The Spending Rate of the Foundation will be reviewed by the Committee periodically in light of evolving trends with respect to investment performance and the needs of the Foundation and will be adjusted as necessary.
As allowed by the Uniform Prudent Management of Institutional Funds Act adopted by the state of Idaho in July 2007, the Foundation may spend at its Spending Rate from “underwater” funds for the purpose of the specific fund. An underwater fund is defined as one in which the market balance is below the sum of the gifts contributed to the fund (“historical gift value”).
Unless otherwise directed by the donor for a specific endowed gift, the annual Spending Rate shall not exceed 4% of the trailing 3-year average market value of the endowment, as determined each December 31st. The Spending Rate shall be reduced from 4% to 2% when the market value is below 90% of the historical gift value.
In the event the spending rate is reduced from 4% to 2% donors may be asked to consider new gifts to keep their endowment distributions at the 4% level and the Foundation Board may consider funding from unrestricted funds. In the event the Foundation Board approves the use of unrestricted funds when endowment distributions are reduced, a special distribution from the endowment to refund the Foundation may be considered once the market value of the endowment is sufficiently above the historical gift value.
Total Return Policy
The Board has adopted a “total return” approach to calculating investment returns. In recognition of these facts, the Committee will consider the endowments’ total return from both income and net realized and unrealized capital gains when recommending the Spending Rate Policy. When distributions are made, they will be withdrawn from the endowment regardless of the portion of the total return that is from capital gains or from income, subject to applicable gift agreement restrictions.
An Administrative Fee of 1.5% of the market value of the endowment will be calculated and distributed monthly on a pro-rata basis. The Administrative Fee will be reviewed and evaluated annually as part of the preparation of the Foundation’s annual budget. Efforts will be made to gradually reduce the administrative fee percentage as the endowment grows.
The single most important decision made by the Committee is the Policy Asset Allocation decision. Investment research has determined that a significant portion of a portfolio’s investment behavior can be attributed to: (1) the asset classes/styles which are employed by the Foundation; and (2) the weighting of each asset class/style.
It is the responsibility of the Committee to identify the Policy Asset Allocation that offers the highest probability of achieving the Foundation’s Investment Objectives. The Committee, with guidance and recommendations from their Consultant, shall review the asset mix on an ongoing basis and recommend revisions as necessary.
The Policy Asset Allocation shall be determined based on a comprehensive asset allocation study completed by the Consultant and reviewed from time to time by the Committee. The Policy Asset Allocation of the Foundation, as presented in Appendix A, is designed to give balance to the overall structure of the Foundation’s investment program over the Time Horizon. However, many factors over time may necessitate an asset allocation review and possible rebalancing.
Some of these factors include:
- The Investment Committee’s assessment of the intermediate or long term outlook for different types of asset classes and styles;
- The consultant’s assessment of the intermediate or long term outlook for different types of asset classes and styles; and
- Divergence in the performance of the different asset classes and styles.
The Policy Asset Allocation of the Foundation is expected to include a wide range of asset classes. These asset classes and their relative comparative indices are displayed below.