On Topic
How Endowments &
Foundations Have Been Affected
by the Financial Dip
By Gabriel Potter, MBA , AIFA® | Westminster Consulting
Long Term Goals vs. Short Term
Market Pressure
A charity’s balance sheet inflows are subject
to two basic factors: external contributions
(i.e. donations) and market actions, either
through capital appreciation, or dividends
& income. As an investment and fiduciary
consultant, we often spend more of our
time focusing on the inputs, rather than the
spending side – the outflows. However,
the 2008 financial crisis and associated
market downturn put sufficient pressure
on charitable organizations’ health such
that their spending policies were similarly
affected.
In broad terms, there is nothing wrong
with lowering your spending when your
income goes down. Everyone has to make
compensations during times of stress.
However, since the need for charity often
gets stronger during market downturns, it is
in everyone’s interest, at a bare minimum,
to set expectations for charitable spending
during market downturns.
26 SPRING 2015
18 | SUMMER 2013
Market downturns are inevitable. As
the pessimistic adage goes, the only sure
things in life are death and taxes. To
expand upon this cheery thought, let us
add market downturns to this list. In the
financial industry, most advisors have been
well trained to avoid making promises or
guarantees for the future. We will make an
exception here: we guarantee that markets
will, at least occasionally, be terrible. Given
this certainty, it behooves an investment
committee to have a plan of action.
Spending: the 5% Problem
We often consider tactical reallocations,
donor outreach, investment changes as part
of managing market stress. For this article,
let us focus instead on the spending behavior
of a charitable