Setting the Annual Payout Rate
The primary purpose of the endowment is to provide a predictable and financially sustainable source of funding to support the University’s mission. The spending policy is set by the Board of Trustees with the intention of providing a stable source of revenue for current operations while preserving the purchasing power of the endowment for future generations. A new spending guideline was adopted and approved by the Board of Trustees in fiscal year 2022 and took effect in 2023.
The new guideline has both a budget stability component (70 percent), which is essentially last year’s draw grossed up by an inflation factor, and a market-determined factor (30 percent), which reflects the current market value of the endowment. The specific components are as follows:
- The budget stability component equals the prior year’s endowment payout, adjusted for the prior year CPI rate of change, plus 1 percent to account for budget growth. This component carries a weight of 70 percent.
- The market component is calculated by multiplying the long-term target spending rate of 5.1 percent by the endowment’s average market value for the prior 12 months. This component carries a weight of 30 percent in the spending rate calculation.
The new payout guideline generates an estimated total payout of $744 million for fiscal year 2024.