2008 - 2009 Annual Report

Administrative Fees and Endowment Investments

Recovery of Operating Costs from Private Gifts

As is customary with universities and other non-profit organizations across the country, a one-time gift fee is applied to all gifts to provide essential support necessary to UCLA's overall operation. The fee in effect for fiscal year 2008-2009 was 5%.

Endowment Investments

The purpose of The UCLA Foundation's Endowment is to support the educational mission of the University of California, Los Angeles by providing a reliable source of funds for current and future use. The income/payout from each individual endowment fund is used to support the purpose established by the donor in the gift instrument. However, endowment funds are commingled for investment purposes in The UCLA Foundation Endowment Pool to maximize returns and minimize investment and administrative costs.

The Endowment seeks to maximize long-term total returns consistent with prudent levels of risk. Investment returns are expected to preserve or enhance the real value of the endowment to provide adequate funds to sufficiently support designated University activities. The Endowment assets have an indefinite time horizon that runs concurrent with the endurance of the University in perpetuity. As such, the investment portfolio assumes a time horizon that may extend beyond a normal market cycle and therefore may assume an appropriate level of risk as measured by the standard deviation of annual returns. It is expected that professional management and portfolio diversification will smooth volatility and assure a reasonable consistency of return.

The Endowment's portfolio is expected to generate a total annualized rate of return, net of fees and spending, that is greater than the rate of inflation as measured by the National Consumer Price Index over a rolling five-year period. The UCLA Foundation accomplishes these objectives by engaging a number of professional managers who are assigned specific investment mandates for equities, fixed income and alternative investments.

Endowment Distributions

The Foundation's spending policy governs the rate at which funds are released to fund holders for current spending. The Foundation's spending policy is based on a target rate set as a percentage of a rolling market value. The rate was 4.5% for fiscal year 2008-09. The Board of Directors of The UCLA Foundation reviews and approves this rate annually1. Investment returns earned in excess of the approved spending rate are retained in the endowment principal to protect from the effects of inflation and to allow for growth. During periods of investment market decline, endowment distributions for newer funds may, if needed, reduce the fund value to assure that predictable funding is available for individual endowed fund program activities and objectives.

1California law provides that those 'responsible for managing and investing an institutional fund shall manage and invest the fund in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.' Factors to be considered include: general economic conditions, the possible effect of inflation or deflation, the expected total return from income and the appreciation of investments, and the needs of the institution and the fund to make distributions and to preserve capital. Furthermore the law states, 'an institution may appropriate for expenditure or accumulate so much of an endowment fund as the institution determines is prudent for the uses, benefits, purposes, and duration for which the endowment fund is established.' Uniform Prudent Management of Institutional Funds Act California Probate Code Section 18501-18510.