ALA Finances 101 (AKA BARC Financial Planning Seminar)
Endowment Fund (Long-Term Investment Fund)
Primer & Fundamentals
ALA Endowment Trustees: Rick Schwieterman, Carla Stoffle, Robert Newlen, Teri Switzer—Treasurer
Midwinter Meeting, San Antonio January 20, 2006
What is an Endowment?
Property, funds or a revenue source that is made available, usually by donation, by an institution, individual or other entity.
This property, funds or revenue source may be permanently restricted, temporarily restricted or unrestricted in its use.
ALA Endowment Fund Facts
- The Endowment Fund is now known as the “Long-Term Investment Fund (LTI)” – per FASB ie accounting reporting guidelines.
- ALA has very few “true” Endowments within the fund.
- As such, the LTI fund is not a true Endowment Fund.
- There are approximately 64 individual funds that make up the Endowment Fund.
- Future Fund is the Board Designated unrestricted fund.
- Funds may be unrestricted or donor restricted.
Why is a Long-Term Investment (Endowment) Account/Fund an Important Consideration?
- Can generate interest/dividend income, which can be used to support programs, scholarships, awards and special initiatives.
- Can be a permanent source of funding (revenue) for programs and activities.
How Do You Get Started?
- Need to determine the purpose of fund.
- A minimum of $10,000 is needed to get started.
- A minimum of $35,000* is needed to award a $1,000 scholarship.
- A minimum of $110,000* is needed to award a $3,000 scholarship.
- A minimum of $185,000* is needed to make a $5,000 award.
*Assumes a 3.5% rate of interest. Also the scholarship or award amount is net of expenses ie expenses must be covered before an award or scholarship is made to the recipient.
What's Needed to Fund a Scholarship or Award?
Historical Performance @ 12-31-05
Historical Performance Divisions @ 12-31-05
How Does the Long-Term Investment Fund Work?
Executive Board/Endowment Trustees Relationship and Responsibilities
The Executive Board is the body that has fiduciary responsibility and acts for Council in the establishment and administration of endowment policies and programs. The Board appoints the Endowment Trustees for 3-year staggered terms. The ALA Treasurer serves in a non-voting ex-officio capacity. The Trustees shall have authority to hold, invest, reinvest, disburse, and otherwise deal with endowment funds in accordance with such directions as may be given them by the Executive Board of the Association. The Endowment Trustees have responsibility for acting on behalf of the Board within established policies, procedures and guidelines, in the management of the Endowment Fund. With respect to the Endowment Trustees, the Executive Board has the following responsibilities:
Executive Board Endowment Fund Responsibilities
- To determine and approve investment policy, strategies and guidelines.
- To exercise fiduciary responsibility for the operation and performance of the Endowment Fund.
- To approve the Endowment Fund strategic purpose/objective consistent with overall ALA strategic planning.
- To approve of the creation of any endowment or scholarship.
- To select and appoint all Endowment Trustees.
- To approve unrestricted gifts and bequests over $20,000 to be added to the Future Fund.
Endowment Trustees Responsibilities
- To hold, invest, reinvest and distribute endowment funds as directed by the Executive Board.
- To act as custodian for all receipts from life memberships and gifts/bequests for endowment purposes.
- To recommend to the Executive Board operating procedures for the effective management of the Endowment.
- To develop, review and recommend investment policy, strategies and guidelines to the Executive Board.
- To select individual investment managers.
- To report to the Executive Board and Council on the status of the Endowment.
- To communicate, as appropriate, about the Endowment and its performance
Long-Term Investment Fund Reporting Structure
Allocation and Investment Style by Manager
9-30-05
*Core is a blend of growth and value stocks
Asset Allocation Strategy (as established within ALA policy*)
Endowment Fund By Type @ 12-31-05
Long-Term Investment Fund Mission
That the purpose of the American Library Association's Long Term Investment (Endowment) Fund is to protect and grow the corpus, assets and investment resources so as to support the current and future Association needs, including scholarships, awards and unique programs that build a strong future for the American Library association and America's libraries.
