Spending Policy for the Long Term Fund
The spending policy for an endowment specifies the methodology for determining what amounts are to be distributed for annual spending purposes. This is to ensure that the purchasing power of the endowment’s corpus is maintained.
Current Policy
Effective July 1, 2005
A rate of distribution (percent of assets) that reflects an achievable and sustainable level of real investment returns is to be determined. Real investment returns are those achieved over and above the relevant rate of inflation. The most relevant rate of inflation for University-related costs is the Higher Education Price Index (HEPI). HEPI is expected to roughly equal the Consumer Price Index (CPI) plus one percent over time. The spending rate should also be applied in a manner that helps smooth the volatility of the dollar level of annual distributions that may otherwise result from Fund market value fluctuations.
The spending rate is to be four percent (4%) per annum. This percentage is to be applied to a trailing three-year moving average of Fund market valuations (12 quarterly valuations) to determine the dollar value of the annual distribution. Investment income from the Fund plus proceeds from security sales as needed may be used to provide the required distribution. Realized annual investment returns above (below) the spending rate, will increase (decrease) the market value of the Fund’s corpus.