The Pooled Endowment Fund (PEF) is an investment pool composed of funds that have been designated to University Endowment accounts. Donations received by the University are invested in the PEF and each year certain amounts are withdrawn according to the spending policy. These annual withdrawals fund scholarships, academic chairs, book funds, lectureships, as well as a diverse range of university programs.
Subject to levels of risks acceptable under a "prudent portfolio" approach to investing funds of this nature, the primary objective of the Pooled Endowment Fund is to maximize risk adjusted returns in furtherance of two competing goals; the goal of releasing substantial income to support current operations and the goal of preserving the purchasing power of assets for future generations.
The investment activities of the PEF are overseen by the Investment Committee of the Board of Trustees. This Committee sets investment policies and monitors investment performance. Click here to review the constitution and current membership of the Investment Committee.
In order to achieve its objectives, the University enlists the services of a range of external investment managers. The Investment Committee determines the selection of investment managers, the amounts entrusted to them, and also any investment parameters or restrictions. All investment activity must comply with the University's Statement of Investment Policies and Procedures (SIP&P).
The Department of Investment Services at Queen's is responsible for the day-to-day monitoring of investment manager activities and performance and in reporting such to the Investment Committee. This department reports on fund and market performance on both a monthly and quarterly basis. Scroll down to browse recent quarterly performance reports prepared for the PEF.
The holdings in the PEF are well diversified across asset classes, securities, and geographic locations. The pie-chart below shows the policy asset allocation of the Pooled Endowment Fund.
The Investment Committee is responsible for setting and approving changes to the long-term policy asset allocation. The Department of Investment Services monitors the actual allocation and rebalances investment manager allocations as required in line with the policy targets.
The PEF operates in a similar manner to a mutual fund. The value of a unit is determined by dividing the total current market value of the fund by the number of units outstanding. This value is calculated monthly by the Department of Financial Services and will increase or decrease according to investment performance.
New donations 'buy into' the fund at the prevailing market value. The general rule is that donations received at Queen's are unitized at the end of that month. For example, a $100,000 donation to a scholarship fund on August 31, 2014, would "buy" approximately 32,848 units ($100,000/3.0443 with 3.0443 being the unit market value at August 31, 2014).
Although donations received at Queen's are unitized at the end of the month, the corresponding income is credited for the next full month. Investment income is allocated based on the number of units held by an individual endowment and the current dividend rate, as established by the Investment Committee. Hence in our example, since August is the fourth month of the fiscal year, the income account will be credited for 8 months. Based on the current dividend rate, the income account of the donor-designated cause will be credited with $2,131 (0.0973 x 32,848 x 8/12), with $0.0973 being the annual spending rate for 2014/2015.
In order to determine how many Pooled Endowment Fund units one dollar will buy, see the chart below:
|June 30, 2015||3.1873|
|May 31, 2015||3.2463|
|April 30, 2015||3.1887|
|March 31, 2015||3.2243|
|February 28, 2015||3.2306|
|January 31, 2015||3.1563|
|December 31, 2014||3.0765|
|November 30, 2014||3.0800|
|October 31, 2014||3.0325|
|September 30, 2014||3.0049|
|August 31, 2014||3.0443|
|July 31, 2014||2.9980|
|June 30, 2014||2.9990|
|May 31, 2014||2.9752|
The Investment Committee is responsible for establishing the yearly dividend spending rate for the PEF. Over the past decade, the spending rate has ranged between 9.24 and 12.65 cents per unit, implying a dividend rate of between 3.4% - 5.7%. The spending rate for the 2015/2016 fiscal year is 10.36 cents per unit.
The annual spending rate is based on a hybrid formula.
The policy relates current-year spending to both the current endowment market values and the previous level of spending from endowments. The policy is designed to meet two competing objectives:
The spending rule attempts to achieve these two objectives by using a long-term spending rate combined with a smoothing rule that adjusts spending gradually to changes in endowment market value. The amount released under the spending rule is based on a 70% weight applied to the previous year's spending adjusted for inflation (subject to a maximum cap of inflation of 2%) and a 30% weight applied to the amount that would have been spent using 3.7% of current endowment market value. Also, an upper limit of 4.2% and a lower limit of 3.2% is imposed on the spending rate. The payout for the 2015/2016 fiscal year is 3.4%.
The spending rule has two implications. First, by incorporating the previous year's spending, the rule eliminates large fluctuations and so enables the university to plan for its operating budget needs. Second, by adjusting spending toward a long-term rate of 3.7% of endowment market values, the rule ensures that spending levels will be sensitive to fluctuating endowment market value levels, providing stability in long-term purchasing power.
The following table summarizes the growth of the PEF over the past 10 years, based on market values.
Recent annual returns to the Pooled Endowment Fund (before fees) are listed below: