Fundriver Balance Knowledge Base

DEFINITION of a Unitized Endowment Pool (UEP)

A system for tracking the value of endowment funds within a consolidated investment pool. A unitized system has mechanics similar to that of a mutual fund. Each endowment fund owns individual units (shares) in the unitized investment pool, and the units are generally valued monthly. The unit value, or unit price, is similar to the share price that forms the basis for how many shares can be purchased in the mutual fund model. New endowment funds, and new gifts to existing funds, buy units in the pool based upon the current unit value. Funds withdrawn from an endowment pool sell units based upon the current unit value of the pool.

The units, which represent the fund’s share of a unitized endowment pool, form the basis for allocating endowment pool earnings. Endowment pool investment earnings are allocated to funds proportionally based upon their share (units) in the pool.

Fundriver Balance provides two options for unitizing (also known as pricing models).  The most commonly used models available in the program are shown below.  The unitization model adopted by a client determines the timing that is used when buying/selling units.

Unitization Models:

BOM2 (Beginning of Month)

Units are bought and sold at the beginning of the period unit price before the allocation of investment activity for the period.

Earnings are allocated based on the new unit balance after gifts are unitized.

New gifts receive an earnings allocation in the current posting period. 

EOM (End of Month)

Units are bought and sold at the end of the current posting period based on the new unit price.

Earnings are allocated based on the prior month-end unit balance.

New gifts receive an earnings allocation in the subsequent posting period. 

How transactions typically impact units within Fundriver Balance:

• Gift, Distribution, Transfer and Expense transactions entered to individual funds impact units
• All other activity (interest/dividend, realized and unrealized gains/losses and investment fees) impact unit price

Which model is the best fit for your organization?

One area to review in determining the best model is cash flow. How frequently do you transfer cash from endowment activity to and from your investment portfolio? If you do not wire gifts on a monthly basis, End of Month might be a better fit. Another area to consider is posting frequency. How often do you update your endowment pool? Monthly, quarterly? If you update values on a quarterly basis, Beginning of Month may be a better option. Under a quarterly posting process, the End of Month model would result in a significant lag between a new gift being recorded and the receipt of an investment earnings allocation.

Fun fact; most of our customers (57% as of November 2021) operate with BOM2. 

Unitization Model

A pool is established with four endowment funds, each of which contribute $100,000 to the pool. The beginning unit price chosen is $1,000 per unit (Fundriver usually uses $100 or $50, but for the purposes of illustration a four-figure number works better).

Using the beginning unit price and initial contributions, Fundriver Balance is able to unitize the pool and calculate the number of units owned by each endowment.

Let's say that the following month, the market value of the pool is now $440,000. The pool value has increased by $40,000.

Since income/gains impact unit price, the value of each unit in the pool will increase.

The following period, a new endowment is added to the pool, also valued at $100,000 (Endowment E). Because the Unit Price is higher now ($1,100 per unit), $100,000 will only buy 91 units ($100,000/1,100). The total in the pool is now 491 units.

When it is time to allocate income again, let's say the market earned another $40,000. This will increase the unit price to $1,181.

Now it is time for spending distributions to be made from the same pool. Spending distributions typically sell units. In this example, the pool's spending calculation indicates that $29,537.04 needs to be distributed from all funds in the pool.

$29,537.04 (decrease in market value)/$1,181.48 (unit price)=25 units that need to be sold.  To figure out how that is allocated across the funds, you need to figure out what percentage of the pool is owned by each fund and then multiply that by the 25 units that are to be sold.

Fundriver Balance decreases each fund by the number of units calculated.

This can be complicated content to work through. We get it! Attached you'll find a model mock, use this template to work with your real numbers! Still need help understanding unitization and how it works in Fundriver, please contact Fundriver Support!