The New York State statute (the "Act") enacting NY's version of the Uniform Prudent Management of Institutional Funds Act ("UPMIFA") will undoubtedly impact the way not-for-profit institutions manage their endowment funds. The Act makes significant changes to the decades-old New York Not-For-Profit Corporation Law, providing, among other things, that institutions such as museums and universities are no longer required to seek a court order prior to invading the principal of an endowment fund when it is "underwater" (previously there was a bright line rule against doing so without first obtaining court approval). This gives trustees increased flexibility to manage endowment funds though governing boards are "still required to balance historic market performance and the need for current income against inflation, preservation of capital, and a number of other factors." The adoption of the Act also requires that major gifts be given "more attention than in the past and some charities will need to revist their investment strategies for these gifts."
Although not-for-profit institutions generally fall outside the scope of this blog, I nevertheless decided to cover this piece of legislation because several commentators have expresssed concern about how the Act will affect charitable donations, an issue pertinent to many art collectors in New York and elsewhere. Lee Rosenbaum, for example, has said that the new law will encourage "disregard for donor intent." However, according to Nixon Peabody, the Act is "more donor-favorable than perhaps any in the nation" i.e. DC and the 47 other states that have already enacted their own versions of UPMIFA. The Act contains detailed notice requirements under which donors are given special notice prior to "court-ordered and other modifications of restrictions" and charities will need to obtain donor consent to release or modify "certain restrictions in a gift instrument." For more information, click here to read Simpson Thacher's thorough analysis of the Act.