What is an endowment?
An endowment is a fund created by gifts totaling at least $15,000 that are permanently set aside by The University of Southern Mississippi Foundation to provide benefits to students, faculty or programs year after year, generation after generation.
For endowed funds, the principal (endowment corpus) must be invested and a portion of the income may be expended to carry out the donor’s purpose. To guard against the eroding consequences of inflation, the remaining portion of investment return remains in the earnings reserve of the fund. The goal is to ensure that the fund maintains its purchasing power over time to support future generations.
Why are endowments important to Southern Miss?
An endowment creates financial stability, allowing the University to be less dependent on unpredictable sources of revenue, such as state appropriations and research sponsorship. Endowments allow for a rich variety of activities such as scholarships and fellowships for talented students, support for distinguished and dedicated faculty members through professorships and chairs, support for research and other programs.
Who will oversee my endowment in support of Southern Miss?
The USM Foundation Board of Directors and its Investment Committee are responsible for endowment oversight.
How are endowment investments managed at the USM Foundation?
The University of Southern Mississippi Foundation’s Board of Directors monitors the investments of the Foundation through the Investment Committee, which meets quarterly to review performance of the portfolio. Endowed funds are invested in the USM Foundation endowment pool to maximize returns and are subject to market conditions. The USM Foundation employs professional investment advisors based upon past performance, expertise, and style of investing.
The endowment investment policy seeks to ensure that the present value of existing funds grows at a rate that exceeds inflation net of fees while generating a predictable stream of spendable income. This policy emphasizes the commitment of the Foundation to long-range financial planning to keep pace with inflation and evolving University needs.
How is spending determined? What is the relationship between overall investment return and the “spending” on an endowment?
The spending policy is set by the Investment Committee and the USM Foundation Board of Directors. Endowment spending is generally computed on a 12-month average of a fund's market value as of December 31. The spending rate is currently four percent.
How soon will new endowments start to spend for programmatic purposes?
New endowments must be invested for a required period of time to be eligible for spending. However, funds must first have earnings reserves to support spending.
What happens to any “excess returns” in the endowment?
Any earnings beyond the amount needed for scholarship/programmatic spending remain in the earnings reserve of the fund to promote growth and protect against inflation for future programs. These excess returns may also provide available funds in down economic periods.
Are there any other fees involved?
Depending on the fund agreement or the state of the endowment, the Foundation charges up to a 1.75% annual fee to offset our operating expenses. Fees are not applied to underwater endowments.
What happens when investment returns are negative?
An endowment can spend from prior years’ excess returns (also referred to as earnings reserves) up to the amount of the current spending rate. If there are no earnings reserves available, there can be no spending.
What is an “underwater” endowment?
This is an endowment which, through declining market performance, has used all accumulated earnings and has eroded so that the fund’s net asset value is less than the original gift value, or corpus.
How will spending occur if an endowment is “underwater”?
Spending will not occur in “underwater” endowments. A donor may make a current gift to support program or scholarship spending if an endowment fund is underwater.
Can an endowment be designated for a specific purpose?
Absolutely - as with any gift to Southern Miss, an endowed gift offers alumni and friends the opportunity to have their names, or the name of a loved one, linked to an area of the University in which they have a special interest. Examples include:
- Some donors create unrestricted endowments, recognizing that the needs and challenges of the future will differ from those of today. Unrestricted gifts are used for the highest priority needs on campus, and provide the most flexibility as these needs change.
- Many donors create undergraduate scholarships or graduate fellowships to aid deserving students majoring in a course of study within a specific college.
- Other donors choose to direct their gifts to areas or programs of special concern to them, knowing that these additional funds provide an opportunity for those programs to grow and excel.
There are many ways to fund an endowment within the USM Foundation. For more information, please contact us at 601.266.5210.