What about this endowment I keep hearing about—what is an endowment anyway?
An endowment is an amount of money that is invested, the earnings from which generate additional funds to support Bard. The Board of Trustees are responsible for the College’s finances and a professional firm to manage the investment of endowment funds. The funds earn (or sometimes lose) money depending on the financial markets and the value of the investments, which may vary from year to year. Only a percentage of the total (earnings and original amount of the fund) can be used by the College in a given fiscal year (the same is true for other nonprofit endowments).
An endowment of $100,000, provides about $5,000 the college can use toward its budget.
Here is an example of how an endowment works: - A grateful alumna donates $100,000 to Bard’s endowment to support financial aid. Bard adds the $100,000 to its endowment fund along with the donations of others who have also given to the endowment. Those funds are invested to provide a scholarship and to grow the scholarship over time. Members of Bard’s Board of Trustees who sit on the Board’s Investment Committee oversee the invested fund.
- The investment committee decides how much of the income from the investment can be used by the College, as is the case at most private colleges. This is known as the “spending rate.” This rate is based on the percentage earned over three years. It is a conservative amount to protect the core fund during years where the fund may decrease in value.
For our example, the investment committee has decided the spending rate is 5% (.05) and this is the first gift to the fund so there is $100,000 in the fund. - The fund earned an income of 10% (.1 x $100,000), or $10,000, this year.
- That $10,000 is added to the original $100,000.
- Now the total fund is $110,000.
- The spending rate is 5% (.05 x $110,000).
- The College can therefore use 5% of the $110,000 or $5,500 toward financial aid as the donor designated this endowment fund for that purpose.
- The rest of the income, $4,500 ($10,000 - $5,500), returns to the invested fund to allow it to grow over time, to cover increased expenses in the future.
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