“Earning high returns isn’t just a matter of bragging rights — endowment income supports the missions of nonprofit institutions, whether education, as with college and universities, or broader social programs, as at many private foundations. By law, tax-exempt foundations must spend at least 5 percent of their endowment every year on charitable purposes. In Ford’s case, that amounts to over $600 million.
If endowment returns do not exceed the 5 percent annual spending rate, they will gradually wither, and can eventually disappear, which is why many investment committees view protecting endowments as a near-sacred duty. That’s the main reason the student-led movement for fossil-fuel divestment has gotten such a cold shoulder at many large endowments.”
If you want a school or foundation to last forever, its endowment must earn more than payout and inflation.
Post by Marcelino Pantoja