How an endowment works

This step-by-step illustration outlines how an endowment gift works and the benefits that accrue to UAB, our students and the donor.

  1. A College of Arts and Sciences alumna makes a $25,000 gift (the minimum amount required for an endowed scholarship) to the Department of Biology to establish a named endowed scholarship in memory of her father.

  2. A gift agreement is drafted between UAB and the donor, guaranteeing that her gift will be added to the University’s Pooled Endowment Fund (PEF) and used solely for its stated purpose.

  3. The donor’s named scholarship fund buys units in the PEF, much as one buys shares in a mutual fund.

  4. The Board of Trustees’ Investment Committee prudently invests the donor’s gift across major asset classes in the portfolio to maximize long-term total return, within acceptable levels of risk.

  5. A predetermined portion of the annual return (currently calculated as 5% of the average market value during the previous three fiscal years) is used to provide a financial award for one biology student per year.  The fund’s principal remains intact.

  6. The remainder of the annual return is held with the named fund’s principal as a hedge against inflation and to generate growth and for protection during years with less than favorable or negative returns.

  7. The named fund continues to grow, ensuring future scholarship support.

As you can see, the advantages of an endowed fund are many. A deserving student receives financial support. The department can use the scholarship to recruit and retain top students. A steady revenue stream allows the College to plan for future needs. And the donor has created a living legacy.

This is just one way endowment gifts can support the university. Donors also can endow faculty chairs or professorships, graduate fellowships and research funds or support academic programs, student activities, the library, athletics and other programs or departments.

Learn more about creating an endowment with an outright gift, a multi-year pledge, or a bequest.