March 2011
Intermediate to advanced
368 pages
9h 45m
English
Chapter 14
Investing and Spending by Foundations
Foundations and other charitable institutions come in a variety of forms with a multitude of missions. But most of them have one thing in common: They hope to keep carrying out their missions over a long horizon. Their endowments are not infinite, so they must husband their resources by investing wisely and spending at a rate that is sustainable in the long run. They face three tough questions, the outcome of which will determine whether their programs can continue to be funded:
1. How much can the foundation afford to spend per year?
2. What type of investment portfolio will sustain that spending plan?
3. What risks might undermine these investment and spending plans?
This chapter will attempt to answer these three questions.
The spending policy of a foundation is related to its asset allocation. After all, a foundation that prefers to invest in very safe assets must realize that its spending policy has to be equally conservative. And a foundation that diversifies its portfolio may decide that it is able to sustain a higher spending rate than a foundation that sticks with very conservative investments. That’s the focus of this chapter. To what extent does the investment allocation determine spending policies, and to what extent do spending policies necessitate more or less aggressive allocations?
The spending plans of foundations are simpler to analyze than those of individual investors. That’s because in most cases foundations ...
