On Sunday, May 3, the Iowa Legislature passed Senate File 2453, which would require Iowa State University, the University of Iowa, and the University of Northern Iowa to invest a portion of their foundation-managed endowment assets in state-certified innovation funds. SF 2453 was one of the final bills passed by the legislature during the 30-plus-hour marathon effort to adjourn session. The bill now awaits the Governor’s signature, which is due by Wednesday, June 3. If signed into law, the measure would take effect on December 31, 2026.
At its core, SF 2453 directs each regent institution to ensure that no less than one percent of its total foundation-managed endowment assets are invested in one or more state-certified innovation funds by July 1, 2027. The legislature’s stated purpose is to support economic growth in Iowa by utilizing university endowments to invest in funds designed to promote the growth of high-potential early-stage companies, commercialize research, expand Iowa’s technology ecosystem, and enhance economic competitiveness.
The bill was amended by the Iowa House to clarify the scope of the bill by redefining “endowment assets” to mean only assets typically considered endowment funds under applicable fiduciary and accounting standards. However, this category still captures tremendous value with over $3.5 billion currently being held in the three institutions’ endowments. The non-partisan Legislative Services Agency predicts that $39.2 million would need to be invested into innovation funds under the bill. The bill also provides compliance flexibility, allowing a one-year waiver if investment capacity is not present or if market conditions would materially impair prudent investments.
Key Requirements
The one percent allocation must be calculated based on the average quarterly market value of endowment assets for the most recently completed fiscal year. Endowment assets subject to donor restrictions or other expressions of donor intent that are contrary to such investment are excluded from the calculation. If the percentage of allocation falls below the required amount after the compliance deadline, the foundation must increase its investment as necessary to meet the threshold.
Each foundation retains discretion over which innovation funds to invest in, when those investments are made, and how commitments are structured, so long as all investments comply with prudent investor standards. Foundations may implement the requirement through direct commitments, reallocation of existing assets, or rolling commitments as capital is called.
Each institution must submit an annual report to the State Board of Regents with investment details and the expected economic impact. The Board of Regents must then compile those reports and submit a consolidated annual report to the General Assembly by December 1 of each year. Annual reports are published on the legislative website.
Protecting Donor Intent
The bill explicitly provides that its implementation shall not alter donor intent and must be carried out consistently with applicable restrictions and fiduciary obligations. It further states that the law shall not be construed to alter beneficiary designations, institutional spending policies, or the permissible use of endowment distributions. The bill addresses only investment allocation and implementation consistent with applicable fiduciary standards.
Innovation Fund Requirements
To be eligible to receive an SF 2453 investment, an innovation fund must be certified by the Iowa Economic Development Authority. The legislation borrows from the Innovation Fund Investment Tax Credit (IFITC) program, for which innovation funds are eligible for investment. Which means, if a fund is eligible for the IFITC, then the fund will qualify to be counted towards the regent’s SF 2453 requirements. However, the fund must also support the commercialization of institution technologies, spinouts, or research-derived innovations.
If the Governor signs SF 2453, there would now be an added incentive for investment funds to structure themselves in compliance with the IFITC requirements in Chapter 15E in order to take maximum advantage of potential investments in addition to state tax credits.
The Iowa Economic Development Authority would maintain a public list of all innovation funds eligible for SF 2453 investments.
Looking Ahead
SF 2453 now sits on the Governor’s desk. If signed, it would mark the second major innovation fund incentive in two years, with the IFITC expansion last year. Legislators in the House and Senate mentioned their goal that Iowa innovators and businesses start and stay in Iowa as a key driver of economic growth. The legislators have again passed down legislation trying to carry out their goal of Iowa being a start-up leader, which presents a great opportunity for Iowa innovation leaders to take advantage of those pieces of legislation.
