A gift to the endowment at Wayne State University is an investment in the future. A strong endowment enables the university to carry out its mission confidently, now and in the future, with the security of permanent funding. With careful stewardship, endowed funds grow in value over time, providing resources in perpetuity.
Each endowed fund has an invested principal that is never spent. The principal earns income that is then distributed to a spending account, which is used to support the specified purpose of the endowed fund. Endowed funds can be unrestricted, but many donors designate their giving to a specific school, college or department.
Endowed funds at Wayne State University are pooled together and reside in the Common Trust Fund. The Wayne State University Foundation Investment Committee oversees these assets.
Endowment questions and answers
References: 2018 NACUBO-TIAA Study of Endowments, Public NTSE Tables
What is an endowment?
Wayne State University's endowment is a lot like your retirement account. The university carefully invests these funds now so we have the money to support our plans for the future. The annual earnings generated by these investments are then used to support university programs in accordance with donor-specified terms. A gift to the endowment is an investment in the university's future because endowed funds provide permanent support.
Endowed funds at Wayne State University are pooled together and reside in the Common Trust Fund. These funds are invested with a goal to grow their value over time and provide support for the university in perpetuity. Donor-established endowed funds at Wayne State can be restricted, meaning that they are used to support a purpose specified by the donor. Many Wayne State donors designate their giving for a specific purpose or to support a specific school, college, department or program. Alternatively, some donors establish unrestricted endowed funds that are used by the university to provide support where it is needed most.
What is the value and investment performance of Wayne State University's endowment?
The Wayne State University endowment was valued at $390 million as of September 30, 2018. This total reflects an annualized investment return of 6.2 percent for the period October 1, 2017 to September 30, 2018. The annualized rate of investment return was 9.0 percent during the past three years, 6.0 percent during the past five years and 6.8 percent during the past ten years.
Who manages Wayne State University's endowment?
The Investment Committee of the Wayne State University Foundation oversees the management of the endowment and assists with all investment-related decisions. The foundation’s Investment Committee is made up of volunteer professionals with financial management expertise and staff members of Wayne State University.
How is the endowment invested?
The Wayne State University Foundation Investment Committee works closely with the Outsourced Chief Investment Officer to grow the endowment and protect the purchasing power of its assets over time. The target asset allocation is as follows:
- Alternatives – 30%
- Non-U.S. equities – 22%
- Fixed income – 20%
- U.S. equities – 18%
- Real assets – 10%
What happens when a donor establishes an endowed fund?
When a donor establishes an endowed fund, the university creates two accounts—an endowment account (also known as the corpus) and a spending account (also known as the beneficiary account). The endowment account houses the invested principal, which includes the donor's original gift, future gifts and endowment investment earnings. No spending occurs from this account. Instead the university distributes a portion of the income earned from the invested principal to the companion spending account on a quarterly basis. The spending account receives the distributions, and expenditures are made from the account based on the terms of the university's spending policy and the donor's signed memorandum of agreement, which ensures that the fund fulfills the donor's intentions.
For example, if a donor makes a $25,000 gift to establish an endowed scholarship, the full amount of the gift resides in the endowment account. New gifts may be added to the fund at any time. As investment earnings accrue, the fund increases in value. Each quarter, the university distributes a portion of the income earned on the invested principal to the spending account in accordance with the university's spending rate policy (currently 4.5 percent). These spendable earnings are used to award the scholarship to a student who meets the criteria identified by the donor, based upon the provisions outlined in the donor's memorandum of agreement.
What is the spending rate policy?
Wayne State's spending rate policy determines the amount of income distributed from an endowment account to a spending account. It is codified in a Wayne State University statute approved by the Board of Governors.
The university calculates distributions using a smoothing formula that averages the quarter-end market value from the previous three-year period and multiplies that number by the current distribution rate of 4.5 percent. Using an average over time minimizes the impact of dramatic fluctuations in the market and ensures more stable distributions to spending accounts. Allocations to endowed funds are based on their pro-rata share of the total investment pool.
In accordance with university policy, a percentage of endowment distributions is allocated to support university operations. Currently, the allocation is 0.45 percent annually.
What is the impact of the endowment at Wayne State?
The endowment provides annual income to support university programs and initiatives in accordance with donor-specified terms. Although some of the endowment is unrestricted, most of it is designated for a specific purpose. Two-thirds of the endowment supports students and faculty. An additional 12 percent supports the research facilities, equipment and infrastructure needed for students and faculty to make new discoveries. A further breakdown of how the endowment supports the university is as follows:
- Student scholarships, fellowships and awards – 40%
- Chairs, professorships and lectureships – 27%
- Miscellaneous special purpose – 20%
- Research – 12%
- Facilities – 1%
Why doesn't the university use more endowment income to support operations and/or reduce tuition?
Nearly all of the funds in the Wayne State University endowment are restricted for existing programs. The purpose of the endowment is to provide a steady stream of financial support for the university. A conservative spending policy allows the endowment to grow with inflation and provide a solid foundation of financial support for the university in perpetuity. As the endowment grows through new donor gifts and investment returns, the amount of total dollars distributed to university programs will increase as well. Increasing the spending rate of endowment income would make assets more susceptible to market volatility and risk reducing the endowment's overall value.
How does Wayne State's endowment compare to other universities?
The Wayne State University endowment ranks 222 on a list comparing 809 public and private university endowments compiled by the National Association of College and University Business Officers (NACUBO) for fiscal year 2018 (described as July 1 through June 30). Wayne State's ranking places the university among the top one-third of the universities listed. Wayne State's University Research Corridor peers, the University of Michigan and Michigan State University, are ranked 9 and 35, respectively. The University of Michigan's endowment was valued at $11.9 billion as of June 30, 2018, and Michigan State University's totaled $2.9 billion.
Directly comparing universities solely on endowment value, however, does not provide a complete picture because institutions vary widely in size. Annual endowment distributions at Wayne State fund approximately 2 percent of the university's operating budget. According to the 2018 NACUBO-TIAA Study of Endowments, the average higher education institution funds 10 percent of its operating budget through its endowment.
Wayne State's endowment funds a smaller percentage of the budget because of the university's past reliance on state support for much of its operations. Now the university is diversifying its funding sources, and growing the endowment is a priority.
Why does Wayne State need a larger endowment?
A larger endowment will provide the university with greater financial flexibility to pursue future goals, regardless of changes in state support. New endowment funds enable Wayne State to strengthen its mission as a university of opportunity and excellence, while pursuing new initiatives in education, research and community support. Endowed funds benefit students and faculty now and into the future, in perpetuity.
The fastest way to grow the endowment is with new gifts. To learn more about contributing to the endowment, please contact the Division of Development and Alumni Affairs at 313-577-2275.