October 1998 CLAS notes

Dean: Will Harrison harrison@chem.ufl.edu Editor: Jane Gibson jgibson@clas.ufl.edu Assistant Editor: Ronee Saroff rsaroff@english.ufl.edu Graphics: Gracy Castine gracy@clas.ufl.edu

The University of Florida Foundation: A Performance Story A Message From Paul A. Robell, Vice President of Development and Affairs at the UF Foundation

As you may know, the University of Florida Foundation, Inc. raises, invests, and manages all gifts for the benefit of the University of Florida. The Foundation houses the University's Office of Development and Alumni Affairs. The Foundation is a free standing, not for profit corporation that is eligible to receive gifts as a 501 (c)(3) charity certified by the Internal Revenue Service.

What is not generally known by our campus community, but is known across the nation, is that the University of Florida Foundation is one of the very best institutional charitable foundations in the country. We'd like to share with you some important statistics:

Very Low Cost of Fund Raising:
For the fiscal year 96/97, the University of Florida Foundation's cost of fund raising per dollar of direct gift raised was $ 0.12. The national average among all charities is $0.20. We should all be very proud of our low fund raising costs. Our current costs through December, 1997, have dropped even further, to less than $0.09 per dollar.

Low Management Cost:
The administrative cost per dollar of managing assets for the same period is less than one cent per dollar managed.

Stellar Investment Returns:
The investment return of the Foundation's endowment pool for fiscal year 96/97 was 20.16%. The return on the non-endowed investment pool (the Foundation's equivalent of checking accounts) was 7.45%. These are outstanding investment returns. Our investment returns over the last 5 years ranked in the top 10% of similar endowment funds.

Carter Boydstun, CLAS Director of Development, and Jennifer Denault, CLAS Assistant Director of Development, enter the Foundation headquarters on University Avenue.

Substantial and Growing Endowment:
The University of Florida's endowment funds as of December 31, 1997, held assets totaling $427 million, which ranks 20th among public universities. As a result of the outstanding success so far with the "It's Performance That Counts" campaign, and continuing good investment returns, we anticipate that the size of UF's endowment will grow substantially over the next three to five years.

The more you know about the Foundation, the better we can all work together. Here are answers to some frequently asked questions:

Can I receive a grant from the Foundation to support my research?
We often receive calls from new faculty members requesting grants from the Foundation. It will come as no surprise to learn that virtually 100% of the monies raised for the benefit of the University of Florida are restricted by the donors as to purpose or college--for example, to support scholarships, to benefit IFAS, etc. The University of Florida Foundation is not a grant-making institution, but rather a gift- raising and management institution.

Why does the Foundation host fancy parties and do so much entertaining?
Entertaining and events on campus, as well as visits with prospects and donors, are essential components of fundraising. Our entertaining and events are conducted in a style consistent with the standards of the University of Florida, and most would not consider any of our activities lavish. Again, our cost of fund raising is extraordinarily low.

With all those terrific investment returns, why do endowments pay only 5%?
Endowments are established to support the donors' purposes in perpetuity. It is the Foundation's responsibility to preserve the real purchasing power of the endowment over an extended period. For gifts that are readily convertible to cash and invested in the Foundation's endowment pool, the Board of Directors of the Foundation has created a highly sophisticated process to allow for reasonable expenditures from the endowment while maintaining stability and growth of the principal.

The gift amount invested in the endowment pool is referred to as the "Nominal Value." For a gift of $100,000 cash invested in the endowment pool, the nominal value is $100,000. If the asset gifted is not cash, the nominal value will be the net amount realized on the conversion of the asset to cash. For each endowment investment, the Foundation will also track an "Adjusted Spending Value" (ASV). The ASV is the value upon which the quarterly transfer to the income fund is based. For the first three full fiscal years an endowment gift is invested in the endowment pool, the Nominal Value and the ASV will be the same. At the beginning of the fiscal year following the three year holding period, the gift becomes eligible for an ASV annual adjustment which is calculated in accordance with a formula adopted by the Investments Committee of the Board of Directors. This formula is based on a rolling average return for the prior 12 quarters.

Here is how it works. On May 15, 1998, a donor contributes $100,000. This money will become invested in the endowment pool as of July 1, 1998.

For the fiscal years ending June 30, 1999, through June 30, 2001, the fund will annually provide $5,000 of spendable income (5% of $100,000).

For the fiscal year beginning July 1, 2001, the fund becomes eligible for the annual adjustment, which for our example will be 3.5%. Accordingly, the new ASV of the endowment is $103,500 ($100,000 plus $3,500).

For the fiscal year July 1, 2001, through June 30, 2002, the endowment will provide $5,175 (5% of $103,500) of spendable income.

Note that at any time during the course of these years, the market value of the endowment pool investment could have been lower or higher than the ASV.

What would happen if the Foundation based its payout on market values, as do many institutionally-related foundations?
There's a risk that during any year the market value of the fund could be less than the previous year or fluctuate wildly during the year and, therefore, an endowed professorship that a dean was using to support a faculty member, for instance, could decrease and the dean would lack sufficient monies to meet this obligation.

Instead, the Foundation calculates the ASV annual adjustments in the spring of each year, then the fund administrator is advised for the next fiscal year of the guaranteed 5% payout that will be disbursed from the Foundation regardless of market performance. This allows the unit to budget and rely on those figures.

The Foundation's investment policy, once it is understood, is the envy of peer institutions. It is designed to provide smooth, continual, reliable growth, forever, for endowment funds.

The bottom line is accountability and performance. The Foundation's results speak for themselves. We are always available to discuss any aspect of our operation and would be glad to give a presentation to your faculty and staff about how you may best use the many services provided by the Foundation. We look forward to being continuing good stewards of the gift monies entrusted to us for your benefit.