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Index > Governance Policies > Endowment Spending Policy

Endowment Spending Policy


The objective of the Endowment Spending Policy is to ensure a consistent and predictable source of funding with limited changes from year to year, while insuring intergenerational equity by balancing current and future real levels of spending.

Policy Statement

It is recognized that RISD’s investment objective and spending policy need to be in balance in order to have a reasonable chance of achieving RISD’s long-term financial objective. It is further recognized that given the inherent volatility of capital market returns, there could be extended periods when the realized investment returns would deviate significantly from the spending rate.


Average market value -- refers to the pro rata portion of pooled cash and investments plus any direct cash and investments held by an endowment fund. The total value of pooled cash and investments will be the amount provided by RISD’s investment management firm in their quarterly report.


The base spending rate for endowments is 5% (through FY23 at which time it reverts to 4.75%), except for any endowments that are underwater (market value below historical gift value) at the end of the trailing 12-quarter measurement period. Endowment spending will be computed as the trailing 12-quarter average market value as of 12/31 of the current year multiplied by the spending rate. The base endowment spending computation will be done separately for each endowment fund.

The Investment Subcommittee will review the Endowment Spending Policy periodically. Special situations may necessitate an amendment to the Endowment Spending Policy as deemed appropriate by the Board of Trustees.


Underwater Endowments
At the end of the trailing 12-quarter measurement period any donor-restricted endowments that have a market value less than their historical gift value shall be considered underwater. If the draw would reduce the value of the endowment below historical gift value, spending will occur up to the point of historical gift value. Underwater endowments will be not be drawn from unless a special exception is made by the Board of Trustees Finance Committee in accordance with Rhode Island Uniform Prudent Management of Institutional Funds Act (UPMIFA).In this instance, RISD must have a prudent plan in place to provide evidence why spending below historical gift value is in the best interest of RISD. In the event a fund’s market value is below the historical value of the fund, the difference may be funded by the unrestricted portion of the RISD Endowment.

Spending Calculation Method for New Endowment Funds
New gifts for endowment funds will be placed in the endowment funds as soon as received and will be invested for a minimum of one year. Spending from new endowment funds or additions to existing endowment funds will be based on the average market value over the previous 12-quarters multiplied by the spending rate. For example, if a gift was received in March 2018, the average endowment value would be calculated as of 12/31/18 for the previous 12-quarters. The 12-quarter average market value will be substantially below the 12/31/18 market value in an effort to allow for endowment growth. The full value spending of the endowment will not occur until year 4 after the gift is received or, in the case of a multi-year pledge, the commitment has been fulfilled. If the endowment is underwater, no spending will occur. If the draw would reduce the value of the endowment below historical gift value, spending will occur up to the point of historical gift value.Please see Appendix A for examples.

Relationship to Other Policies
The Endowment Spending Policy will align with the Investment Policy, Naming Policy and Gift Acceptance Policy including the following from the Naming Policy and accompanying procedures approved June 1, 2019:

General Endowments: The minimum donation to establish an unnamed endowment is $50,000

Named Endowments: With the exception of book (Library) and collection (Museum) endowments, which may be named for a minimum donation of $25,000, the minimum donation to establish a named endowment is $100,000. Certain academic programs (e.g. professorships, scholarships, fellowships) have specified endowment minimums. Funds that do not meet the minimum established threshold at the origination of the endowment will not have the name of the donor or endowment shared publicly in ways consistent with how endowments are typically shared publicly until the endowment has achieved the minimum endowment level. Endowments below $100,000 will not receive stewardship reporting from the Division of Institutional Advancement until the fund reaches the minimum endowment.

Naming donations may generally be announced once fifty percent of the minimum funds for naming are received by RISD. In the event that a donor does not complete the donation at the minimum donation level for naming, the Gift Acceptance Committee will review the gift and intention of the donor and

determine if and how to recognize the donor in a manner consistent with the donor’s intention and donor recognition levels.

Stewardship Considerations
The donor may choose to supplement the endowment gift with current-use funding to cover the differential between the desired spending level and the calculated spending level based on the 12-quarter average. Should an endowment be deemed underwater, for stewardship and donor relations considerations, RISD may wish to allocate unrestricted funds to replace endowment income until the endowment resumes producing income.

Fund Distribution

Fund distributions will provide funding for grants, capital, financial aid, operating, museum and administrative costs of the RISD’s programs. Investment-related expenses (e.g. investment manager and investment consultant fees, custody charges, what about assessments for capital, funding IE, etc.? etc.) will be charged against investment return. One half of the annual endowment spending will be drawn on the business day closest to July 15th. The other half of the annual endowment spending will be drawn on the business day closest to January 31st.

Revision history

This policy was created on: 7/1/2019

This policy was approved as of: 10/9/2019

Next scheduled review: Annually or as necessary


Issuing Office

Division of Institutional Engagement

Responsible Officer

Vice President of Institutional Engagement

Individuals/offices required for review and changes

Senior Vice President, Finance and Administration

Investment Subcommittee of the Board of Trustees