A committee on Tuesday changed the way the University of Kentucky will withdraw money from its massive endowment fund over the next two years to better insulate the fund from stock market gyrations.
UK will take smaller scoops of money each year from investments worth $750 million that pay for professorships, scholarships and fellowships.
Also, officials will analyze investment returns over a longer period of time as they calculate how much money should be withdrawn each year. Using a longer time period should stabilize the budgeting of such funds by smoothing out the peaks and valleys of an investment's performance.
The new policy will begin to be phased in starting July 1, 2010.
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The deans of UK's colleges, who rely on endowment funds to pay salaries for endowed chairs or professor positions, have backed the change, said Angie Martin, UK's treasurer.
"They are pretty much unanimous that they want to preserve the corpus of the endowment," she said.
Instead of spending 4.5 percent of the endowment using a 36-month average of its value, UK will lower the spending rate to 4.25 percent and use a five-year average.
Over the long term, lowering the spending rate reduces the chances that UK might have to dip into the principal of the endowment.
Like nearly every university in the country, UK's endowment took an expensive hit during the economic downturn, losing nearly a quarter of its total value from late 2007 to October. The total endowment fund was worth $751.5 million on Oct. 31.
UK officials already were bracing for a drop from the $40.5 million it is spending from its endowment this year even if the investment trustees hadn't changed the formula. Next year's payout amount would have been $36.4 million, Martin said.
With the changes it will be $35.7 million in the 2010-11 academic year and $33.2 million the next.
All this comes as UK is re-evaluating the set-up of its fund-raising structure.
UK President Lee T. Todd Jr. said he expects a completed report from a Chicago-based consulting firm, Jerold Panas, Linzy & Partners, within a month that will recommend improvements to how the university raises funds. The firm began its review in April.
Many universities — including the six other public four-year universities in Kentucky — established non-affiliated foundations to handle fund-raising and endowment funds. UK has a central development office and fund-raisers in each of its major colleges to contact alumni and seek donations.
One advantage of the foundation structure is the university could react more quickly to sell land bequeathed by donors.
However, some foundations at public universities have been criticized for shielding information. The Courier-Journal, for instance, fought the University of Louisville Foundation in court to gain access to its donor lists.
"A lot of people have misconceptions about foundations — that they try to hide things," said D. Michael Richey, UK's vice president for development. "It really comes down to the management agreement."
Todd said he wants to see the consultants' recommendations, but he would consider a foundation set-up as long as it would be transparent.