CashTrac CGA Market Values calculations explained
CashTrac CGA Market Values adjusts the Market Value of an organization's gift annuities to reflect the growth (or shrinkage) of the assets backing them since the last time they were adjusted. CashTrac CGA Market Values can perform this computation either of two ways:
1) Based on a total return percentage for the gift annuity investment pool net of fees.
2) Based on a target total market value for the gift annuity investment pool that CashTrac should match.
Each time you run CashTrac CGA Market Values, you enter a total rate of return percentage or total market value and the dates over which they apply. The routine then calculates and stores new Market Values for all of the selected organization's gift annuities.
GiftWrap calculates a gift annuity's new Market Value by increasing its Market Value by the appropriate amount, then subtracting any annuity payments that have been made during the period over which you are adjusting. The result is a new Market Value for each gift, which is stored in the Market Value field in the General tab of the Gift Information screen. A new Market Value Date is also stored in this tab; the new Market Value Date is the ending date you entered for the CashTrac Period.
By maintaining an ongoing estimate of the assets backing your gift annuity obligations, CashTrac CGA Market Values helps you plan investment strategy, assess the benefit of your gift annuity program to your institution, and determine the distribution amount when an annuity matures.
Specialized calculation options
Total Annuity Pool Interest/Dividends for CashTrac Period
Total Annuity Pool Fees/Expenses for CashTrac Period
Total Annuity Pool Gain/Loss for CashTrac Period
When you base a CashTrac calculation on a target total market value, you can, if you wish, allocate changes in market value to interest and dividends, fees and expenses, gain/loss in asset value, or any combination of the three. Making this sort of allocation does not affect the new market values determined for each gift annuity. It only adds detail to the CashTrac CGA Market Values Transaction Detail report regarding the source(s) of the changes in market values. These amounts are allocated on a basis similar to how investment returns are allocated in the CashTrac run.
Return Allocation for Gifts with Negative Market Values
Regardless of the computation method you choose, you must also indicate whether or not investment return should be allocated to annuities that have negative market values at the start of the CashTrac period. If you indicate that investment return should be allocated to these annuities, then you also must indicate whether a positive investment return should be allocated to these annuities as a positive or negative return and likewise with a negative investment return. Also, CashTrac will automatically assume that these annuities should be included when matching a total annuity pool market value (see Include Negative Market Values When Matching Total Annuity Pool Market Value below for the consequences of this assumption).
The interaction of these choices is complex and the resulting market value for individual gift annuities is difficult to predict. The simplest and arguably most logical approach is to allocate investment return only to annuities that have a positive market value at the start of the CashTrac period. In this case, the market value of each annuity that had a negative market value at the start of the CashTrac period will decline simply by the total amount of the annuity payments made during the CashTrac period.
Include Negative Market Values When Matching Total Annuity Pool Market Value
You also must indicate whether or not annuities that have negative market values at the start of the CashTrac period should be included when matching a target total market value for the pool. If you do not include the negative annuities, then the total ending market value of all gift annuities with a positive starting market value will equal the value entered as the target total market value for the gift annuity investment pool. The ending market values of the negative annuities can be ignored.
If you do include annuities that have negative market values at the start of the CashTrac period, the sum of the ending market values for all gift annuities in the annuity pool, including those that had negative market values at the start of the CashTrac period, will equal the value entered as the target total market value for the gift annuity investment pool. Doing the allocation this way ordinarily will cause the annuities with positive market values at the start of the CashTrac period to be allocated greater increases in market value than they would otherwise receive. The ending market values of the positive annuities may be overstated, as a result.
CashTrac period must be within a calendar year
The CashTrac period must be within a single calendar year. If you want to use a return % and the one you want to use spans two calendar years, split the return % and period into two parts and run CashTrac twice.
