the same interest as a passbook savings account. Today the return on passbook savings accounts is well under 1 percent. This account is appropriate for money that will be spent in the next year or two and needs to be liquid. It is not a good place to park long-term savings or investments. With an interest rate lower than the inflation rate, these funds are actually losing purchasing power.
  3. To be fully funded and have a spendable distribution each month, an extension council’s endowment account must have a minimum of $2,500. This is good news because to start a new endowment account under university management today, the university requires $25,000 in the account before money would be available for distribution.
  4. MU endowment funds are invested conservatively.
  5. Given the investment market’s poor performance in recent years, the university’s endowment fund management goal was to preserve purchasing power. Now that market performance has improved, the university has returned to the goal of growing purchasing power.
  6. The university takes a conservative approach and has calculated that 4.5 percent of funds in an endowment account can be distributed per year (one-twelfth per month). The corpus will be in place forever.