Investment Performance and UPMIFA. Crossroads University is a tax-exempt, private university. An excerpt from Note 5 “Endowment Fund” of its 2007 audited financial statements is as follows:
State law allows the board to appropriate investment income and as much of the net appreciation as is prudent considering the University’s needs and general economic conditions. Under the University’s endowment spending policy, approximately 4 percent of the value of fixed income investments and 4.5 percent of the value of equity investments is appropriated to support current operations.
The state adopted the 1972 Uniform Management of Institutional Funds Act (the Act). Under the provisions of the Act, appreciation of permanently restricted endowment net assets is considered unrestricted unless the applicable gift instrument specifically states such appreciation should not be spent. This appreciation continues to be invested in the University’s pooled endowment.
Required
a. Has the state in which your college or university is located adopted the 2006 Uniform Prudent Management of Investment Funds Act (UPMIFA)?
b. How will Note 5 change for Crossroads University if it adopts UPMIFA?
c. As a potential donor to the university, you are considering a gift that will be permanently restricted. What questions would you ask of the investment manager with respect to the investment performance of the endowment?