Endowment

Asset Allocation

The endowment and quasi-endowment funds are collectively invested (the Pool) in a mix of Vanguard funds to best achieve the objectives of the Endowment’s Investment Policy and to meet or exceed the performance expectations set forth therein. The Pool is invested with the goal of preserving the purchasing power of the funds while distributing a meaningful, stable flow of income to the Academy, carefully balancing current and future needs. To achieve this goal, the Pool seeks to achieve a total return (price appreciation plus dividends) that (1) equals or exceeds the spending rate, plus inflation, over a full market cycle and (2) equals or exceeds the average return of a composite benchmark weighted according to the target allocation over a full market cycle. The asset allocations for the pool as of June 30, 2020, are as follows:

Endowment Spending

The role of the Endowment is to distribute an amount annually to the Academy that fulfills donor intentions and supports the Academy’s general operating budget (the Operating Distribution) and to retire Bonds (see discussion below). The amount of the Operating Distribution is determined annually by the Board, taking into consideration both actual and projected results with respect to each of the following: (i) Endowment returns, gifts, distributions, and market value; (ii) Sewickley Academy operating and capital plans; and (iii) Bond covenants and other financial constraints.

The goal of the Endowment Committee is for the Operating Distribution to be set at an amount each year not to exceed 5% of the average market value of the Endowment, net of Bonds outstanding, for the trailing 12 quarterly periods.

Pursuant to Pennsylvania law, the Academy elected in 2004 to base its spending policy for the endowed portion of the Pool on a “total return” approach that takes into consideration capital appreciation as well as dividend and interest income.

In 1997, the Academy issued $9 million of tax-exempt debt (Bonds) to fund construction and renovation costs associated with the Academy’s last major building and facilities project. During that same timeframe, the Academy also conducted its last major capital campaign. As a result of the outpouring of unrestricted gifts, a decision was made to invest the majority of contributions ($6.4 million) in the Endowment rather than to repay the Bonds. The goal was and remains that the invested gift proceeds and the earnings they generate will exceed the annual debt service costs. These bonds were subsequently refinanced in November 2014. Each year, the Finance and Endowment Committees of the Board analyze whether it is more advantageous to the Academy to leave the Bonds outstanding or to repay them in advance of their scheduled maturity. Due to favorable tax-exempt interest rates, it is anticipated that the Bonds will continue being repaid as scheduled, with a final maturity date in 2022.

As long as these Bonds are outstanding, the Endowment distributes to Sewickley Academy sufficient funds to cover the Endowment’s portion ($6.4 of $9.0 million, or approximately 71%) of debt service and out-of-pocket costs associated with the Bonds.