endowment-policy-statement

# 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