Endowment Funds at DukeFrequently Asked Questions

							                                     Duke University
                                             Durham
                                      North Carolina 27708



              Endowment Funds at Duke: Frequently Asked Questions


Q:    What is an endowment fund?
A:    An endowment fund is a permanent, self-sustaining source of funding. Endowment
      assets are invested, and each year a portion of the earnings is paid out for the purpose of
      the fund and the rest is used to build the fund’s market value. In this way, an endowment
      fund can grow and can provide support for its designated purpose in perpetuity. When
      you establish an endowment fund, you create a permanent legacy of support for Duke.


Supporting Endowments

Q:    How much money does it take to start an endowment?
A:    The Duke Board of Trustees has set different minimum funding levels for different types
      of endowments:
      •   $50,000 will establish an unrestricted endowment for a particular school or division,
          such as the Pratt School of Engineering or the University Libraries.
      •   $100,000 will establish an endowment restricted to a specific purpose, such as faculty
          support within Arts & Sciences. (Undergraduate alumni who have graduated in the
          past ten years may establish a restricted endowment with a minimum gift of $50,000.)

      Financial Aid:
      •   $100,000 will establish an unrestricted financial aid endowment, such as a
          scholarship supporting undergraduates or medical students.
      •   $250,000 will establish a restricted financial aid endowment, such as a scholarship
          that gives preference to biology majors or international students or soccer players.

      Faculty Chairs:
      •   $1,000,000 will establish an endowed chair to support an assistant professor or a
          visiting professor.
      •   $1,500,000 will establish an endowed chair to support an associate professor.
      •   $2,500,000 will establish an endowed chair to support a full professor.
      •   $3,000,000 will establish an endowed chair to support a university professor with
          appointments in more than one discipline.
      •   $5,000,000 will establish an endowed chair to support a faculty member holding the
          distinguished designation of dean.
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     Athletics:
     •   $1,000,000 will establish an endowment supporting an associate or assistant coach.
     •   $2,000,000 will establish an endowment supporting a head coach in a sport other than
         football or basketball.
     •   $5,000,000 will establish an endowment supporting the head coach of football, men’s
         basketball, or women’s basketball.
     •   $5,000,000 will establish an endowment supporting the athletic director.


Q:   What else does it take?
A:   An endowment agreement. This agreement between the donor and the university
     permanently defines the purpose of the fund. The agreement also outlines Duke’s
     standard procedures for managing endowment funds.


Q:   Whose name is on the endowment?
A:   You can name an endowment for yourself, your family, your friend, your favorite
     professor, your company – the choice is yours. Your endowment will be recorded as
     “The [Name of Your Choice] Endowment Fund.”


Q:   My lawyer knows about endowments. Can I have him/her prepare my endowment
     agreement?
A:   Duke uses standard language for endowment agreements to ensure consistency in
     management of the funds. As we work with you to establish the endowment, we will
     discuss your preferences and suggestions with you.


Q:   Do I need to sign an endowment agreement or meet a minimum gift level if I want to
     give to an existing endowment?
A:   No. You can make a gift of any size to an existing endowment fund without signing an
     endowment agreement. There may be an existing endowment that reflects your interests
     and to which you can add your support. Also, many donors who have established
     endowment funds in the past continue making gifts to them over time. The larger a fund
     is, the more it can do each year.
                                           Endowment Funds at Duke: Frequently Asked Questions | 3




Stewardship and Recognition

Q:    How do I find out about my endowment after I have made my gift?
A:    Once an endowment reaches the minimum funding level and starts generating spendable
      income, Duke will begin sending you annual reports detailing the value and use of your
      endowment fund. Financial aid endowment donors learn about their scholarship and
      fellowship recipients each year, and professorship donors are updated on news of their
      chair-holders. When you establish an endowment at Duke, you begin a new relationship
      with Duke, and the university will write to you – and later to your family – every year
      with an update on what your gift is making possible.


Q:    Can I meet the students who benefit from my scholarship or fellowship?
A:    In most cases, yes. Each year, the university hosts a scholarship and fellowship
      celebration to bring together scholarship and fellowship donors, recipients, and honorees.
      Duke Athletics also holds a special event for athletic scholarship donors, and some of
      Duke’s schools hold annual scholarship events as well. If you do not have an opportunity
      to meet your student at a campus event, Duke’s Office of Donor Relations can arrange a
      visit for you during some other time when you are in Durham.


