2202 Endowment Spending and Distributions

Responsible Official: 
Vice President for Finance and Chief Financial Officer
Responsible Office: 
Finance
Effective Date: 
March 1, 2023
Revision Date: 
March 1, 2023

Policy Sections

2202.1 University Endowment Spending

2202.2 Annual Endowment Distributions

Scope

This policy covers the University’s Endowment Spending Policy (“Spending Policy”) and distributions made in accordance with the Spending Policy.  It applies to all University units (i.e., schools, departments, units, or other organizational entities) that have one or more gifts invested in the endowment.

Policy Statement

Yale spends from its endowment in accordance with its established Spending Policy.  Yale allocates spending distributions from its endowment in accordance with its established distribution methodology.

Reason for the Policy

This policy describes the University’s Spending Policy, which attempts to balance the objectives of preserving purchasing power and providing substantial current support.  It also describes the distribution methodology for gifts invested in the endowment. 

Policy Sections

2202.1 University Endowment Spending

The University’s Endowment Spending Policy (“Spending Policy”) attempts to balance the objectives of preserving purchasing power and providing substantial current support by using a long-term target payout rate of 5.25% combined with a smoothing rule that adjusts spending gradually for changes in the market value of Yale’s endowment.  The payout under the Spending Policy is equal to 80% of the prior year’s spending plus 20% of the long-term spending rate applied to the previous year’s beginning endowment market value, with the sum adjusted for inflation.  The spending amount determined by the Spending Policy formula is adjusted for inflation and taxes and constrained so that the calculated rate is at least 4.0% and not more than 6.5% of the endowment’s fair value as of the start of the prior year. 

2202.2 Endowment Distributions

When a gift is invested in the endowment it purchases endowment units at the current month’s ending per-unit market value (i.e., “forward price”).  Annual spending distributions are made in September in accordance with the University’s Spending Policy based on the number of endowment units held by a gift as of the previous fiscal year end and are net of an administrative assessment that approximates 6% to 8% of endowment income (see Administrative charge on endowment fund income section of Yale’s Gift Policies).

New endowment gifts established during the fiscal year and new contributions to existing endowment gifts receive a pro rata spending distribution based on the quarter in which the gifts are received.  The spending distributions are credited in the second month following the quarter in which the new endowment units were purchased and are calculated as follows:

Period During Which New Gift is Received

Pro Rata Annual Distribution

First quarter (July 1 through September 30)

75%

Second quarter (October 1 through December 31)

50%

Third quarter (January 1 through March 31)

25%

Fourth quarter (April 1 through June 30)

0%

If an endowment gift liquidates units during the fiscal year, previously distributed endowment spending will be deducted from the gift’s operating account in the second month following the quarter in which the units were liquidated on the same pro rata basis.

Sometimes the terms of an endowment gift will require that some or all of the annual spending distribution be reinvested, either for a designated period of time (e.g., for the first five years) or under certain circumstances (e.g., if not all annual spending distribution is spent in a given year).  When annual spending distributions are reinvested, thereby purchasing additional endowment units, no additional spending distributions will be made on these new units during the fiscal year in which they were purchased.

Special Situations & Exceptions

Exceptions to this policy require prior approval by the Controller’s Office, in consultation with the Provost’s Office, General Counsel, or an Officer of the Corporation, as appropriate.

Roles & Responsibilities

Controller’s Office

  • Interprets this policy.
  • Reviews and rules upon requests for exceptions to this policy.

Gift Administration

  • Administers the annal endowment distribution methodology.

Vice President for Finance and Chief Financial Officer

  • Responsible for the content of this policy, in consultation with other officers of the Yale Corporation, as appropriate.