What is an Endowment?

And why is it so important for Baylor?

Many of the highest priorities of the Give Light campaign are centered around growth in endowed funds. Endowed funds support faculty, provide student scholarships, sustain student programs, and are the building blocks of new initiatives. But beyond knowing it is a financial term, many may not know what an endowment is and why it is important for Baylor’s future. 

Baylor’s endowment topped $1.31 billion for fiscal year 2018. Here’s a quick Endowment 101 (adapted from a Baylor Proud post) covering what endowment is and what it is not:

1. The most common misconception — An endowment is not a bank account, with money waiting to be used for any need that arises. The vast majority of the endowment is earmarked for very specific purposes, so Baylor can’t use it for a new building, for example, or tap into it to relieve financial stress. Money donated for a particular purpose can only be used for that purpose.

2. The endowment is an investment and important areas such as student scholarships and faculty chairs are funded each year using the annual return on that investment.

For example, someone donates $100,000 for scholarships. The money could be distributed in its entirety in year one, and they’d have given $100,000 in scholarships but have nothing left for future years. But when the funds are invested in the endowment, it generates scholarships in perpetuity. If the return on that investment is about 10 percent each year, half of that (5 percent) would be distributed to students as scholarships each year (that would be $5,000 the first year), and the other 5 percent is added to the investment to keep it growing. When that happens year after year, both the original amount and scholarship distributions grow. After 15 years, students will have received more than the original $100,000 in scholarships — and the original amount will have doubled, providing for students for generations to come.

3. The endowment isn’t a single investment. Baylor has roughly 4,500 different endowed funds — scholarships, faculty chairs, professorships and other funds to meet specific University needs. Each is managed, to best care for the funds according to the stipulations provided by the original donors.

4. Baylor has a team of professionals managing the endowment to ensure its growth. The professionals in Baylor’s Office of Investments have managed the portfolio with an eye toward stewardship and long-term growth. Over the last 15 years, that team has outperformed the average U.S. endowment for the benefit of Baylor students, faculty and programs.

5.  $1.3 billion sounds like a lot, and it does provide for many University needs. When looking at endowment per student, Baylor lags behind its peer institutions. The Give Light campaign is emphasizing endowed gifts — faculty chairs, scholarships and more — so that the funds raised today benefit students now and for generations to come.

Learn more by checking out Dr. Brian Webb, vice president and chief investment officer, on the Baylor Connections podcast at baylor.edu/connections.