The University of Texas at Tyler University Advancement
Frequently Asked Questions About Gifts of Endowment
FREQUENTLY ASKED QUESTIONS ABOUT GIFTS OF ENDOWMENT
What are endowments?
Endowments are gift funds created at The University of Texas at Tyler (UT Tyler) which can be used throughout the history of the University. These funds are set up in such a way so that the principal of the gift is never spent; only the interest from what that fund earns. A portion of the interest income generated from the principal amount is distributed back to UT Tyler to be used only for the purpose intended by the donor.
Interest distribution levels are regularly reviewed by The University of Texas Board of Regents to assure donors and the institutions within The University of Texas System that their endowment accounts are protected over time from inflation. Interest income distributions are spent at the discretion of the president, a dean, or even a specified faculty member, depending on the language of the gift agreement.
The importance of endowed funds cannot be overstated. Endowments provide long-term stability for institutions by providing systematic distributions from very secure funds. Because the principal is never spent, these funds become perpetual in nature. Virtually every university and college in America highly prizes endowed funds.
The most frequent types of endowed gift funds create and name an academic Chair or Scholarship. Donors know that the funds they give will be preserved forever, and that their names will be attached to the Chair or Scholarship for posterity as well. In contrast, non-endowed gifts, by nature, are spent immediately or over a period of years. With the final expenditure, that fund disappears.
What type of endowment gifts are generally needed at UT Tyler?
Most endowments are given for student scholarships. There are two types of student scholarships. The majority of scholarship endowments support undergraduate students. Fellowships are simply scholarships that are designated for graduate level students seeking Masters or doctoral degrees.
Endowments may also be established as accounts in support of faculty. These endowments are called Chairs or Professorships, and often provide funds to supplement salary to enable UT Tyler to hire an exceptional person, or to provide travel, research, or other types of funds.
Different from scholarships or faculty endowment, general endowments are usually donated as unrestricted funds. These endowments are helpful because they are the most flexible. For example, income from a donor’s $11 million bequest to UT Tyler nearly 20 years ago has now more than tripled in value, and the annual spendable interest income is used by the discretion of the president for the most urgent needs of the University.
How much of my endowment gift is used to fund the purpose for which I made the gift?
Over the past decade, investment returns (interest income) on endowments at The University of Texas System averaged more than 10 percent prior to the recent economic downturn. Of that amount, the current policy is to make available close to 4.5 percent of the endowment account balance as “spendable income” for the University to use for the purpose specified by the donor. For example, a $100,000 endowment would generate about $4,500 a year. This percentage is based on a “rolling” average over 13 quarters of investment return.
Nearly all of the remainder of the income generated by an endowment fund—the amount earned in excess of the 4.5% paid out—is reinvested into the corpus of that endowment account, thus allowing the principal to grow each year. By reinvesting a significant portion of the earning back into the corpus of the fund, often 5 percent or more, the corpus continues to grow larger. So an initial endowment gift of $100,000 may have a market value of $105,000 the following year, and then continue to grow.
This system of paying out part of the annual earnings and reinvesting the other part means that such scholarship endowment accounts produce an increasing number of dollars for scholarships each year. Not only does this allow each fund to keep up with, and usually exceed, the rate of inflation, but as the principal grows, so does the amount available for use by the University.
How are endowment funds that are given to UT Tyler invested?
Each endowment account established by a donor is invested by a subsidiary corporation of The University of Texas System called The University of Texas Investment Management Company (UTIMCO). For maximum investment leverage, UT Tyler’s endowment funds are pooled with other endowment funds donated to the other 14 institutions within The University of Texas System.
Indeed, the total of the endowment accounts from those 15 institutions (more than $5 billion in each of two major UTIMCO-managed accounts) makes The University of Texas System among the four largest endowments in higher education, behind Harvard and Yale, to name the two largest. However, each specific donor endowment account from all of the 15 institutions is tracked individually, and the account balances and income remain specifically and legally for the use and benefit of each of the individual institutions that accepted the gifts.
Is there any kind of management fee that comes out of the funds I give for endowment?
Yes. Out of the overall annual interest earnings on endowment accounts, a small piece (.002%) is allocated for UTIMCO’s management fee. This amount includes an endowment compliance fee .0008% which is used to fund UT System’s exemplary Endowment Compliance Program to assure our donors that funds are secure and used only for the purposes intended.
It is important to note that the management fee comes from the interest that would otherwise have been reinvested into the principal of the endowment account. The fee does not impact the approximately 4.5 percent of spendable interest income provided for the purposes that the gift was made.
Can I make an endowment gift as a pledge?
Donors making gifts of endowments can make pledges of up to five tax years.
On all gifts for named endowments, at least 20 percent of the full amount required must be paid first in order to create the account, and the endowment must be fully funded within five years from the signing of the gift agreement.
What UT Tyler fund raising priorities encourage endowment gifts?
Endowments are highly-prized gift funds that support faculty through endowed Chairs and Professorships, student scholarships and fellowships, and general use funds for operational use by the president or deans of the colleges.
A faculty member can be appointed to a chair or professorship by the University president at such time as the endowment is created (with a minimum of 20 percent of the funding in place). In that case, the holder of the chair or professorship can be recognized as the holder (on letterhead, etc.), but the University will not have access to the “spendable income” distribution from the investment to pay part of his or her salary or to make research funds available until the endowment account is fully funded. Until that time, those interest income funds will continue to be reinvested, thus making the corpus grow at a faster rate.
Endowed scholarships and fellowships offer assistance to students who might not otherwise be able to attend UT Tyler. As we continue to see record enrollments, these funds become increasingly important. UT Tyler has also established an Honors Program to attract exceptional academically gifted students. These honors students receive scholarship offers to attend prestigious universities throughout the United States. Our ability to offer them competitive scholarships allows us to compete with much older institutions with greater name recognition.
Can I express a preference for which UT Tyler College I may wish to support?
Yes – for both faculty endowments and for scholarship support. However, a donor cannot specify specific students to be awarded such scholarships or fellowships.
In a similar fashion, faculty endowment donors can indicate a college or even a department where they wish their Chair or Professorship to reside, provided that the University is in accord. However, the donor cannot specify a particular faculty member to receive the Chair or Professorship.
The University of Texas at Tyler
3900 University Blvd.
Tyler, TX 75799