NCAA QUASI—ENDOWMENT POLICY
Adopted April ____, 2004
Background and Purpose:
As part of its strategic planning initiative, the Executive Committee has established a long-term goal of building a quasi-endowment for the future funding of the national office and student-athlete programming. With the concentration of its revenue from a primary source, the Executive Committee will build the quasi-endowment to ensure that the current infrastructure, membership or student programming can be supported indefinitely. An initial goal of $500,000,000 will be established for the quasi-endowment.
Funding:
The quasi-endowment will be initially funded from the assets of the former NCAA Foundation and the working capital reserve. Annual contributions will be from unbudgeted revenues and expenditure savings, in addition to an amount equal to 10% of the total operating budget, in accordance with the current practice for the working capital reserve. Fifty percent of these amounts will be deposited in the quasi-endowment with the remaining fifty percent available for other allocations, including Division I supplemental distributions. Distributions from the endowment fund shall be limited, except for extraordinary instances, until the initial goal is reached.
The objective of the quasi-endowment is to generate an annual total rate of return for the fund sufficient to produce the following results:
1. Finance distributions (and cover related operational expenses of the quasi-endowment) will be limited to $1,000,000, except for extraordinary instances, until the endowment fund goal is reached, thereafter 4.5% of the average market value of the quasi-endowment's 12-quarter moving average market value will be distributed;
2. Inclusive of the above, grow the value of the corpus by at least the annual rate of inflation (CPI) for that year; and
3. Inclusive of 1. and 2., cause the real value of the quasi-endowment to increase.
The above financial results should be sought without incurring a level of rate-of-return volatility materially greater than that generally associated with the investment programs of endowed entities. These results if not attainable in any given year, should be achieved on average over long periods of time to the extent allowed by returns in the broad markets.
The Executive Committee Investment Subcommittee shall assume the responsibility for establishing the investment policy that is to guide the investment of quasi-endowment assets. The investment policy describes the degree of investment risk that the subcommittee deems appropriate.
The investment managers appointed to execute the policy will invest the quasi-endowment assets in accordance with the policy and their judgments concerning relative investment values. In particular, the investment managers are accorded full discretion, within policy limits, to (1) select individual securities, (2) adjust the maturity mix, where applicable, and (3) diversify their portfolios.
The Executive Committee Investment Subcommittee has the responsibility to monitor the investment managers on an ongoing basis and to add, replace or eliminate managers when it is deemed appropriate to do so. The Executive Committee delegates the day-to-day implementation activities to the NCAA staff.
Allocation of Assets:
It is the policy of the Executive Committee Investment Subcommittee to invest the quasi-endowment as follows:
|
Asset Class |
Target Allocation |
Allowable Range |
|
U.S. Stocks |
48% |
45% - 51% |
|
Non-U.S. Stocks |
12% |
9% - 15% |
|
Total Stocks |
60% |
55% - 65% |
|
Fixed Income |
40% |
35% - 45% |
|
Total Fund |
100% |
|
Normal cash flows will be used to maintain the allocation as close as practical to the target allocations. If normal cash flows are insufficient to maintain the allocation within the permissible ranges as of any calendar quarter-end, balances should be transferred as necessary between the asset types to bring the allocation back within the permissible ranges.
Diversification:
The quasi-endowment is to be broadly diversified so as to limit the impact of large losses in individual investments on the total portfolio.
Liquidity Needs:
Cash withdrawals should be arranged to meet the fund's distribution needs. The source of moneys for these withdrawals will be based on rebalancing and cost considerations. Distributions from the endowment fund shall be limited, except for extraordinary instances, until the initial goal is reached.
Proxy Voting:
The Executive Committee delegates the responsibility for voting proxies to the individual investment managers. The Executive Committee expects proxies to be voted vigorously, in the best interests of the Quasi-endowment and in accordance with the investment restrictions described above.
Performance Evaluation:
Over reasonable measurement periods and net of investment management fees, the rate of return earned by the quasi-endowment is to match or exceed:
1. The rate of return of a benchmark comprised of the Wilshire 5000 Stock Index (48%), the Morgan Stanley Capital International (MSCI) Europe, Australasia and Far East (EAFE) Index (12%) and the Lehman Brothers Aggregate Bond Index (40%).
2. The median return of a universe of endowed funds.
The individual investment managers' rates of return will be compared with the returns of an appropriate market index.
Each investment manager employed to execute the policy is expected to maintain an organization of satisfactory nature with regard to personnel, philosophy, character and responsibility.
Estimated Quasi-Endowment
Potential Resources:
Association working capital reserve $45,000,000
Former NCAA Foundation $13,552,756
Total $58,552,756
Projected Endowment Size:
a. Budgetary needs:
Determine the amount of support that will become the target from the following options of needs:
Student athlete programming $24,000,000
Administrative functions $22,000,000
National office programmatic activities $45,000,000
b. Estimated endowment size:
Estimated annual funding required divided by a 4.5% distribution equals the endowment goal.
$22,500,000 + 4.5% = $500,000,000