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The Journal of Portfolio Management

The Journal of Portfolio Management

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Article

The Sustainability of Endowment Spending Levels:
A Wake-up Call for University Endowments

Gregory P. Ho, Haim A. Mozes and Pavel Greenfield
The Journal of Portfolio Management Fall 2010, 37 (1) 133-146; DOI: https://doi.org/10.3905/jpm.2010.37.1.133
Gregory P. Ho
is the president and COO of Spring Mountain Capital, LP, in New York, NY. gh@smcinvest.com
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  • For correspondence: gh@smcinvest.com
Haim A. Mozes
is a senior quantitative consultant for Spring Mountain Capital, LP, and an associate professor of accounting at Fordham University Graduate School of Business in New York, NY. hm@smcinvest.com
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  • For correspondence: hm@smcinvest.com
Pavel Greenfield
is an assistant professor of mathematics at Drexel University in Philadelphia, PA. pg@freeboundaries.com
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  • For correspondence: pg@freeboundaries.com
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Abstract

Ho, Mozes, and Greenfield provide an analysis of the interplay between endowment spending policy and the volatility of investments. A key feature of their analysis is a formula that gives an upper bound for volatility, given the endowment’s spending policy, expected rate of return on investment, and risk parameters. Their analysis shows that the investment performance necessary to support spending rates of 4% to 5%, and to maintain reasonable risk guidelines, is considerably greater than the performance that individual markets and common blends of those markets have generated over the past 20 years. Thus, the authors conclude that, in the absence of a unique ability to significantly outperform the financial markets over long periods of time, endowments with high spending rates must either reduce those rates or accept a higher probability of suffering a significant loss.

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The Journal of Portfolio Management: 37 (1)
The Journal of Portfolio Management
Vol. 37, Issue 1
Fall 2010
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The Sustainability of Endowment Spending Levels:
A Wake-up Call for University Endowments
Gregory P. Ho, Haim A. Mozes, Pavel Greenfield
The Journal of Portfolio Management Oct 2010, 37 (1) 133-146; DOI: 10.3905/jpm.2010.37.1.133

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The Sustainability of Endowment Spending Levels:
A Wake-up Call for University Endowments
Gregory P. Ho, Haim A. Mozes, Pavel Greenfield
The Journal of Portfolio Management Oct 2010, 37 (1) 133-146; DOI: 10.3905/jpm.2010.37.1.133
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  • Article
    • Abstract
    • EFFECT OF VOLATILITY ON SPENDING
    • POTENTIAL ERRORS IN THE SEARCH FOR SUPERIOR PERFORMANCE
    • SUMMARY AND RECOMMENDATIONS
    • APPENDIX
    • ENDNOTES
    • REFERENCES
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