The Financial Side of an Endowed Fund
As the Barbara Neu Memorial Scholarship is to be an Endowed Scholarship Fund, meant to exist in perpetuity to carry out its stated purpose, it is important to get the donated funds invested appropriately. The Sacramento Region Community Foundation will for its affiliate, the Yolo Community Foundation, invest the money designated to the fund via its selected investment advisor, Colonial Consulting LLC.
Like all endowed funds, the market value of the fund will help us establish an appropriate scholarship amount (or scholarships, if we deem fit) to ensure that the Fund retains enough money to award scholarships every year into the future without tapping the principal (or fund corpus). To accomplish this, the money donated to the fund is invested in a portfolio of stocks and bonds, much like a 401 K, and the return on this invested capital is what is used to pay the scholarship recipients and the fees associated with running a fund with a community foundation.
To get a better idea of what the financial side looks like, we refer to the Sacramento Region Community Foundation's Investment Overview.
This is the indicative asset allocation for an endowed fund.
Source: Sacramento Region Community Foundation Investment Overview
With endowment fund investments, the investment goal are as follows:
“Investment Goals
• To earn a sufficient long term return to preserve the purchasing power of the assets, after annual grants of 4% and annual support fees averaging 1.3%, plus cost of living increases; and
• To earn this return with as little volatility as possible.”
The key goal is to have the fund's return on investments meet the desired scholarship amount with an annual distribution of 4% of the fund’s balance. Of course, the YCF/SacRegCF charges a fee for its services as does their investment advisor, and these fees must be factored into how much the fund pays out each year. Each Community Foundation has its own guidelines for this, set in accordance with the Uniform Prudent Management of Institutional Funds Act (UPMIFA).
Unfortunately, investment results of late have not been what they once were (see below). If this continues, we may be required to raise additional funds to make up for the lack of investment returns, or reduce or pause the scholarship payouts, in order to ensure the longevity of the scholarship.
Investment results, lately, have not been what they once were - hope we get back to a 10% return.