Purpose

The purpose of the spending policy is to establish spending guidelines that will meet the university's cash flow requirements from the endowment.

Objective

The primary objective of the spending policy is to provide a steady cash flow stream while at the same time protecting the purchasing power of the Endowment Fund's principal. Adopting the target rate approach provides the university with a level-spending plan that may grow each year by an inflation amount not to exceed 3 percent and the addition of a new spending amount from new gift additions to the endowment.

Policy

Spending allotments will begin with the flat amount allocated to each individual account for FY2004 and new gift additions to the endowment receiving 5 percent of the gift amount. Each new fiscal year a decision will be made if an inflation increase is to be made, not to exceed 3 percent.

The cash required for spending, as determined above, may be drawn from both ordinary income earned (i.e., dividends, interest) and capital appreciation, both realized and unrealized of both current and prior years. Compliant with the Wisconsin Uniform Prudent Management of Institutional Funds Act (UPMIFA), the university will be allowed to prudently withdraw spendable funds even if an endowment's market value is less than its historical book value. Any "return" that is not required to meet spending shall be retained in the Endowment Funds and invested in accordance with the investment policy statement.

A risk control mechanism will be employed that keeps spending within a range of 4-6 percent of market value in order for the asset allocation policy to work with a minimum target rate of return of 8 percent (5 percent average spending and 3 percent inflation).

Procedure

1. At each calendar year-end, the Endowment Office will, on an account-by-account basis, provide the flat spending amount plus any inflation amount approved and calculate the 5 percent spending amount on new gifts.
2. The Endowment Office and the Budget Office will notify areas, departments and individuals of the new spending allocations.
3. The spending policy will be reviewed by the Finance and Risk Committee annually.

ENDOWMENT OFFICE

• Investment Policy
• Spending Policy
• Endowment Performance
• Asset Allocation
• Endowment Gifts
• Frequently Asked Questions

About the Office of Endowment

The Office of Endowment is responsible for the strategic investment direction of the university's endowment assets and serves as a liaison to both internal and external investment planning parties. Investment responsibilities include oversight of outside investment management firms, relations with investment consultants, and general monitoring of all aspects of endowment management.