Understanding Trusts and Endowments

Presented by: York University Treasury Department

2

Agenda

Donation ProcessWhat are:

• Trusts• Endowments

What makes up Endowment Capital BalanceFund 600 Cost CentresA Look at the Financial StatementsEndowment Market ValueYork Endowments – Recent PerformanceQ & A

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Donation Process

Gift Agreement

Donation

Cost Centre Setup

Journal Transfer/Distribution

Spending for Purpose of Donation

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Gift Agreement

All donations have a gift agreement –written or verbal

Donation restrictions are defined in the gift agreement between the donor and York University Foundation

Restrictions outline how the funds are to be used

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Donations

A donation is money received from an external party

Not from operating fundsNot an internal transfer

All donations MUST go through the York University Foundation – charitable donation receipt

Virtually all donations are restricted for a specific purpose – only a very small fraction are unrestricted

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Restricted vs Unrestricted

Unrestricted3%

Restricted97%

Type RestrictedType Unrestricted

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Restricted and Unrestricted

Donation

Restricted Unrestricted

TrustTrust Endowment

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Trusts

Expendable donations Funds are held and spent within a finite period of time

ExampleA donation toward a Student Bursary Fund with a fixed term of 5 years

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Trusts

Trusts are made up of the following:Revenues in the form of donationsExpenditures towards the purpose of the Trust

Funds held in Trusts are not invested externally and do not receive interest allocations

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Endowments

Original donation is held and invested in perpetuityOnly a portion of income earned on investment is made available for spending on a yearly basis for a designated purpose

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Endowments

Endowed funds have a capital balance and this capital is invested externally in an investment pool

Funds are invested currently with 9 different investment managers in 8 different mandates –

Canadian EquitiesGlobal Equities US Small/Mid Cap Equities Emerging Market Equities Canadian Bonds Global High-Yield BondsMoney Market FundsCurrency Overlay

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Endowment Asset Mix

Extract from Statement of Investment Policy and Procedures

www.yorku.ca/secretariat/board/committees/invest/index

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Use of Funds –Trusts and Endowments

Scholarships (Merit Only)

Bursaries (Need Only)

Awards (Merit or Need Only)

Support of Chairs and Professorships

Support of Operations or Capital Projects

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What makes up Endowment Capital Balance

An Endowments Capital Balance is made up of:

ContributionMatching ContributionCapital ProtectionCapitalization

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eReports - Endowment Balance Sheet

Description Account

Contribution 014300Matching 014301Matching - OSOTF II 014302Capitalization 014303Capital Protection 014305

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Contribution

A contribution consists of the original donation and any subsequent donations from a donor

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Matching Contribution

Contributions received to match original contribution

usually from matching program and generally government sponsored

Ministry Matching Programs OSOTF 1 OSOTF 2 OTSSOGS

There are also University Matching ProgramsExample: Graduate Studies Matching Program (GSMP)

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Capital Protection

An annual allocation to the capital balance

To protect the endowment’s investment capital in order to sustain an inflation adjusted payout over the long term

Annually an amount from the cumulative earnings of the invested asset is capitalized and becomes part of the endowments capital base for purpose of calculating the following year’s distribution

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Capital Protection Calculation

This amount is calculated as the percentage year over year change in Toronto CPI as at December 31 multiplied by the previous year’s April 30 Book Value

% Year over Year change in Toronto CPI

xEndowment Book Value (April 30 prior year)

=In year Capital Protection Allocation

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Capitalization

Capitalization of excess appreciation of endowment as measured by Market Value over Book Value

At the request of the donor, a department or endowment holder or as deemed appropriate by the Treasury department as overseer of the endowment amounts may be capitalized

By capitalizing investment appreciation it increases the book value of the endowment and will in future years increase the annual distribution or payout

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Endowment Spending

Each year a portion of the appreciation on investments is allocated to each endowment for spending

The amount allocated is a percentage of the prior year’s book value at April 30

In the past this amount has usually been 5%

In 2010 was 3% or 0% on a case by case basis

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York U - Cost Centres

Cost centres are a way to manage the restrictions placed on donated fundsWhen new restricted donations are received – must decide whether a new cost centre is needed so that restrictions can be managed

Fund 600 SpecificFund 600 DepartmentalFund 200 Operations – eg: a donation for operations of a Research Centre

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York U – Fund 600 Cost Centres

Fund 600

Trusts Endowments

447 Trusts

21%

1,713 Endowments

79%

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Donations and The Financial Statements

