What is an endowment?

An endowment is gift given by a donor with the legal requirement that original value of the gift (the principal) never be spent, but, rather, invested for the purpose of generating a permanent return on investment. Endowed gifts may be restricted to a specific purpose or unrestricted in nature. They are particularly important to the Foundation due to their permanency.

The Foundation’s spending policy is set at 4% of the 3-year moving average market value of the endowment portfolio. In addition, 1% covers administration costs incurred internally, including fees paid to investment managers. The spending rate of 4% has been set so that, regardless of the average inflation over a given number of years, the Foundation is still able to generate a significant and reliable flow of income, thus allowing it to make long-term plans.

How is an endowment invested?

The Board of Trustees of the Douglas Mental Health University Institute Foundation has the fiduciary responsibility for investment of its endowments. In its endowment management, the Foundation seeks to maximize the following:
  • Long-term total return
  • Actual purchasing power of the endowment
  • Security of the endowment spending allocations from the generated return on investment (ROI)
To accomplish this, the Foundation invests its endowment using diversified portfolios of assets comprised primarily of equity and fixed income. Although equity markets are prone to fluctuations, they produce the greatest total return in the long run.

To carefully manage its investments, the Foundation relies on the expertise of its Investment Committee, which acts according to a policy approved by the Board of Trustees. The Foundation has achieved good long-term returns on its endowments.

The Foundation's Reserve Fund

In 2006, the Foundation set up a Reserve Fund to which is added investment revenue that exceeds the minimum performance targets set by the Investment Committee. In years of high returns, the Fund grows. When the investment portfolio does not achieve minimum targets because stock markets drop, the Foundation withdraws from the Reserve to maintain its payout rate. This reserve fund mechanism ensures projects continue to receive the funding donors intended even in recession.

Unitized Investment Pool

Endowments are invested and managed using a unitized investment pool, very much the same way as mutual funds. Each individual endowment owns units in the pool, which are revalued at each month-end, at which point new endowments may enter into the pool using the month-end value of a unit. As unit value appreciates, fewer units can be bought with the same amount of money.