Investment Office

While endowments are fundamental to the operations of many nonprofit institutions, including colleges and universities, we know that conversations about “external investment managers,” “restricted funds,” “payouts” and other aspects of endowment management benefit from an understanding of common terms. Here, the Investment Office offers a primer on some terms that lead to some frequently asked questions about Brown’s endowment. 

The Brown endowment

An endowment is a charitable contribution of money or property to a non-profit organization that is invested to allow a distribution of income for designated purposes. Brown University’s endowment is primarily a collection of donations given since the founding of the University (in 1764) by alumni, parents, students and friends. The endowment contributes annually to the University’s operating budget through more than 3,000 discrete accounts established for a wide variety of purposes, including both donor-restricted endowment funds and funds designated by the University’s governing board to function as endowments.

Distributions from Brown’s endowment fund a significant portion of the University’s financial aid budget each year. Other endowments established at Brown in recent years include funds to support the retention and recruitment of faculty; to support clinical practice, research and public education to confront the urgent health needs of children; to expand research and teaching on such national and international issues as economic uncertainty, new global security threats, environmental degradation and poverty; and to support teaching and real-world applications of entrepreneurship and innovation, among many other uses.


The payout is the amount distributed from the endowment to support its designated purposes. Brown’s payout is governed by a policy that considers both the long-term and short-term needs of the University. Brown sets the payout between 4.5% and 5.5% of the average of the total endowment market value for the 12 prior quarters. This aligns with Rhode Island law (the state’s Uniform Prudent Management of Institutional Funds Act), which requires the University over time to maintain the purchasing power of each initial gift to the endowment. This stewardship of the endowment enables Brown to meet its obligations to financially support the University’s faculty, student body and academic infrastructure over the long term.

Restricted funds

Restricted funds are those that are permanently restricted by the donor to be a part of the endowment for a designated purpose. The earnings, or payout, on these funds must be used in accordance with the restrictions imposed by the donors. Brown must manage and maintain these gifts in perpetuity, and by law, the University cannot invade the principal of each original gift adjusted for inflation. The earnings on each permanently restricted endowment must be used in accordance with the donors’ stipulations — for undergraduate financial aid or faculty salaries, for example —and may not be used for a purpose different than the one stipulated by the donor(s).

Brown’s endowment also includes some gifts that have been temporarily restricted by a donor. These gifts include donor-imposed stipulations as to the timing of their availability and use for a particular purpose. The University is obligated to honor these stipulations and cannot use the funds for a purpose other than the donor-imposed restriction.

Unrestricted funds

Assets in the endowment for which a donor provided no restrictions as to their purpose are called unrestricted funds. While the vast majority of funds in Brown’s endowment were given for a restricted purpose, unrestricted funds provide the University with the flexibility to support the full range of University needs and priorities as they arise.

Investment Office

The University established a professional investment office in 2000 to manage the endowment and provide oversight of other financial investments of Brown. The Investment Office, a department of the University, maintains internal controls to monitor the endowment and ensure that it is in compliance with investment policies at all times. The office also hires and oversees the endowment’s external investment managers. 

External investments and external investment managers

Brown’s endowment is primarily invested with external investment managers and passive indices. An investment manager, which may be a firm or individual, makes investments in public stocks, private companies, credit instruments and real estate on behalf of its clients. Brown’s external managers regularly buy and sell investments as needed, and monitor overall performance of the funds they manage, aiming to meet the investment objectives and parameters of their clients. The Investment Office hires and oversees these external investment managers, based on asset allocation ranges, liquidity and risk guidelines set forth by the Investment Committee of the Corporation of Brown University. The Investment Office places a high value on consideration of ethics and Environmental, Social and Governance (ESG) criteria when evaluating managers.

Direct investments

Brown’s Investment Office makes direct investments to access opportunities not readily available from external managers or when such investments are more cost effective. This represents a small portion of the University’s endowment. These investments are made by the staff of investment professionals in the Investment Office and are subject to the same investment policies governing the majority of Brown’s endowment invested by external managers.

Index investing (passive investing)

The S&P 500, Dow Jones Industrial Average and Russell 2000 are examples of widely-quoted stock market indices. Index funds are low-cost investment vehicles that seek to closely track — rather than attempt to exceed — the market index, and are therefore considered passive investments. While the Brown endowment is primarily invested with external investment managers, the Investment Office in some circumstances may invest in low-cost index funds to achieve a desired investment result.

Investment return

The investment return is the measure of the efficiency or profitability of an investment; it measures the gain or loss generated on an investment relative to the amount of money invested (the principal). Brown and other higher education institutions annually provide a benchmark of the endowment’s performance by reporting the investment return. Brown’s investment portfolio is designed to anticipate multiple scenarios that unfold over many years, and to include multiple engines of return that should compensate for each other in a diverse array of circumstances.


Environmental, Social and Governance (ESG) principles are a framework for assessing how a company or business performs in areas of societal impact. Investment managers who employ ESG strategies consider environmental, social and governance criteria in their analyses and evaluations of investments. The Investment Office places a high value on these criteria when evaluating managers.