All donations are received and recorded by the York University Foundation

Once a month YUF sends an electronic journal to YU Financial Reporting to record the donations in the appropriate cost centres

When YUF sends file to YU – no names are attached to the donations (just dollar amount and cost centre)

All donor information is kept CONFIDENTIAL

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A Look at the Financial Statements

TransactionDetails

Statement of

Operations

Endowment Financial Report

Award Code Report

Balance Sheets

Trusts

Endowments

Financial Statements

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Transaction Details –Trust and Endowments

Journal from YUF captures what donation is for the allocation code shows up in description line of Transaction Details

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Statement of Operations –Trusts and Endowments

Statement of Operations itemizes donations received (revenues) and expenditures towards the purpose of the Trust (expenses)

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Statement of Operations –Trusts and Endowments

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Endowment - Balance Sheet

At York we have on eReports, a Balance Sheet which records endowment capital balances held by York University, as well as, a Balance Sheet for Endowments which records the capital balances of endowments held both by the York Foundation and York University

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Endowment – Balance Sheet

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Balance Sheet for Endowments

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Summary by Award Code Report –Trusts and Endowments

Summarizes Revenues, Expenditures and current Balance Available by Award

Award Code Report is used by any department who administers an award

If you have questions regarding this report contact Student Financial Services

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Summary by Award Code –Trusts and Endowments

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Endowment Financial Report

Purpose of EFR is to report primarily to donors

Gives information on Endowment capital balances Market value Summary of expenditures and distributions

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Endowment Financial Report

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Endowment – Market Value

The university uses a record keeper – Buck Consultants – to keep track of the Market Value of each individual endowmentThe system employed by Buck currently uses 5 Levels:

• Contribution• Matching Contribution• Capital Protection• Capitalization/Reinvestment • Available Income

Market Value

Book Value

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Endowment – Market Value (continued)

The first 4 levels make up the Book Value of the endowment and matches what is on the YU Balance Sheet

An additional level Available Income is where all income, dividends, realized and unrealized gain or loss, fees and other expenses of the fund are recorded for each individual endowment

Available Income plus the other 4 levels equals the Market Value of the endowment

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Buck Market Value Report

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A Look at York Endowments –Recent Performance

Significant volatility and decline in capital market returns over the last yearUnprecedented declines in all asset classesMarkets recovering in calendar 2009

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Endowment Performance – 6 Year

Endowment Performance

-18.18%

-2.30%

12.85%14.51%

9.08%

17.44%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2008-09 2007-08 2006-07 2005-06 2004-05 2003-04

At April 30

Actual performancePerformance benchmark

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Endowment Growth – 6 Year

Endowment Growth

$245

$303 $305

$265

$221

$173

0

50

100

150

200

250

300

350

2008-09 2007-08 2006-07 2005-06 2004-05 2003-04

At April 30

(Mill

ions

)

Market ValueBook Value

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Endowed Fund Position –Market Value to Book ValueFund Position – Consolidated York University and York University Foundation

Market to Book Value Unadjusted (YU and YUF Endowments)

1.32

1.241.251.241.22 1.24

1.201.19

1.121.131.121.15

1.121.101.13

1.01

0.920.900.91

0.87

0.930.950.981.00

1.041.061.10

1.071.091.12

1.321.33

1.23 1.23

1.14

0.82-

50

100

150

200

250

300

350

January 31, 2007

February 28, 2007

March 31, 2007

April 30, 2007

May 31, 2007

June 30, 2007

July 31, 2007

August 31, 2007

Septem

ber 30, 2007

October 31, 2007

Novem

ber 30, 2007

Decem

ber 31, 2007

January 31, 2008

February 29, 2008

March 31, 2008

April 30, 2008

May 31, 2008

June 30, 2008

July 31, 2008

August 31, 2008

Septem

ber 30, 2008

October 31, 2008

Novem

ber 30, 2008

Decem

ber 31, 2008

January 31, 2009

February 28, 2009

March 31, 2009

April 30, 2009

May 31, 2009

June 30, 2009

July 31, 2009

August 31, 2009

Septem

ber 30, 2009

October 31, 2009

Novem

ber 30, 2009

Decem

ber 31, 2009

Month

Endo

wm

ent V

alue

(mill

ions

)

0.75

0.85

0.95

1.05

1.15

1.25

1.35

1.45

Rat

io M

V/B

V

Total Fund Book ValueTotal Fund Market ValueTotal Fund Ratio MV/BV

Thank Youand

Any Questions?