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Research Summary

  • Plan Design

MissionPossible Fall 2013

December 01, 2013

Virtually every endowment and foundation wrestles with the same fundamental financial challenge: how to harmonize investment policy with spending policy. We undertook a research project to better understand the complexities of this issue in organizations where funding has unexpectedly increased or decreased.

We tested various combinations of asset allocation and spending policy to see their likely impact on both payout stability and long-term portfolio value. We identified certain sweet-spots that organizations might prefer for the way they balance the trade-offs. We also explored the relationship between asset allocation and total philanthropic value (TPV).

Our findings can help leaders at endowments and foundations better understand the trade-offs among their goals, sharpen their sense of their own priorities, and, in the end, make well-informed policy decisions.

The private foundation and donor-advised fund offer specific advantages in such areas as control, flexibility, operating costs, tax benefits, and perpetuity. Donors concerned primarily about control and perpetuity may favor a private foundation. On the other hand, those more focused on reducing costs and having the option to maintain anonymity will probably be more comfortable with a donor-advised fund. But the two vehicles can also be combined. In a low-return investment environment, donors can integrate a private foundation and a donor-advised fund in order to keep the level of their giving in step with their investment results.

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