Investment of General Reserves into Quasi Endowment
Departments and other reserve units of the School of Medicine can invest excess reserve funds with the University’s endowment. These are referred to locally as “quasi-endowment.” In financial statements, they are usually referred to as “funds functioning as endowment.” The University’s endowment is invested and functions much like a mutual fund. A unit price is established at the beginning of each calendar quarter, and remains in effect for the full quarter. The endowment is invested for long term return, and the University has established procedures intended to discourage excessive trading. Funds are transferred to the endowment on the recommendation of the Dean and approval of the Chancellor. Funds must remain in the endowment fund for a minimum of 5 years. There are no provisions for early withdrawal. Withdrawal of funds from the endowment (disendowment) requires approval of the Dean, the Chancellor, and the Trustees. Funds may be withdrawn for any purpose, but the School of Medicine typically limits disendowment requests to fund investment in facilities or program enhancements including costs related to the recruitment of key faculty. Departments are required to keep reserves on hand to fund immediate needs during the next few years, and to cushion the department from the normal volatility that occurs in clinical care and research. Typically, departments keep reserves at levels adequate to fund 2-6 months of operating expenses. To create, or add to, a quasi-endowment, a letter is required from the department head or program director (the head of the reserve unit) addressed to the Dean of the School. The letter must indicate the amount that is to be transferred and the source (the reserve). The School of Medicine Finance office will verify that the funds are available, make a recommendation to the Dean on the adequacy of the remaining reserves, and draft a resolution for consideration by the Chancellor at the next scheduled resolution review meeting. This process normally takes 2-6 weeks.
To remove funds from quasi-endowment, a letter is required from the department head or program director (the head of the reserve unit) addressed to the Dean of the School. The letter must indicate the rationale for disendowment, how the funds would be used, and the source of funding. The School of Medicine Finance office will verify that the funds have been invested for the minimum time, and make a recommendation to the Dean. If approved by the Dean, a resolution will be drafted and submitted for consideration by the Chancellor and Trustees. This process typically takes longer because of the additional step.