11.11 Establishment of Quasi-Endowments

Policy Statement

University of Illinois System units may designate certain system or university funds as quasi-endowments (funds functioning as endowments) to match more properly the investment program with the purpose of the funds.

Reason for the Policy

To properly designate certain system funds as quasi-endowments (funds functioning as endowments) to match more properly the investment program with the purpose of the funds.

Applicability of the Policy

Funds eligible to be designated quasi-endowments are permanent core operating funds, gift funds, endowment income funds related to university-held endowments, royalty income, self-insurance funds, and funds generated by the medical, dental, nursing, or occupational health service plans. All other funds have inherent requirements, which preclude such designation. Establishing a quasi-endowment transfers the fund from the system’s short-term investment program to the system’s long-term (endowment) investment program.

Procedure

The characteristics of the two investment programs are summarized as follows:

Short-term Investment Program

• Short-term, principal-safe investment program (similar to a money market fund)
• Annual income varies with rates available in short-term market
• Yield to exceed a benchmark of various short-term securities
• No principal appreciation (or depreciation)

Endowment Funds Investment Program

• Long-term investment portfolio to provide a budgeted level of current spending and principal appreciation to keep pace with inflation and preserve the real value of the assets and the income stream similar to a balanced mutual fund.
• Total return to exceed a benchmark that includes domestic and foreign common stocks, real estate, and bonds.

Generally, a quasi-endowment should not be established unless the funds will remain in the endowment investment program for at least five years.

Authority

The Board of Trustees develops basic system policy on investments and delegates the execution of those policies to its administrative agents, who act under the board’s general supervision. The Comptroller has the delegated authority to (1) establish quasi-endowments, and (2) approve additions to or withdrawals from quasi-endowments.

Establishment/Additions

To establish a quasi-endowment, or to add funds to an existing quasi-endowment, complete the Endowment Request for University Quasi-Endowments. Digitally sign and forward the form to the unit head/dean.

The unit head/dean must approve, digitally sign, and route the form to University Accounting and Financial Reporting (UAFR) for final review and approval routing. All form fields must be filled in or the form will be returned to the unit for completion.

Upon review and approval by UAFR, the request is routed for approval to the Comptroller, or Deputy Comptroller. The request is then evaluated on the following factors:

• Dollar amount available ($25,000 usual minimum to establish fund)
• Compatibility of the bequest purpose with the proposed usage of the endowment income
• Compatibility of the bequest purpose with long-term investment program

Upon approval, UAFR works with the requesting unit to set up the necessary funds and transfer funding. Current gift and endowment gift funds are subject to administrative fees (see 11.1 University Gifts).

Termination/Withdrawals

To terminate a quasi-endowment, or to withdraw funds from an existing quasi-endowment, complete the Endowment Withdrawal Request for University Quasi-Endowments. Please note that redemptions from a single fund exceeding $10 million over a 12-month period will require a budget plan approved by the Comptroller. Digitally sign and forward the form to the unit head/dean.

The unit head/dean must approve, digitally sign, and route the form to UAFR for final review and approval routing. All the form fields must be filled in or the form will be returned to the unit for completion.

Upon review and approval by UAFR, the request is routed for approval to the Comptroller. The request is then evaluated on the following factors:

• Purpose of the bequest and proposed use by requesting unit
• Market value of the quasi-endowment
• Duration of the quasi-endowment (how long invested in the Long Term Investment Pool)

Upon approval, UAFR works with the requesting unit to perform the transaction and transfer funding.

Both of these forms can also be found at Endowment Forms.