How should endowed institutions decide how much to spend? In the linked article from the November 2022 issue of the Journal of Portfolio Management, Larry Siegel and I set forth a method for achieving the desired balance between the obligation to provide for the future and the powerful call of the present. The abstract is below. The article in pdf form is click here.
“The trustees of an endowed institution are
the guardians of the future against the claims of the present.” –James Tobin,
winner of the 1981 Nobel Prize in Economics.
Tobin’s thoughtful admonition that endowment trustees should protect the spending power of the endowment for all time can’t be implemented in practice given today’s aggressive investment policies. But endowments can successfully combine spending policies and investment policies to meet that objective at some engineered level of probability.