Example calculations
Compute new market values based on return % net of fees
Suppose today's date is 1/5/2009, and you run CashTrac CGA Market Values for the period 1/1/2008 to 12/31/2008. During this period, the assets backing your gift annuities have earned a total return of 9.2%. CashTrac CGA Market Values will make the following adjustments to the Market Value of a gift annuity that makes payments of $200 on 3/31/2008, 6/30/2008, 9/30/2008, and 12/31/2008 as follows:
1) Market Value before adjustment $10,000.00
2) add the return for the year (9.2%) + $920.00
$10,920.00
3) then subtract the payments made
during the stated period - $800.00
4) to obtain the new Market Value $10,120.00
Compute new market values to match a total market value of contracts at end of CashTrac period
Suppose today's date is 1/5/2009, and you run CashTrac CGA Market Values for the period 1/1/2008 to 12/31/2008. The annuity pool you are updating includes no annuities that have a negative market value at the start or end of the CashTrac period (including negative annuities complicates the calculations considerably). The total market value of all gift annuities in the pool that existed at any time during the CashTrac period of 2008 is $1,000,000. This is the sum of all the values in their respective Market Value fields. The market value of all gift annuities in the investment pool as of 12/31/2008 is $1,100,000. The user enters this value in the CashTrac CGA Market Values window.
Before adjusting the market value of any individual gift annuity, CashTrac CGA Market Values makes the following calculations:
1) Adds the total of all annuity payments made during 2008 to the $1,100,000 target market value. Assume the total annuity payments is $80,000, so this sum is:
$1,100,000 + $80,000 = $1,180,000.
2) Computes the adjusted change in market value. This is the difference between the sum in (1) and the total market value currently stored for all contracts that existed during the CashTrac period of 2008:
$1,180,000 - $1,000,000 = $180,000.
If all gifts existed for the entire CashTrac period, CashTrac CGA Market Values will make the following adjustments to the Market Value of a gift annuity with a market value at the start of the CashTrac period of $100,000 and that makes payments of $2000 on 3/31/2008, 6/30/2008, 9/30/2008, and 12/31/2008 as follows:
1) Market Value before adjustment $100,000.00
2) allocate pro rata portion of
adjusted market change* + 18,000.00 = ($100,000/$1,000,000) x $180,000
$118,000.00
3) then subtract the payments made
during the stated period - $8,000.00
4) to obtain the new Market Value $110,000.00
If some gifts existed for only part of the CashTrac period, CashTrac CGA Market Values weights each gift for the fraction of the CashTrac period it was in force, then adjusts the fraction of the return each gift will be assigned based on the total of all these weighted fractions.
For example, continuing the example above, if the one other gift in the pool was a $900,000 gift made with 183 days left in the year, its unadjusted weighted portion of the return is:
$900,000/$1,000,000 x 183/365 = .4512
The unadjusted weighted portion of the other gift is:
$100,000/$1,000,000 x 365/365 = .1
The total of the unadjusted weighted portions is:
.4512 + .1 = .5512
In order for the total of all the pro rata portions of the total return to add up to the total change we've targeted, the weighted portions need to add up to 1. To do this, CashTrac CGA Market Values adjusts each unadjusted weighted portion as follows:
Compute the adjustment factor:
1 / .5512 = 1.8142
Multiply each unadjusted weighted portion by the adjustment factor:
.4512 x 1.8142 = .8186
.1 x 1.8142 = .1814
The $900,000 gift will be assigned .8186 of the $180,000 total change in market value and the $100,000 gift will be assigned the other .1814:
The new market value of the $900,000 gift (which made $72,000 in payments in 2008) will be:
$900,000 - $72,000 + (.8186 x $180,000) = $975,348
The new market value of the $100,000 gift will be:
$100,000 - $8,000 + (.1814 x $180,000) = $124,652
Note that the total of the two new market values is exactly $1,100,000, the target amount we were shooting for.
Enhancing accuracy of CashTrac CGA Market Values adjustments
As shown above, CashTrac CGA Market Values subtracts all gift annuity payments made during an update period without regard to when they occurred during the period. Consequently, CashTrac CGA Market Values is most accurate when all gift annuities that make a payment during the update period make only one payment and make it on the last day of the period. For example, if your gift annuities pay quarterly, semiannually, and annually, at the end of standard calendar periods, CashTrac will produce the most accurate values if each update period covers exactly a full calendar quarter.
If it is impractical for you to run CashTrac CGA Market Values on the above basis (for example, because your gift annuity pay dates do not follow a set pattern), be aware that CashTrac CGA Market Values will be able to maintain only approximate Market Value figures for your gift annuities. Nonetheless, the more closely you can match CashTrac periods to the payment dates of your annuities, the more accurate your values will be. Regardless, these approximate values should be helpful in tracking the performance of each of your gift annuities and in determining distribution amounts when specific gift annuities terminate.