Financial management of trust funds

The University's trust funds hold its endowment capital. Endowments are gifts given in order that an income might be generated and applied in delivery of the trust purpose. They are intended to support recurrent activities into the long-term future.

Endowments come in two forms: permanent endowment, where the capital may not be spent, and expendable endowment, where the trustee has discretion to use the capital where this is assessed to be in the best interest of delivering the trust purpose.

Almost all of the University's permanent endowment and the majority of expendable endowment is 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.

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.

The Deposit Pool is also where income generated by an endowment is held until spent.

For some expendable endowments, and certain large income gifts, the Strategic Capital Account might 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%.

Decision-making on the appropriate placement of funds into investment vehicles is one part of the University's trustee responsibilities that is not wholly delegated to boards of management.

All endowments are held on a central cost centre in Oracle Financials and allocated a unique ‘Source of Funds’ code, which is prefixed with the letter B to distinguish them from other funds.  The natural account used depends on whether the endowment is permanent or expendable, and how it is classified in accounting terms.

In conjunction with Trusts Management, the Financial Reporting Section is responsible for:

• arranging for the capital of each trust fund to be invested in accordance with the decisions taken by the particular Board of Management;
• advising Boards of Management of the number of Oxford Endowment Fund shares purchased (where appropriate) and the B source of funds code allocated;
• accounting for the investment income from all sources and allocating it quarterly against expenditure claims;
• providing quarterly ‘Income and Expenditure’ statements, with details of share prices and dividends
• providing forecasts of income for budget purposes.

In order to claim income from a trust fund, departments must charge legitimate costs authorised by (or on behalf of) the Board of Management to the appropriate B source of funds code using their own departmental cost centre.  At the end of each month, income is transferred to the relevant fund to meet the actual expenditure charged during the previous quarter.  The amount of income transferred each month will depend upon (i) the actual revenue received from shares in the Oxford Endowment Fund and other investments, and (ii) actual expenditure charged to the source of funds code. 

The costs in exceptional cases, can be journaled to the trusts e.g. posting correction, recharges, infrastructure charges (where they are permittable), please refer to the Use of Trust Income to cover the infrastructure charge guidance, published on the trust website.

Departmental coding to trust funds should be limited to expenditure natural accounts (i.e, beginning with 5, 6, 7, 8 or 9) The recharges code (99600) should not be used. Where costs are being recharged, please use the natural accounts which were originally used e.g. grant, salary costs, consumables etc. This is to ensure transparency around the nature of the transactions allowing comparison with the trust regulation on allowable costs. The correct allocation of costs will also be reflected in the trust statement.

If the revenue is equal to or greater than the expenditure at month end, then the costs will be covered in full, with any surplus revenue remaining in the trust account for future expenditure.

If the revenue is less than the expenditure, then only the actual revenue will be transferred. Remaining expenditure will be matched in a future month as more revenue becomes available. At year end, any expenditure in excess of revenue available will be recharged to departments, unless (in the case of expendable endowment) a board of management has determined that the costs be covered from capital in the best interest of delivering the trust purpose.

In accordance with the Financial Regulations, all cash gifts and grants must be notified promptly to the Gift Registry. The Gift Registry is responsible for recording details of the gift and the wishes of the donor on the Development and Alumni Relations System (DARS). Where applicable it arranges for the recovery of Gift Aid through HM Revenue & Customs and adds this to the original donation.  This information is exported from DARS into the Oracle Financials system. 

The vast majority of income gifts are transferred by the Gift Registry to the relevant department and treated in line with the financial processes for donations.

For all endowment gifts and some large income gifts, following consultation with Trusts Management and Financial Reporting, the capital is transferred by the Gift Registry to specific trust fund accounts so that the money can be invested and accounted for appropriately.  Where the gift is subject to its own bespoke trust arrangement, this transfer is usually followed by the creation of a Trust Regulation to record the terms of the trust. For gifts held in the University of Oxford Development Trust Fund (see ‘OUDT’), the terms and management arrangements are recorded in an OUDT record form; a Trust Regulation is not required as a new trust is not being created.