UA Foundation Board Approves Maintaining 4% Payout on Endowment Funding to UA

UA Foundation Board Approves Maintaining 4% Payout on Endowment Funding to UA

By John BrownUniversity of Arizona Foundation
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James H. Moore Jr.
James H. Moore Jr.

The University of Arizona Foundation board of directors has voted to maintain a 4 percent payout rate on private endowment funding to the UA for the 2009-2010 fiscal year.

The decision means that the UA can expect only a slight decrease in the amount of endowment funding it receives next fiscal year despite extreme market volatility that has affected the investments of the UA Foundation and other institutions nationwide.

"In the face of an unprecedented state budget crisis, our board believed it was prudent to provide the maximum amount of private funding to The University of Arizona," said James H. Moore Jr., president of the UA Foundation. "It's absolutely imperative that we do all that we can to protect the UA's missions of education, research and outreach. Our ability to support students and faculty is what will define the continued success of the UA."

The UA Foundation endowment investment portfolio had a value of $335 million on June 30, the end of fiscal year 2007-2008. From July 1 through Nov. 30 the UA Foundation endowment's return was negative 21.1 percent.

For the five fiscal years ending June 30, UA Foundation endowment investments averaged an 11.3 percent rate of return, which has helped the foundation weather the current economic storm.

"During these prosperous five years, we purposely maintained a conservative payout so that we could build the endowment to withstand a downturn in the economy like we are experiencing now," Moore said. "As stewards of the endowment, our board of directors has an obligation to intergenerational equity, which calls for striking a balance between providing opportunities to current students while protecting those of future students."

The UA Foundation manages more than 1,200 endowment accounts that support various initiatives at the UA, including student scholarships, endowed faculty chairs and research.

The payout is equal to 4 percent of the average fair value of the endowment principal at the three previous calendar year-ends.

While the payout rate is the same as the last five years, the foundation expects that the actual funding to individual accounts on campus will decrease about 5 percent because of market losses during 2008.

For example, a $1 million endowment account that provided $40,000 in funding during last fiscal year is expected to provide about $38,000 in fiscal year 2009-2010.

The UA Foundation will provide actual payout figures to individual account holders on campus in late February after the endowment's December 2008 investment performance is calculated.

An endowment is a private gift where the principal is invested to provide an annual payout to a designated person, department or scholarship. Returns in excess of the payout and cost recovery fee are retained in the principal in order to grow the fund and offset inflation.

The UA Foundation's endowment portfolio is managed by dozens of global financial advisers under a diversified investment strategy. The UA Foundation's current investments are targeted to average about a 9 percent rate of return over a 20-year period.

The UA Foundation endowment investment policy's primary objective is "to preserve the real purchasing power of the principal, and provide a stable source of perpetual financial support," Moore said.

During fiscal year 2007-2008, donors contributed more than $31 million in endowment funding. Since July 1, 2006, donors have funded an additional 16 endowed faculty positions for a total of 78 positions at the UA.

The UA Foundation is one of the largest foundations in Arizona, raising more than $100 million annually. Managing an asset base of nearly $500 million, the UA Foundation has helped generate more than $2 billion in private funding to support the UA. Learn more at http://uafoundation.org/investmentpolicy.

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