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Investments

Participation and Distribution Policy for the Endowment Pool

Effective July 1, 2007

Participation Policy

The Endowment Pool Distribution Policy governs the expenditure of investment return for non-expendable participants (endowed fund accounts). These expenditures must support a specified program, project, or scholarship for the benefit of Kansas State University.

Non-expendable accounts to be invested as an endowment in perpetuity qualify for participation in the Endowment Pool. Other accounts (quasi-endowed, term-endowed, agency) may qualify for participation based upon investment objective or purpose, and will be considered on an individual basis by the KSU Foundation Investment Advisory Committee.

Securities, real estate or other assets contributed to a non-expendable account do not participate in the Endowment Pool until after such assets are converted to cash.

A minimum of $10,000 must be available for investment before a qualified non-expendable account may participate in the Endowment Pool.  Qualified accounts are invested at the beginning of the quarter after receipt. Participating accounts are issued shares based upon a unit value determined by the current market value of the Endowment Pool holdings. Income distributions are made to the participating accounts at the end of each quarter.

According to Kansas state statutes, endowment pool accounts with a market value less than historic book value may receive expendable distributions from the endowment pool only to the extent of their proportionate share of the endowment pool’s current income, defined as dividends, interest, and rents.  All endowment pool participating accounts will be reviewed each quarter to determine if their respective market values are in excess of their historic book value, which is defined as the original contribution’s liquidated value in dollars plus subsequent account additions’ liquidated value in dollars.

Inflation Adjusted Distribution Policy

The Executive Committee approved an inflation adjusted distribution policy during fiscal year 2005 based on recommendations from a Distribution Task Force. The task force examined various formulas and their impact on meeting the dual endowment goals of maintaining intergenerational equity and providing stable revenue flows to university department budgets.

Attaining intergenerational equity requires the balancing of current and future distributions such that sufficient endowment assets remain in the future to produce distributions that have at least matched inflation increases to maintain the purchasing power for the university programs they support.

Distributions will be calculated by adjusting the distribution amount annually for inflation.  Fiscal year 2006 was determined as the base year; thereafter, the distribution will be adjusted annually by the rate of inflation. To avoid potential unconscionable under-distributions or unsustainable over-distributions relative to the endowment pool market value, annual maximum and minimum total distributions to purpose are included in the formula. The maximum distributions to purpose are 5 percent of market value and the minimum distributions are 3 percent.

For those participating accounts with a market value in excess of their historic book value, the Endowment Pool Inflation Adjusted Distribution Policy applies; the distributions, expressed as a percent of market value, for fiscal year 2007-2008 are as follows:

  1. 3.78% of the fund market value as of the beginning of the fiscal year will be distributed to the income balance of the participating accounts for expenditure in accordance with their respective memos of understanding. 
  2. 0.25% of the fund market value as of the beginning of the fiscal year will be distributed to the Dean’s discretionary fund for the participating account’s designated constituent unit per the Revenue Funding Policy implemented in fiscal year 2000-2001.
  3. A percentage of the fund market value as of the beginning of the fiscal year will be distributed to the KSU Foundation as a management fee to support Foundation operations. The Executive Committee in the annual budget process determines the actual percentage each year. The amount is 1.3% for fiscal year 2008.
  4. Total return on the Endowment Pool in excess of the total distributions will be returned to the account as an addition to principal to provide growth.

For those participating accounts with a market value less than their historic book value, current income will be distributed for expenditure based upon the following prioritization:

  1. The Foundation management fee will be distributed to the Foundation to the extent there is sufficient current income to do so.
  2. To the extent current income remains available, a distribution will be made for funding the purpose of the participating account, up to that amount that would have been distributed had the account fallen into the “above historic book value” category.
  3. To the extent current income remains available, a distribution to the Dean’s discretionary fund will be made, up to that amount that would have been distributed had the account fallen into the “above historic book value” category.
  4. Remaining current income, if any, will be returned to the account as an addition to principal.