Answers to Common
What is an endowment?
An endowment is a dedicated and permanent source of funding that supports our universities.
When a donor makes a gift to create an endowment, the funds are invested for long-term growth to provide a lasting source of support. An endowment represents the Texas Tech University System's promise to use the gift and the earnings it generates to support our universities in perpetuity.
Endowments may be unrestricted for the overall benefit of a university or restricted to support a specific program or purpose as determined by the donor.
How large is the Texas Tech University System endowment?
The market value of the Texas Tech University System endowment has grown to a combined asset value of more than $1.33 billion.
How much has the Texas Tech University System distributed from the endowment for its universities to spend?
The Texas Tech University System distributed $53.7 million for spending in fiscal year 2018. Since the establishment of the Long-Term Investment Fund in 1996, we have distributed more than $563 million to our universities.
What do endowments support?
Endowments support nearly every aspect of our universities. The two largest categories include financial aid for undergraduate and graduate students as well as funds to support faculty, including professorships. Other common areas that endowments support include funds for academic programs, research activities, museums, facilities and a wide variety of other activities.
Ultimately, donors determine the type of program their endowment will support according to their philanthropic interests.
Who manages the Texas Tech University System endowment?
The management of the Texas Tech University System endowment is a team effort between the Texas Tech University System Board of Regents, Texas Tech Foundation and system departments who manage donor relations, award endowment funds and oversee spending. These departments include the Texas Tech University System Office of Investments, Institutional Advancement, Office of the Treasury and administrative departments at the four universities.
The Board of Regents has fiduciary responsibility and manages the endowment in compliance with donor restrictions and the laws of the state of Texas and the United States, including the Uniform Prudent Management of Institutional Funds Act. The board has delegated day-to-day management of the endowment's assets to the system's chief investment officer and contracted investment managers and advisers according to system policy.
How are funds invested?
The Texas Tech University System endowment functions like a mutual fund that benefits our universities. Endowment funds are invested in a single portfolio called the Long-Term Investment Fund. The portfolio is invested in diversified assets that seek growth as well as income in order to minimize volitility and provide stable funding for our universities over time.
How are investment earnings spent?
System policy limits the endowment spending distribution rate to between 4 and 6 percent. The current Texas Tech University System spending distribution rate is 4.5 percent.
How is the endowment payout determined?
The Texas Tech University System's spending practice has to balance two goals: the need to fund our universities' budgets with a stable and predictable source of funding and the obligation to maintain the long-term value of our endowment.
The Texas Tech University System distributes earnings from the endowment fund to a spendable account associated with the endowment four times each year. The amount of these quarterly distributions are determined by multiplying the spending rate of 4.5 percent times the endowment's 12-quarter rolling average for the period (not the fund's beginning balance).
By using the 12-quarter rolling average, the spending distributions are insulated from market fluctuations, ensuring a more consistent flow of funds to our universities.
What is the management fee, and how is it used?
According to system policy, a management fee of 70 basis points (0.7 percent) is assessed on the 12-quarter rolling average of the endowment's net asset value.
Half of the management fee supports the asset management activities of the Office of Investments. The remainder supports the fundraising activities of Institutional Advancement in an effort to continue to grow the endowment.
Can an endowment go below its gifted value?
Guided by the Uniform Prudent Management of Institutional Funds Act, the Texas Tech University System's management perspective takes a long-term view of investment performance and allows an endowment to go below its gifted value. However, going below the gifted value is uncommon.
In years that market performance is up, the Texas Tech University System may spend less than the investment return in order to grow the endowment. In years that market performance is down, we may spend more than the return to ensure our universities have the funding they depend on to achieve their missions.
An endowment established during a down market is most susceptible to going below its gifted value, but such a fund will regain its value over time. Endowments established during an up market along with older endowments that have participated in multiple market cycles are likely to remain above their gifted value.
How often is the investment performance of the endowment reviewed?
The Texas Tech University System Office of Investments provides regular reports on the performance of the Long-Term Investment Fund to the Board of Regents and the Texas Tech Foundation board of directors.
How can donors request current information about their endowment?
Donors may request current information about their endowment funds at any time. To make a request, contact our endowment compliance team.
How often is the information in this endowment report updated?
The Texas Tech University System reports its financial statements to the Texas Comptroller of Public Accounts in the third week of November. After we make our report to the state comptroller, we compile the annual endowment report to be mailed to all endowment donors and published online, usually by the second week of December.