Q:    How else does Duke recognize major donors?
A:    The James B. Duke Society, named for Duke University’s founder, was created to
      recognize individuals whose cumulative gifts and pledges to all areas of Duke University
      total $100,000 or more. Members of the James B. Duke Society are invited to campus
      once a year for a special celebration recognizing their generosity and their close ties to
      Duke.



Endowment Management

Q:    What is the mission of Duke’s endowment?
A:    The mission of Duke University’s endowment is to support the university’s activities in
      perpetuity while maintaining intergenerational equity.


Q:    Who manages Duke’s endowment assets?
A:    Duke’s endowment assets are managed by DUMAC, LLC, a professionally-staffed
      investment organization controlled by the university. While past performance is no
      promise of future growth, Duke’s endowment has consistently been one of the top-
      performing university endowments in the nation. To learn more about DUMAC, visit
      http://www.dumac.duke.edu.
                                          Endowment Funds at Duke: Frequently Asked Questions | 4




Q:   How has careful endowment management, coupled with philanthropic support,
     benefitted the university?
A:   Thanks to additions to Duke’s endowment and the careful management of these
     permanent resources, the annual payout on the university’s endowment has increased
     from $23 million in fiscal year 1988 to $48 million in fiscal year 1998 to $149 million in
     fiscal year 2007.

     Over the years, the growth of Duke’s endowment has enabled the university to improve
     financial aid packages, build its faculty, launch programs and research efforts, and
     support a wide range of important needs. In 2007, the following areas received the
     greatest amount of support from endowment spending:
             •       Instruction/Research/Professorships
             •       Student Aid
             •       General Operations
             •       Special Programs
             •       Libraries
             •       Sponsored Research
             •       Duke University Health System
             •       Student Services
             •       Operations & Maintenance of Plant
             •       Training Programs


Q:   Once an endowment is activated, how much is spent each year?
A:   The spending rate for Duke’s endowment varies from year to year. Between fiscal year
     1998 and fiscal year 2007, the “effective spending rate” on Duke’s endowments – the
     payout as a percentage of the year’s beginning market value – averaged 4 percent.

     However, it is important to note that the spending rate is not determined solely by the
     current market value. Each year, the Duke Board of Trustees sets a spending rate for
     endowments based on market performance over a period of years and the payout amount
     of the previous year. Duke’s spending policy, like those of many similar institutions,
     limits the amount the payout can change from one year to the next. This policy smoothes
     the effect of yearly market fluctuations and allows Duke to build its endowment in
     periods of economic strength so that the university can still rely on its endowment for a
     stable stream of income during periods of economic downturn.

     Duke’s spending policy is expressed in terms of participation units or shares of the
     university’s long-term investment pool. Currently, Duke calculates 5.5 percent of the
     average unit market value for the previous three calendar year ends, with the stipulation
     that spending per unit generally may not increase by more than 10 percent from the
     previous year.
                                          Endowment Funds at Duke: Frequently Asked Questions | 5


     This means that in years of particularly high returns, the percentage of the endowment’s
     market value that is spent actually decreases because spending cannot increase by a large
     percentage over what was spent the previous year. In a series of years of particularly
     high returns, this discrepancy increases – the endowment grows rapidly because higher
     earnings are being returned to its principal; with that growth, the limitations on spending
     mean that, although a higher dollar amount is spent each year, that spending represents a
     smaller percentage of the endowment market value.


Q:   Exactly how is the spendable income used?
A:   The spendable income from each endowment fund is used to support the fund’s direct
     costs, as well as a portion of indirect costs. Distributions from scholarship endowments,
     for instance, generally fund full or partial scholarship grants and support indirect costs
     associated with those grants. Distributions from faculty chair endowments generally
     support the salary and fringe benefits of the chair-holder and other expenses relating to
     the chair-holder’s teaching and research. The size of a particular student’s grant or a
     particular faculty member’s salary will be determined by the university, of course.
     Endowment distributions will be used to help meet the cost.


Q:   Will Duke spend more of its endowment in the future?
A:   The Duke Board of Trustees reviews the spending rate every year. In recent years, there
     have been adjustments to the spending rate to increase distributions, particularly for
     financial aid. The university is aware of and opposes legislative calls for national
     mandatory endowment spending rates.




                                                                                  updated 5/12/08