Endowments come in two forms: permanent endowment, where the capital may not be spent, and expendable endowment, where the capital may be spent if it is considered to be in the best interests of the trust.
Almost all permanent endowments are invested in the Oxford Endowment Fund ('OEF'). This is a unitised investment vehicle constituted under section 2 of the Universities and Colleges (Trusts) Act 1943, which allows the University to manage collectively the assets of trusts administered both by the University itself and by other trustees for purposes connected with the University.
The Oxford Endowment Fund is managed by Oxford University Endowment Management Limited (‘OUEM’), a wholly-owned subsidiary company of the University, under investment and distribution policies set by the Investment Committee of Council. It is suitable for long-term investments of at least five years. The Investment Committee has established an investment policy and related asset allocation strategy which is designed to achieve a target 5% real rate of return over the long-term, with an expected maximum level of volatility of the MSCI World Index. OEF aims to distribute approximately 4% of assets to investors each year, subject to a smoothing formula designed to minimise the effects of capital value volatility on yearly payouts.
The latest Annual Reports for the Oxford Endowment Fund, which include further information about the Funds and their performance since inception, can be downloaded from the OUEM website here.
The University is able to invest new money in OEF on a quarterly basis throughout the year. The document, Timeline for OEF investments, summarises the deadlines for investment, and the timing of dividend payments to the University and on to individual departments.
The majority of expendable endowments are also invested in OEF. The designation expendable endowment is not an indicator that the University is expected to spend down the gift, but that the University has the option of spending capital where it is in the best interest of the trust to do so.
Where a sum of capital has been identified for expenditure in the short- to medium-term then the money will usually be held in the Deposit Pool, the University’s cash investment vehicle, so it can be accessed at short notice. The Deposit Pool is invested in conventional money market instruments such as bank deposits, certificates of deposit, and treasury bills, and is managed by the Treasury Section, under delegated authority from the Finance Committee.
For some expendable endowments, and certain large income gifts, the Strategic Capital Account may be a more appropriate investment vehicle. This Fund is also managed by OUEM and is suitable for medium-term investments of around 2-5 years. Its investment objective is to generate growth of 3%.