Understanding Gifts (Expendable and Endowed)

Gifts to the University of Michigan (U-M) are classified as either endowed or expendable. An endowed gift is money given by a donor that is to be invested in perpetuity, with the distributions available to spend on activities consistent with donor intent. An expendable gift is money given by a donor that is to be entirely spent on activities consistent with donor intent.

For an in-depth understanding of endowments and the associated policies and procedures, refer to the sections below:

True Endowments

Fund range	70002 through 74999 and E0001 through E9999
Funding source	From outside donors
Amount needed to establish the ChartField	$25,000 or to be at that amount within a reasonable time period (five years)
Mechanics to Set up the ChartField	Usually set up due to a formal gift agreement or bequest. Review is done by Development Office legal staff. Can also be set up by a letter from the donor.
Approvals	The Controller must approve the establishment of all new endowment funds
Information needed to establish a new ChartField	Fund name. Documentation from the donor or a sample of solicitation letter if from many donors. Purpose of fund if not clear from above documentation. Department ID ChartField string to receive the quarterly distributions.
Principal Restrictions	Cannot be spent. Is invested in perpetuity with the distributions transferred out for spending.
Distribution Restrictions	Distributions must be spent according to the donor's wishes. If any distributions are to be reinvested, the distribution generally moves to a quasi with same name and restrictions unless directed otherwise by the donor.
Gift Handling	Gifts are frequently deposited in an ERF holding ChartField while waiting for the endowment fund to be established. When the endowment fund is established, the DART system should be changed to reflect the endowment fund so future gifts will be deposited correctly. Gift processing will move the gift to the newly created endowment once the DART record has been updated.

Quasi-Endowments

Quasi-endowment funds are funds functioning as an endowment that are typically established by the institution from either donor or institutional funds, and will be retained and invested rather than expended. The quasi-endowment must retain the purpose and intent as specified by the donor or source of the original funds, and earnings may be expended only for those purposes. Since quasi-endowments are generally established by the institution rather than by an external source, the principal may be expended as stipulated by the donor provided the quasi-fund was not created as a permanent match.

Fund range	75000 through 76999 and Q0001 through Q9999 if funded from restricted funds 77000 through 77699 and P0001 through P9999 if permanent, used for university match to true endowments 77700 through 77999 and U0001 through U9999 if funded from unrestricted sources T0001 through T9999 if funded as part of a top-off program
Funding source	From either outside donors or internal departmental funds
Amount needed to establish the ChartField	$50,000 from internal funds $25,000 from external funds (If donor directed)
Mechanics to Set up the ChartField	Set up by documentation from outside donor when the donor states that principal is available to be spent. Can also be set up by memo from the department.
Approvals	The Controller must approve the establishment of all new quasi-endowment funds
Information needed to establish a new ChartField	Fund name. Documentation from the donor or a sample of solicitation letter if from many donors. Purpose from department if established from departmental funds. Purpose of fund if not clear from above documentation. Department ID ChartField string to receive the quarterly distributions. (Should include the quasi-endowment information above in the same request for the distribution ChartField needed).
Principal Restrictions	Principal can be transferred out if needed, except for the following fund ranges 77000 through 77699, P0001 through P9999 and T0001-T9999. These fund ranges are permanent in nature. Internal policy requires a 5 year commitment before principal can be transferred out on all other quasi-endowments.
Distribution Restrictions	If from an outside donor, their spending restrictions apply. If from departmental funds, the department determines how the distribution is spent. Distributions may be reinvested in the quasi-fund.
Gift Handling	Gifts are frequently deposited in an ERF holding ChartField while waiting for the endowment fund to be established. When the endowment fund is established, the DART system should be changed to reflect the endowment fund so future gifts will be deposited correctly. Gift processing will move the gift to the newly created endowment once the DART record has been updated.

Distribution Policy

Distributions from pooled endowments occur quarterly based on the distribution percent set by the Regents.

The university distributes 4.5% of the one quarter lagged 28 quarter moving average of endowment share values.  Distributions are limited at any given time to 5.3% of the then current market value.

In June 2006, the Board of Regents approved a change to the university's endowment spending rate policy and extended the moving average period from 12 quarters to 28 quarters, with implementation to be phased in over the next three years.  Effective July 1, 2006, the spending rate moving average period increased to 16 quarters and then increased by one quarter each subsequent quarter until the moving average period reached seven years (28 quarters).

In July 2010, the Board of Regents approved a change to the university’s endowment spending rate policy reducing the quarterly distribution per share from 5.0 to a 4.5 percent annual rate effective with the distribution for the quarter ending September 30, 2010.  This was accomplished by holding the distribution per share steady as the share rate grew over time.  This change was completed with the September 30, 2013 distribution.

Withdrawals

Withdrawals may only be made from quasi-endowments in the following fund ranges: 75000 through 76999, 77700 through 77999, Q0001 through Q9999, and U0001 through U9999. University policy requires that only funds that have been invested for a minimum of five years may be withdrawn. To request a withdrawal, contact your Financial Operations coordinator. The coordinator will evaluate the request to ensure it meets the five year investment policy as well as the nature of the use of funds once withdrawn to ensure the request meets with donor intent when appropriate.

Specifically Managed Endowments and Quasi-Endowments

Specifically managed endowments and quasi-endowments are gifts or investments that are invested in non-cash items. For example, some of these investments include donated life insurance, real estate or closely held stock and thus cannot buy shares in the normal endowment pool which requires a cash investment. Other items in these fund ranges include gifts that donors required be invested in specific security types (i.e. only government bonds).

The ranges for these specifically managed funds are:

• 78500 - 78799 (Endowment Specifics)
• 78800 - 78999 (Quasi-Endowment Specifics)

For more information on specifically managed funds, please contact the Endowment Fund at [email protected] or at 734-763-4163.