The endowment assets of the MCV Foundation support the long-term operational needs and charitable purposes of the Foundation and the MCV Campus that it serves. The MCV Foundation seeks to achieve a balance between the ability to generate current income and the desire to increase future income as a result of fund growth. Modifications to the spending rules have been infrequent over the course of the Foundation’s history, and always undertaken with consideration to best industry practices and the methodologies used by peer institutions.
- The spending rule for endowment should aim for a smooth trend of income with a long-term upward bias.
- The application of the spending rule should be consistent from year to year.
- The rule should reflect best industry practices among endowment institutions.
Taking all these factors into consideration, the Foundation has concluded that payout from endowment funds will be determined annually according to the following formula:
- 70 percent of the payout will be an amount equal to the previous year’s spending amount, adjusted for inflation as measured by the Higher Education Price Index (HEPI) for the 12 months prior to the start of the fiscal year.
- 30 percent of the payout will be an amount equal to 4.5 percent of the trailing three-year quarterly average market value of the endowment investment pool.
- The spending is capped at 4.5% of the average quarterly market value of the endowment pool over the previous fiscal year.
Spending on gifts received in the previous fiscal year will receive a pro-rated amount based on the number of whole months each gift was included in the fund. For example, Year 2 payout from a gift received December 15 would be based on 6/12 of the spending target calculated under the Endowment Spending Rule Calculation because the endowment held the gift for six full months (January through June) in Year 1. This spending policy has two implications. First, by incorporating the previous year's spending, the policy eliminates large fluctuations and so enables efficient planning for operating budget needs. Second, by adjusting spending toward a long-term rate (currently 4.5%), the policy ensures that spending levels will be sensitive to fluctuating portfolio market value levels, thereby providing stability in long-term purchasing power.
The trustees will declare the amount of endowment payout for the next fiscal year by January of each year to apply to the ensuing fiscal year’s spending.
From time to time, income from investments may exceed budgetary needs. In this case, the excess will be added to endowment principal in order to increase its purchasing power. Unspent temporarily restricted income will be reinvested to principal of individual restricted funds.