Endowment management

Financial Management Policy 30960

1. Purpose

The purpose of the endowment management policy is to provide guidance to the Vice President for Administrative Services and his/her designee to manage endowment assets on behalf of the Germanna Community College Board, including investment and spending or distribution of said funds.

2. Policy

2.1 Overview: The Local Funds of Germanna Community College hold five endowments. All new endowment gifts shall be directed to the Germanna Community College Educational Foundation, Inc. to manage on behalf of the College. If or when descendants of the donors of the endowments held by the College can be identified, the College shall attempt to have the endowment assets transferred to the Educational Foundation.

2.2 Accounting governance: Accounting for endowments shall comply with all Government Accounting Standards Board principles and the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as approved by the Commonwealth of Virginia.

2.3 Roles and Responsibilities: A successful endowment management strategy requires multiple roles from various perspectives.

2.3.1 Investment Committee: The Investment Committee shall consist of the Germanna Community College Board Finance and Facilities Committee. The Committee shall be responsible for policies governing management of endowments.

2.3.2 CFO: The Vice President for Administrative Services shall serve as the CFO responsible for ensuring endowment assets are invested, investments comply with donor and Commonwealth of Virginia restrictions and covenants, working with investment managers on a daily basis, evaluating performance of investment managers, and providing reports to the Investment Committee.

2.3.3 Business Office: The Business Office, including the Associate Vice President for Finance and Administration, shall perform all accounting duties necessary for endowment management, transferring of funds from one institutional account to another (e.g., bank to investment management firm), allocating income and fees in accordance with College procedures, and reporting income and asset balances of endowments and associated spending departments (scholarship or other) to the Financial Aid Office. The Business Office may be delegated duties by the CFO.

2.3.4 Financial Aid Office: The Financial Aid Office is responsible for complying with donor’s spending restrictions or covenants, awarding of scholarships, and processing award in the Student Information System using appropriate item codes to facilitate reporting and reconciliation of the awards.

2.3.5 Investment Managers: Provide the CFO with a contract or written agreement to invest in accordance with College policies; provide the CFO with proof of liability and fiduciary insurance coverage as required by the current contract; provide the CFO with annual updated ADV Part II file with the SEC; provide the CFO with annual reports on any SEC violations by the firm; vote proxies on behalf of the College; execute investment transactions with broker and dealers qualified to execute institutional orders on an ongoing basis at the best net cost and, where appropriate, direct the brokerage as requested; provide a minimum of quarterly transaction, valuation, and performance reports, maintain frequent and open communication with the CFO.

2.4 Types of Endowments: Gifts given with the expectation that the principle of the gift can never be spent but earnings may be spent are categorized as permanent endowments. Gifts that permit spending of the principle or corpus either over time or after a certain period of time are considered temporary endowments. Either category of endowment may be considered restricted or unrestricted. In cases of any restricted endowment, the donor’s intent shall be honored in accordance with the donor’s guidance and UPMIFA as long as those requirements are legal, ethical, and practical. In cases where the restrictions do not comply with these requirements, funds shall be returned to the donor, changed with the donor’s approval, and/or changed by the Board as long as such changes do not deviate from the donor’s primary intention in accordance with UPMIFA.

2.5 Social Responsibility: Investments and management of those investments shall be consistent with the mission, vision and values of Germanna Community College.

2.6 Investment Objectives: In accordance with Commonwealth of Virginia definitions, endowment funds of the College are deemed public funds. As such, the objectives of the investments in order of importance are:

Safety. Safety of principal is the foremost objective. Investments will be undertaken in a manner that seeks to ensure preservation of capital in the overall portfolio.

Liquidity. The investment portfolio will remain sufficiently liquid to enable the College to meet all operational requirements that might be reasonably anticipated.

Return on Investment. The investment portfolio shall be designed with the objective of attaining a market rate of return throughout economic cycles, taking into account its investment risk constraints and the investment account or portfolio’s liquidity requirements.

2.7  Investment Management: Funds held by the College are deemed public funds by the Commonwealth of Virginia and subject to the Investment of Public Funds Act, §2.2-4500 through §2.2-4519 of the Code of Virginia.

2.7.1 Investments: The College shall select an outside investment management via a public procurement action except for funds held in the Commonwealth of Virginia’s Local Government Investment Pool, savings or other interest bearing demand deposit accounts in local banks at which other College accounts are held, or certificates of deposit held in local banks at which other College accounts reside. Outside investment management firms must ensure compliance with the Investment of Public Funds act.

