Frequently Asked Questions
What is an endowment?
An endowment is a permanent fund established through private gifts to support the program(s) and purpose specified by the donor. Endowment assets are invested, and each year, quarterly, a portion of the fund’s value is paid out to support the fund’s purpose. The goal is to maintain and grow the initial funds, so earnings over this distribution are used to build the fund’s market value. In this way, an endowment fund can grow and provide support for its designated purpose in perpetuity.
INVESTMENT MANAGEMENT
What is the Consolidated Endowment Fund (CEF), and what is the UW’s approach to managing it?
The CEF is the investment pool consisting of the University’s endowments; each endowment maintains a separate identity but is blended with all endowments for investment purposes. Endowed funds at the University work much like a mutual fund. Each new fund is assigned shares or units in the overall University endowment pool at the previous quarter’s market value. Each quarter, when new gifts are received for either new endowments that have met the investment threshold or existing endowments, units are purchased at the current unit price.
The primary objective of investment is to maintain an appropriate balance of maximizing the rate of return and providing for the growth of the principal while safeguarding the monetary value of the individual gifts and their impact on the University programs from which they benefit. This objective drives spending policy, return requirements, long-term asset allocation, and risk tolerance.
What is the UW’s investment strategy?
Endowment portfolios are commonly managed around a core set of objectives focused on the need to provide support for endowed programs in perpetuity. The Board of Regents, in conjunction with the UWINCO Board, establishes the policy asset allocation judged to be most appropriate for the University from a long-term potential return and risk perspective. The policy asset allocation is reviewed annually for its continuing fit with the University’s risk profile and the changing dynamics of capital markets.
The CEF’s $4.9 billion portfolio is diversified across two clearly defined categories of investments: those which facilitate growth or appreciation (Capital Appreciation), and those which preserve endowment values and provide liquidity (Capital Preservation). As of June 30, 2021, 75% of the CEF was invested in Capital Appreciation and 25% in Capital Preservation. Our long-term strategy is to maintain an equity-oriented portfolio and we recently revised our strategic asset allocation policy targets to increase our equity exposure. We continue to keep ample liquidity within Capital Preservation to meet the CEF’s funding requirements.
Who manages the UW’s endowment assets?
The UW’s CEF assets are managed by the University of Washington Investment Management Company (UWINCO), the investment office for the University of Washington that operates as a separate, self-sufficient unit of the University. All investment assets, including the endowment, are managed by UWINCO and held in the University’s name. To learn more about UWINCO, visit the UWINCO website.
Where can I learn more about this year’s investment performance?
The UW Advancement and Treasury Offices publish a full annual web report highlighting the CEF’s investment performance and impact on University programs.
SPENDING POLICY AND DISTRIBUTIONS TO CAMPUS
What is UW’s endowment spending policy, and how is it determined?
The Board of Regents approves the endowment spending (payout) policy, with input from UWINCO. For FY2023, the total spending rate was 4.5 percent. The spending policy changes, that were approved on February 14, 2019, occurred between FY2020-2022 and impacted program funding as well as the administrative fee. Please see the UW Treasury website to learn more about the current spending policy, including the administrative fees charged.
How do market fluctuations affect the CEF and the individuals and programs it supports?
As with any investment portfolio, the value of the CEF rises and falls. In response to market fluctuations, the University assesses and rebalances the portfolio’s asset allocation to ensure sufficient liquidity to meet its operational needs, including the payout of income from endowed funds. The CEF is managed carefully to ensure that payout of income remains relatively stable. The UW’s policy is to apply the payout rate based upon a twenty-quarter (five-year) moving average of the market value of the CEF, which smooths the effect of the market on the programs and people who benefit from endowment income.
What is UW’s policy on making payouts of income from “underwater” funds?
When an individual fund’s current market value has declined below the amount of its principal, or the amount initially invested, the fund is referred to as “underwater.” While an individual fund may on occasion be underwater, the CEF as a whole is not. Gains or losses on the CEF are shared equally on a unit basis throughout the pooled endowment. Because of the large number of units, the risk of loss to individual funds as a whole is minimal, and the strength of the CEF enables the University to support its mission and satisfy donor intent by paying out income to programs supported by the CEF, even if individual funds are underwater.
UWINCO and members of the Board of Regents subcommittee on investments continually evaluate the long-term health of the CEF in response to market performance to protect the purchasing power of the CEF. In addition to its own careful stewardship of the CEF and spending and investment policies, the UW benefits from the state of Washington’s 2009 enactment of the Uniform Prudent Management of Institutional Funds Act (UPMIFA). This act regulates numerous facets of fund management, including fund expenditures. Therefore, even during less than favorable economic periods, it allows for prudent spending to support the University.
ENDOWMENT GIFTS
I made a gift in June; why don’t I see it as an addition to the endowment on my CEF Report?
The annual CEF report includes gifts invested in the endowment during the fiscal year, including all gifts made between April 1, 2023, and March 31, 2023. Gifts received from April 1 through June 30 are invested in the first quarter of the following fiscal year and therefore would be included with next year’s annual statement.
How do I make an additional gift to an endowed fund?
Making gifts is easy! You may do so via My UW Giving or the online giving website by searching for any endowment by its fund name. Simply select the named endowment(s) you wish to support. By default, gifts directed to endowments are deposited in an account for investment at the next quarterly opportunity.
If you choose to give via check or direct a gift from a Donor Advised Fund or another medium, include an accompanying letter with the fund name. If you have a specific wish for the gift to be for the “endowment spendable account” please clearly indicate that. Gifts may be mailed to our campus address: UW Office of Gift Services, Box 359505, Seattle, WA 98195.
CONTACT
I have additional questions about the CEF; who should I contact?
Questions regarding the market performance or investment practices can be answered by Robert Bradshaw in the UW Treasury Office at robertcb@uw.edu or 206-221-6752.
I have questions about my specific endowment(s); who should I contact?
Your individual endowment report includes contact information related to each fund so that you may connect directly with an advancement officer in the benefiting area who can answer questions about the impact the endowment is having.