Endowment Policy Statement

Produces a governance instrument for 501(c)(3) endowment management compliant with UPMIFA or applicable state law.

Prerequisites

Gather before drafting. Search uploaded documents (bylaws, gift agreements, financials, board resolutions) to pre-populate.

1. Organization — legal name, state of incorporation, fiscal year end, governing statute (UPMIFA or other)
2. Endowment structure — total AUM, fund categories (true/term/quasi), pooled vs. separate, donor-imposed restrictions
3. Investment profile — advisors/managers, risk tolerance, ESG/mission restrictions, prohibited investments, alternatives experience
4. Governance — Investment Committee composition and cadence, staff roles, delegation authority
5. Spending — target rate (%), averaging period (12 or 20 quarters), underwater philosophy, budget dependence
6. Special circumstances — unusual donor restrictions, pending gifts, legal matters, prior policy conflicts

Quick Start

1. Collect prerequisites above
2. Confirm governing statute — verify state UPMIFA adoption before drafting
3. Draft sections in order below, replacing all bracketed placeholders with org-specific data
4. Present for legal counsel review before Board adoption

Document Sections

| # | Section | Key Content | |---|---------|-------------| | 1 | Title & Recitals | Policy name, adoption date, legal name, effective date, supersession clause | | 2 | Purpose & Scope | Fiduciary framework, UPMIFA citation, fund types, intergenerational equity | | 3 | Investment Objectives | Total return mandate, target real return (% above CPI, rolling 10-yr), permissible volatility | | 4 | Asset Allocation | Target allocations + allowable ranges per asset class | | 5 | Rebalancing | Trigger thresholds, method (cashflow vs. trades), approval authority | | 6 | Spending Policy | Formula, methodology, timing, floor/ceiling treatment | | 7 | Underwater Endowments | Monitoring triggers, spending suspension/reduction, restoration plan, donor notification | | 8 | Roles & Responsibilities | Board, Investment Committee, staff, external managers, conflict-of-interest | | 9 | Review & Amendment | Annual cycle, amendment process, interim amendments | | 10 | Adoption | Board Chair/Secretary signatures, date, corporate seal line |

Key Templates

Asset Allocation Table

| Asset Class | Target % | Allowable Range | |---|---|---| | Domestic Equities | [X]% | [X–Y]% | | International Equities | [X]% | [X–Y]% | | Fixed Income | [X]% | [X–Y]% | | Real Assets | [X]% | [X–Y]% | | Alternative Investments | [X]% | [X–Y]% | | Cash & Equivalents | [X]% | [X–Y]% | | Total | 100% | |

Spending Formula

Annual Spending = Spending Rate × Average Market Value
- Spending Rate: [X]% (typical 4.0–5.5%)
- Average Market Value: mean of quarter-end values over [12 or 20] trailing quarters
- Calculation Date: [X] months before fiscal year start

Underwater Endowment Approaches

| Approach | When to Use | |---|---| | Full suspension — no spending until restored above historic dollar value | Conservative; donor-sensitive environments | | Proportional reduction — spending scaled to current / historic value | Balances mission needs with stewardship | | Continued spending — normal rate after UPMIFA prudence analysis | Operationally dependent organizations |

Roles Summary

| Party | Authority | |---|---| | Board | Ultimate fiduciary; approves policy, IC appointments, material amendments | | Investment Committee | Recommends changes; selects/monitors managers; reports to Board | | Staff (CFO/Treasurer) | Implements decisions; maintains records; prepares reports | | External Managers | Discretionary/advisory as delegated; subject to IPS guidelines |

Pitfalls & Checks

• UPMIFA factors — spending decisions must address all seven factors: fund duration/preservation, org and fund purposes, economic conditions, inflation/deflation, expected returns, other resources, gift instrument. Verify state-specific adoption.
• Jurisdiction — a minority of states have not adopted UPMIFA; confirm governing statute before drafting
• Quasi-endowments — clearly distinguish board-designated funds (revocable) from donor-restricted; require separate accounting
• IRS rules — IRC §§ 4943–4944 (excess business holdings, jeopardizing investments) apply to private foundations; confirm public charity status before relying on permissive standards
• Delegation — document any discretionary authority to managers in writing; Board retains ultimate accountability
• No placeholders in final — replace all bracketed fields with org-specific data before Board presentation
• Legal review required — counsel must review for alignment with state UPMIFA enactment, governing documents, and gift agreements