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Endowment Investment Performance

May 31 2024


Investing the Endowment

  •  Proposition 102 in 1998 made two significant changes in how the Endowment can be invested.

  • It allowed up to 60% of the endowment to be invested in equities.

  • It changed the distribution formula to protect the principal from inflation and contained a 4-year transition from the old formula to the new.

  • The measure also included:

o    A “Prudent Person” investment standard
o    Up to 60% may be invested in equity securities
o    Up to 100% may be invested in fixed income securities
o    Standards established for calculating ‘total return’ and ‘distributions’
o    Distributions equal to 5-year average total return – LESS – inflation (‘net return’),
o    Multiplied by the average (prior) 5-year market value of each Fund

  • The United States Congress amended the Enabling Act (the Act that admitted Arizona into the Union) to allow Prop 102 changes to go into effect.

  • Any change in distribution, management, or investment of the State Trust Land Endowment requires BOTH an Arizona Constitutional change and a Federal Enabling Act change.

Current Constitutional Guidelines

  • Article 10, Section 7 of the Arizona Constitution outlines the requirements for the investment and distribution of Endowment Funds.

    • Proposition 123, passed by voters in May 2016, added an additional 4.4% to this distribution, for a total of 6.9% per year from FY 2016 through FY 2025 and making permanent the 2.5% per year distribution starting in FY 2026.

    • Proposition 118 in 2012 amended the distribution formula to be 2.5% of the 5-year market value for each Fund for Fiscal Years 2013 through 2021.

  • The Board of Investment serves as the trustee of the Endowment.

  • The State Treasurer’s Office manages the investment activities.

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