Long-Term Investment Fund Governance - Policy 8.5.1
Long-Term Investment Funds: Association's Use/Withdrawal and Repayment
In the preparation of the ALA annual budget the ALA Executive Director is authorized to include a) interest and dividend income generated annually in the ALA Future Fund or b) up to but not to exceed 50% of the five year moving average of the appreciation realized in the ALA Future Fund less any interest and dividend income transferred to the operating fund. Additionally, the Executive Directors of the Divisions and the liaisons for the Round Tables are authorized to include in the preparation of their annual budgets a) interest and dividend income generated annually or b) up to but not to exceed 50% of the five year moving average of the appreciation realized in their respective unrestricted funds. The 50% five-year moving average shall be calculated by averaging the interest, dividends and market gains (realized/unrealized) less bank fees, other investment related expenses and any interest and dividends that have been transferred to the operating budget. This calculation excludes any contributions or withdrawals made over the trailing five-year period. Withdrawals using the net 50% five-year moving average do not require repayment.
Use of Funds
Use of Fund Listed below are the primary instances whereby withdrawals from the Long-Term Investment Fund can be made.
- Program Support The General Fund, Divisions and Round Tables can request funds from their respective Long- Term Investment funds to support one-time programs.
- Emergencies Emergencies will include financial disaster due to a major revenue shortfall, act of God, building catastrophe, major lawsuit, etc.
- New Initiatives New Initiatives will include projects or programs that are multi-year in nature and deemed important to the future of the Association, Divisions, Round Tables or units. Withdrawal of the investment funds for uses stated above may be supported by interest and dividends or the 50% moving average. Amounts requested to be withdrawn in excess of the greater of interest and dividends or the 50% moving average will require repayment with interest.
- Scholarships & Awards Allowable withdrawals from temporarily restricted and unrestricted Long-Term Investment funds designated for named scholarships and awards will be made to the extent necessary to support the award or scholarship according to its stipulations and requirements. If the interest and dividends of a scholarship or award is not adequate, the amount in the temporary restricted and unrestricted investments designated for named scholarships may be used up to the limits of any permanent or donor restrictions.
- Life Membership Funds Allowable withdrawals from temporarily restricted and unrestricted Long-Term Investment funds designated for Life Membership, will be made from the Life Membership Fund to the extent necessary to support the annual membership fee for the participants.
- Transfer of Existing Funds It is allowable to make a transfer from an existing unrestricted fund for the establishment of a new and or in support of an existing scholarship fund, program or initiative fund within the Long-Term Investment Fund.
Withdrawal/Transfer/Repayment
All withdrawals for any purpose referenced in A, B, C and the 50% five year moving average must be approved through the regular budget process. Prior to expenditure, all budgeted withdrawals must be further approved by the Executive Board. Withdrawals from the Long-Term Investment Fund for any of the following events: Program Support Emergencies New Initiatives will require repayment at the prevailing ALA borrowing rate with the term to be recommended by management and approved by the Executive Board. The annual withdrawal of interest and or dividends from the Long-Term Investment Fund will not require repayment.
Strategic Growth Plan
Why is it important to the Association?
- Part of the Development Office plan.
- It enhances the financial planning for the Association.
- It helps to protect the corpus/assets.
- It replenishes withdrawals in a more coordinated fashion ie strategies for replacement can be developed.
- It will enhances the ability of the Trustees to make better investment decisions ie short and long term strategies.
What will it take?
- Commitment and diligence
- Repayment of withdrawals as recommended in revised policy 8.5.1
- Minimal impact from new emergencies
- Increased planned giving (aggressive)
- Increased fund raising (aggressive)
- New income annually of $200,000 – 2.0 M
- Timely use of aggressive investment strategies.
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