Utimco Since 1996
Balancing Needs
Investment Returns
Expenses
Inflation
Endowment Funds Under Management
Conclusion

Factors Affecting Purchasing Power
Distributions (Spending)

The UT Board determines the annual distributions from the endowments based on UTIMCO's recommendation. The key to preservation of endowment purchasing power over the long-term is control of spending through a target distribution rate. This target rate should not exceed the funds' average annual investment return after fund expenses and inflation.

There are two distinct forms of distribution or spending policies: 1) the constant growth spending policy; and 2) the percent of assets spending policy.

  • The PHF and the LTF utilize the constant growth spending policy. The PHF and LTF distributions are increased annually at an average rate of inflation provided that the distribution rate remains within a range of 3.5% to 5.5% of fund asset value. The constant growth policy provides a stable stream of "real" dollars to the beneficiary but all the volatility in financial markets is transferred to the value of the endowment, leading to potentially large declines in real value of the corpus of the endowment funds. This policy has been chosen for the PHF and LTF because it is best for endowments in which the current distribution is large relative to the total budget for the program served by the distribution. Many vital programs, such as scholarships and research initiatives, are funded entirely by distributions from endowments. UTIMCO recommends the distribution policy to accommodate current needs without sacrificing the needs of succeeding generations. The constant growth spending policy uses a smoothing formula to reduce annual volatility in spending and to maintain spending on a sustainable basis. Distributions from the PHF and LTF have grown consistently as indicated by the following chart:

PHF - LTF Distributions
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  • The PUF utilizes the percent of assets spending policy. The PUF's annual distributions are based on 4.75% of the PUF's three-year average net asset value. The purchasing power is maintained but all the volatility in financial markets is transferred to the annual distributions, leading to potentially high volatility and frequent episodes of loss of either nominal or real purchasing power from year to year. This policy has been chosen for the PUF because it is best for endowments in which the current distribution is small relative to the total budget, and where long-term growth of the fund is the key objective. Very positive capital markets over the past several years have allowed the PUF distributions to grow at a rapid pace:

PUF Distributions
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