Annual Payout Rate
The primary purpose of the Endowment is to provide a predictable and financially sustainable source of funding to support the University’s mission. The crux of this purpose is to provide a stable source of revenue for current operations while preserving the purchasing power for future generations. A new spending guideline that adjusts for evolving market conditions was adopted and approved by the Board of Trustees in fiscal year 2022 to take effect in fiscal year 2023.
The new guideline has a target spending rate of 5.10 percent, assuming budget growth of the Consumer Price Index (CPI) plus 1 percent, and adding both a cap (6.25 percent) and floor (4 percent) on the avail rate at the time the annual budget is approved. The new guideline calculates the amount of the endowment Northwestern spends each year as follows:
The spending component includes an inflation adjustment equal to CPI over the prior year’s endowment payout, plus 1 percent for budget growth. This change in the annual endowment payout carries a weight of 70 percent.
The market component is calculated by multiplying the long-term target spending rate of 5.10 percent by the endowment’s average market value for the prior 12 months. This component carries a weight of 30 percent in the spending rate calculation.
The new payout guideline generates an estimated total payout of $666 million for fiscal year 2023.