Taking a Fresh Look at Spending Models

May 14, 2019  | by Commonfund

Industry Knowledge | Spending Policy

Investors have limited control over the returns their portfolios generate. They have more control over their spending. That doesn’t make it easy.

Compared to some earlier periods, volatility in the financial markets has been relatively tame over the past decade. Still, endowment returns have varied widely from year to year. Inflation has been relatively benign. But the largest component in many educational institutions’ budget is faculty salaries and benefits, which have risen more steeply. Gifts, too, have varied widely and the Tax Cuts and Jobs Act of 2017 introduced an unknown dynamic into the giving equation by limiting tax deductions. All of these factors have a significant impact on the spending levels of colleges and universities and other nonprofits. Given the challenges of this environment—and the one that may be anticipated in the years ahead—a session at Commonfund Forum 2019 was dedicated to looking at the various stress factors impacting annual spending from endowment.

The discussion was led by Lucie Lapovsky, Principal, Lapovsky Consulting, and former CFO of Goucher College in Maryland, and Steve Snyder, Manager Director and Head of Relationship Management at Commonfund. This Commonfund Forum Spotlight infographic highlights some of the main points of the session.

2019-05-07_10-02-26Spending Infographic-v2-02Spending Infographic-v2-03Spending Infographic-v2-04

Large institutions represent endowments over $1 billion while small institutions represent $51-$100 million unless otherwise indicated.

Source: 2018 NACUBO-TIAA Study of Endowments.

 

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Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.

Disclaimer

Information, opinions, or commentary concerning the financial markets, economic conditions, or other topical subject matter are prepared, written, or created prior to printing and do not reflect current, up-to-date, market or economic conditions. Commonfund disclaims any responsibility to update such information, opinions, or commentary. To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated in this material. Forecasts of experts inevitably differ. Views attributed to third parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Managers who may or may not subscribe to the views expressed in this material make investment decisions for funds maintained by Commonfund or its affiliates. The views presented in this material may not be relied upon as an indication of trading intent on behalf of any Commonfund fund, or of any Commonfund manager. Market and investment views of third parties presented in this material do not necessarily reflect the views of Commonfund and Commonfund disclaims any responsibility to present its views on the subjects covered in statements by third parties. Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Commonfund fund. Such statements are also not intended as recommendations by any Commonfund entity or employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information. Past performance is not indicative of future results. For more information please refer to Important Disclosures.