2.7.2 Total Return: Endowment assets will be managed on a total return basis, recognizing both realized and unrealized income in the determination of total income. Fees shall be netted against income in determination of amounts available for spending.

2.7.3 Reporting: The College shall require monthly reporting for investments and no less than quarterly analyses from investment management firms. Investment management firms shall meet with College representatives no less than annually.

2.7.4  Evaluation: Criteria used to select an outside investment management firm shall include the following: performance history of firm in similar investments; ability to adhere to the Investment Of Public Funds Act; experience managing similar funds for similar organizations; stability in retaining investment professionals; a competitive fee structure; registration as an investment advisor with the Securities and Exchange Commission and registration in electronic Virginia (eVA) procurement system; ability to comply with College policies; and, innovative products and services that may be made available to Germanna Community College students and employees and/or other Virginia Community College System members.

2.7.5  Pooling of Funds: Commingling of funds is permitted if either the investment management firm or College staff are able to allocate earnings and fees to the individual endowments. Unless otherwise stated all income and fees earned or charged for pooled funds shall be allocated or distributed based on the relative share of invested assets for each individual endowment over the reporting period. That is, if Endowment A has 10% of the assets in the pooled investment, it is entitled to 10% of the total income and shall be charged 10% of fees assessed.

2.8  Investment of Idle Funds: Funds received by the College via gift, grant, donation, or earnings of investments shall be invested in the endowment fund investment pool as soon as possible and within a week of receipt of funds.

2.9 Asset Allocation: In accordance with the aforementioned Investment of Public Funds Act, funds may not be invested in equity instruments. Innovative approaches to investing among the allowable investment instruments is encouraged as long as the College’s investment objectives are followed.

2.10 Spending Policy: A variety of spending policies are commonly used in the industry and are acceptable for use at Germanna Community College. Growth of the endowments to keep pace with inflation, especially inflationary pressures caused by rising tuition and book costs, is necessary and shall be incorporated in the Spending Policy. Because these investments are conservative they may not ever exceed the rate of inflation so a policy should be adopted to retain a certain percentage of the total return in the endowment and the remainder spent. Change from one Spending Policy to another acceptable one shall only be implemented with approval by the Investment Committee. Without approval by the Investment Committee, the current spending rate shall continue.

2.10.1 The spending rate for endowments held by Germanna Community College shall be 80% of the total return net of fees or that as determined by the Investment Committee from time to time.

3. Procedures

3.1  Business Office shall insure that appropriate department codes and item type codes are established for accounting and reporting of endowment and scholarship funds.

3.2 Business Office shall report income and asset balances of endowments and associated spending departments and item type codes to the Financial Aid Office.

3.3 Financial Aid shall process student awards in compliance with donor’s spending restrictions or covenants.   Awards shall be recorded in the Student Information System using the item type codes established by the Business Office.

3.4 The Business Office will post award batches, reconcile the Student Information System to the Accounting Information System, process reconciling entries, and move funds from the appropriate scholarship funds to the State account.

4. Definitions

4.1   Spending Policy:Amount of investment earnings made available for cash disbursements to accomplish the mission and purpose of the endowment; i.e., scholarships.

4.2  Asset Allocation: How investments are distributed among different asset classes of investments, such as equities, fixed income, real estate, alternative investments, etc. To generate larger returns, most investment portfolios allocate about 50% of investments in equities. Because of the conservative nature of the Virginia Investment of Public Funds Act, an asset allocation mix is restricted and an asset allocation is essentially defined within the Act.

5. References

Code of Virginia §2.2-4500 through 4519.

United Methodist Foundation of Michigan: Statement of Investment Policy, Objectives & Guidelines

Hudson Valley Community College Foundation: Endowment Management, Investment and Spending Policy

University of Rochester, Rochester Endowment Investment Policy Statement

University of the Pacific: Endowment Fund Investment Policy Statement

CommonFund Institute: Endowment spending: Building a Stronger Policy Framework, October 2010

NACUBO: “Smoother Spending”, Business Officer Magazine, October 2007

NACUBO: Endowment Spending Policy Effective for FY 2014-15

Uniform Prudent Management of Institutional Funds Act, November 2007

Commonwealth of Virginia Uniform Prudent Management of Institutional Funds Act

University of Tennessee, Spending Policy Methodologies

6. Point of Contact

Vice President of Administrative Services

7. Approval and Revision Dates

College Council: January 29, 2016

College Board: March 17, 2016

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