Endowment Payout Process @Stanford

Calculate Maximum Payout

An automated process evaluates each fund that is invested in the Merged Pool, and calculates the maximum monthly payout amount using the Board of Trustees approved annual payout per share, divided by 12, and multiplied by the number of shares held at the beginning of that given month.

Evaluate Payout Resources

An automated process evaluates each fund that holds Merged Pool shares, by share type, to determine how much the fund has in available earnings and appreciation, referred to as "payout resources." Note that some funds are only eligible for the earnings portion of payout (e.g., Pool A funds and non-endowment funds invested in the Merged Pool). The amount of payout not covered by earnings* is taken from available appreciation, quasi shares, and/or, when allowed by the donor, from the fund's corpus (in effect, borrowing against future market appreciation).

* Earnings typically make up a small percentage of the total payout per share (~15%).

Resources are calculated as follows:

Allocate Payout to the Income Fund

Once maximum payout and available payout resources are calculated for a fund, payout is allocated as follows:

If payout resources ≥ maximum payout amount, the fund receives full payout (earnings and appreciation components, as eligible by fund type). The vast majority of endowment funds have sufficient resources to cover full payout.

If payout resources < maximum payout amount, the fund receives earnings and any available appreciation. Undistributed payout is reinvested into the fund in the next step (Step 4).

The Merged Pool share value declines as payout is distributed. The monthly calculation to determine fund / share value also incorporates market fluctuations (appreciation / depreciation) and earnings, thus share value also increases or decreases with market performance. Learn more about Share Value Calculations.

Note:  Fund holders may spend the full anticipated annual payout amount at any time during the fiscal year, although they must cover any deficit at year-end if actual payout is less than anticipated.

Reinvest Undistributed Payout

Funds that do not receive full payout for the month have the undistributed payout portion reinvested in the fund to purchase new shares. The purchase of new shares offsets the decrease in share value that results from the distribution of payout. Learn more about Share Value Calculations.