FIN-026: Creating and Managing Quasi Endowment Accounts

Date: 09/15/2009 Status: Final
Last Revised: 01/13/2012
Policy Type: University
Oversight Executive: Vice President for Finance
Applies To: Academic Division, the Medical Center, and the College at Wise.
Reason for Policy:

This policy establishes guidelines and requirements for University units wishing to create Quasi Endowment accounts in order to invest funds in the University of Virginia Investment Management Company’s (UVIMCO’s) Long-Term Pool to meet long-term financial needs.

Policy Summary:

A University unit may create, invest in, and divest from Quasi Endowment accounts for an approved purpose. University units are required to make an initial deposit that meets the guidelines identified below under “Program Description.” Deposits must be invested for a minimum term of five (5) years. Quasi transactions require certain approvals as outlined below.

Definition of Terms in Statement:
  • Cash Balance:

    Operating cash balance before commitments as reported on the Discoverer workbook “GL_Revenue Reconciliation Reports,” not to be confused with budget balance.

  • Divestible Quasi Endowment:

    A Quasi Endowment that permits divestment of principal provided (1) it has been invested in the account for at least five years and (2) divestment is made according to the plan submitted at the time the request for the endowment creation was made.

  • Long–Term Pool:

    An investment pool managed by UVIMCO which invests the commingled assets of the University and University-related foundations in order to maximize long-term returns commensurate with the risk tolerance of its investors.

  • Perpetual Quasi Endowment:

    A Quasi Endowment that does not permit the divestment of principal and is intended to exist in perpetuity. Units may choose to receive distributions on the account as determined by the University’s spending policy.

  • Quasi Endowment:

    Funds established to function like an endowment but which may be expended at the discretion of the entity’s governing board. The principal is typically preserved while expenditures to support the purpose may be made from Quasi Endowment distributions. Distributions are determined in accordance with the entity’s spending policy.

  • University Units:

    Schools and departments within the University, typically represented by a five digit numeric code (i.e., organization code) in the University’s Integrated System.

Policy Statement:

University units required or wishing to set aside funds for longer-term objectives may be able to create a Quasi Endowment account. Quasi Endowment account funds are typically invested in longer-term assets to earn a higher rate of return by committing the funds for a longer period of time. Quasi Endowment investments in long-term assets are subject to a high degree of volatility and safety of the principal is not guaranteed. Only funds that will not be needed for at least five years should be invested longer term. Those units that do not expect to invest quasi endowment funds for a period of greater than five years, or whose risk tolerance is not suitable for long-term investments, may choose to invest funds through the University’s Internal Investment Program. The unit must ensure that creation of the quasi endowment will not result in deficits in other unit accounts. Inquiries about Quasi Endowment approvals are to be directed to the University Comptroller.

Program Description:

  1. Quasi Endowment Requirements:
    1. Investment Amount – The minimum balance required to create a Perpetual Quasi Endowment is $20,000. The minimum balance required to create a Divestible Quasi Endowment account is $1,000,000. Initial deposits may be made in one or more installments over an agreed upon time period. After a Quasi Endowment is established, smaller amounts may be added to it provided the minimum balance is maintained. Quasi Endowments in existence prior to the effective date of this Policy, may not be subject to minimum balance requirements, but must adhere to the plan of investment and redemption submitted when the Quasi Endowment was created.

    2. Investment Term – Deposits to a Perpetual Quasi Endowment account are generally permanently invested in the account. Divestments may be granted by the BOV or an authorized designee when it is deemed to be in the University’s best interest. Deposits to a Divestible Quasi Endowment must be invested for a minimum term of five years before planned withdrawals may be made, excluding annual BOV approved distributions.

    3. Plan of Investment and Redemption – University units wishing to make Quasi Endowment investments must document a plan detailing the:

      1. source of the Quasi Endowment funds;
      2. purpose of the Quasi Endowment including the program to be supported through the quasi account; and
      3. projected timing of investments and redemptions.
    4. Advance Notification – University units investing or redeeming funds in excess of $10 million at any one time are required to provide written notification to the University Comptroller at least 45 days in advance of the transaction. Quasi Endowment transactions typically occur on the final business day of the month following the month in which they are requested.

