smoothing payout in volatile financial times 1 march 14, 2013
TRANSCRIPT
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Smoothing Payout in Volatile Financial Times
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March 14, 2013
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Our Mission
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The California Endowment's mission is to expand access to affordable, quality health care for underserved individuals and communities, and to promote fundamental improvements in the health status of all Californians.
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Spending Considerations
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• Multi-generational long-term mission• Perpetual endowment: 5% spend
However…• Willing to spend >5% when needs dictate
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History of Spending Policies
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2000 – No Clear Policy – Principled Approach
2007 – Fixed
2011 – Weighted Average
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TIME
SPENDING
A2 D A B C
• Curved Line represents 5% of Corpus• Straight Line represents actual spending plan• Below the Line generate carryovers• Above the Line use carryovers
A – Recession ending
B – Expansion phase slows
C – Growth slows below
D - Beginning of recession
2007 – A Fixed Approach to Spending
Source: TCE Presentation to Board San Francisco 11/20/06
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2011 – Spending Policy Review
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• Hired Angeles Advisors • Benchmarked vs Other Foundations• Three Most Common:• Moving Average• Fixed/Banded Inflation• Hybrid/Yale
• Monte Carlo Simulation 10 Years
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9Source: Angeles Advisors March 2011
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Why Historical Average?
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• Most Common
• Easy to Explain/Defend/Understand
• Most Downside Protection
• Adequate Smoothing of Payout
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Spending Policy – Related Considerations
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• Overspend Still Allowed for Special Opportunities
• Perpetuity and Spending Policies Revisited Periodically
• Best Case/Worst Case Scenario Planning
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Appendix
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“Perpetuity – With a Caveat”
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“Spending Level for a given fiscal year is determined at 5.0%* of the 3-year moving average value of TCE’s non-charitable use assets.”*However, the board affirmed a commitment to overspend this level, even aggressively, should a momentous opportunity to advance our mission arise.
Source: From TCE Spending Policy April 2012