    5. Quasi Endowment Distributions – University units may choose to either receive or reinvest distributions from their Quasi Endowment account. A designation can be made on the Quasi Endowment application form. The default is for University units to receive distributions.

    6. Fees – Investment and administrative fees will be charged on all Quasi Endowments.

  2. Qualifying Fund Types:
    Fund types eligible to be invested into a Quasi Endowment account include:

    Qualifying Fund Types Award
    Type
    (GA)
    Fund Source
    (GL)
    Gift & Endowment Distribution Funds DR
    DU
    EU
    2075
    1100
    1105
    Local Plant Funds LP 5045  /  5055  /  5110  /  5215  /  5430
    Auxiliary and Reserve Funds LP 5215
    Medical Center Reserve Funds Not Applicable 1210

    [Note: For a detailed description of the award types, see Mapping Prefix to Award Types.]

  3. Authorization for Transactions:
    In June 1996, the BOV authorized the Executive Vice President and Chief Operating Officer (EVP & COO) to approve individual Quasi Endowment transactions under $2 million. The EVP & COO has delegated authority to the Vice President and Chief Financial Officer for approval of transactions under $2 million. Transactions of $2 million or more must be approved by the BOV.

    For the establishment of, addition to, or divestment from a Quasi Endowment, the vice president or dean responsible for that University unit must draft and sign a letter detailing the purpose and timing of the requested quasi action. In the case of additions and divestments, the signer should also indicate whether the action is consistent with the existing terms of the Quasi Endowment. The request letter should be sent to the University Comptroller who will review and submit the letter to the Vice President and Chief Financial Officer or to the BOV, as appropriate. Please see the Procedures for Creating and Managing a Quasi Endowment Account for the information that must be provided with any Quasi Endowment request.

    Once a Quasi Endowment is established, funds must be spent in accordance with the terms of the action establishing it. Changes to a Quasi Endowment account’s fund source, fund use, or plan of investment and redemption requires the approval of either the BOV or its authorized designees depending on the size of the change.

  4. Compliance Tracking:
    The Comptroller’s Office will review all requests for Quasi Endowment actions to determine compliance with this policy and to assure appropriate approvals.

  5. Penalties for not Meeting Minimum Requirements:
    The table below lists the penalties assessed and the subsequent actions that may be taken for failure to meet the required guidelines:

    Requirement

    Penalties

    Action

    Minimum Balance Forfeiture of upcoming endowment distribution. Divestment of remaining balance in quasi account.
    Minimum Term Forfeiture of upcoming endowment distribution. Divestment of remaining balance in quasi account.
    Compliance with Plan of Investment and Redemption Full or partial forfeiture of upcoming endowment distribution. Divestment of remaining balance in quasi account.

    The University Comptroller reserves the right to close a Quasi Endowment account that is not meeting the guidelines listed above or has had a zero balance for an extended period of time.

  6. Investment Returns:
    Returns on Quasi Endowment investments are based on the market return achieved by UVIMCO in the management of its Long-Term Pool. These returns are based on investments in and exposures to many different market segments. Money invested in the Long-Term Pool is subject to significant price risk and safety of invested principal is not guaranteed. UVIMCO’s asset allocation for the Long-Term Pool and its historical investment returns can be found at the UVIMCO website.

    The University has established a spending policy for its endowment investments that defines the frequency and amount of distributions from endowment investments. The distributions are intended to provide a stream of income from endowment investments for University units to use in support of specified programs.

  7. Making an Investment:
    Before making an investment, University units must decide whether they can meet the program requirements listed above for Quasi Endowment accounts or whether the money is better suited for shorter-term investment provided through the Internal Investment Program. University units may request that earnings on Quasi Endowment investments be re-invested. University units may have multiple Quasi Endowment accounts provided each account meets these program requirements.

Procedures:

For instructions on processing quasi endowment transactions, see the procedure for Creating and Managing a Quasi Endowment Account.

Related Information:

FIN-025, Internal Investment Program for University Units

Major Category: Finance and Business Operations
Approved by, Date: Executive Vice President and Chief Operating Officer, 09/15/2009
Revision History: Updated 1/13/12, 5/31/11, 5/16/11.